FAQ Simple Guide: Sponsorship vs. Advertising for Non-profits (DRAFT v0.11)

FAQ Simple Guide: Sponsorship vs. Advertising for Non-profits (DRAFT v0.11)

Thinking about getting corporate sponsors? This FAQ breaks down what counts as a sponsorship (tax-free money) and what counts as advertising (which is taxed)—all based on IRS rules. We’ll keep it simple so you know what’s okay, what’s not, and how to stay compliant.

(Based on IRS guidelines under IRC Section 513(i))

1. What is a Qualified Sponsorship Payment?

A qualified sponsorship payment is money, property, or services provided by a business to a non-profit without expecting a substantial return benefit.

Key Features of Qualified Sponsorship Payments:

The sponsor can be acknowledged (e.g., name, logo, or slogan) but not promoted.
No advertising, endorsements, or inducements to purchase the sponsor’s products or services.

2. What is Advertising?

Advertising includes messages that:

Use comparative or qualitative language (e.g., “best coffee in town”).
Include pricing or discounts (e.g., “20% off our products”).
Endorse or encourage people to buy, sell, or use the sponsor's products or services.

Advertising is considered unrelated business income and is taxable.

3. What's OK (Qualified Sponsorship Payments)

Example	Why It’s OK
✅ Displaying a sponsor's logo or slogan on event materials without promoting their products or services.	Acknowledgement only; no advertising.
✅ Listing the sponsor’s name, logo, and location (e.g., “Sponsored by ABC Co., 123 Main St”).	Value-neutral recognition without endorsement.
✅ Saying “Thank you to XYZ Corp for their generous support” on a banner or website.	Simple acknowledgement of sponsorship.
✅ Displaying a sponsor's product at an event (e.g., free water bottles with their logo).	Value-neutral and does not encourage sales.

4. What's NOT OK (Advertising)

Example	Why It’s NOT OK
❌ “Visit ABC Co. for the best deals in town!”	Contains qualitative language (“best deals”).
❌ “Shop at XYZ Store and get 10% off your purchase today!”	Includes pricing and promotional language.
❌ “Our event is proudly brought to you by ABC Co., the leader in home appliances.”	Promotional and endorses the sponsor’s business.
❌ Exclusive provider agreements where only the sponsor's product can be sold at the event.	Substantial return benefit for the sponsor.

5. What is a Substantial Return Benefit?

A substantial return benefit occurs when the sponsor receives more than just an acknowledgment, such as:

Advertising (as defined above).
Exclusive provider agreements (e.g., only the sponsor’s brand is sold at the event).
Use of non-profit trademarks or other intangible assets.
Goods, services, or privileges that exceed 2% of the sponsorship payment's value.

6. How Can Non-profits Ensure Payments Stay Qualified?

Avoid advertising: Stick to acknowledgements only (e.g., sponsor’s name, logo, slogan, or address).
Avoid exclusivity: Do not allow sponsors to limit competitors at events unless it’s an exclusive sponsorship (not exclusive provider).
Be transparent: Clearly outline sponsor benefits in contracts and ensure they align with IRS rules.

7. What Happens If Payments Include Advertising?

If part of the payment involves advertising, the advertising portion becomes taxable as unrelated business income. The non-profit must document the fair market value of the advertising to calculate the taxable amount.

8. Need Help? / Links:

If you’re unsure whether a sponsorship agreement meets IRS guidelines, consult a tax professional or refer to IRS Treasury Regulation 1.513-4 for detailed guidance.

https://www.irs.gov/charities-non-profits/advertising-or-qualified-sponsorship-payments

Selling Products

https://www.501c3.org/kb/selling-products-unrelated-business-income/

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