Abstract

In 1993, the Treasury Department (the Treasury) issued a proposed regulation outlining when money received by a charity from a corporate sponsor would be subject to federal income tax. In defining the phrase "trade or business," the proposed regulation addresses the extent to which sponsorship payments to charities will be treated by the Treasury as having been made in return for advertising on behalf of the sponsor, thus subjecting the payment to income tax. In the proposed regulation, the Treasury concludes that a charity's use of a corporate sponsor's name in the title of a charitable event is a mere acknowledgment and, thus, no advertising trade or business exists. However, if the charity—as a condition of accepting the sponsor's money—displays the sponsor's slogan at the event, an advertising trade or business exists to the extent that the slogan promotes the sponsor's product or service.

This article will outline the historical development of this so-called unrelated business income tax on charities. The author will show, in detail, how the Treasury's position in the proposed regulation represents a sharp departure from its pre-1993 interpretations regarding the status of sponsorship payments and posit possible reasons for the change. Part IV of the article shows that the Treasury's “new” position on sponsorship payments, while an example of poor policy-making in light of the historical development of the unrelated business income tax, is legally defensible. Finally, part V suggests that the Treasury, in light of the policy concerns, should not finalize the proposed regulation. Instead, the Treasury should revert to its original position that sponsorship payments are unrelated business income if the payments amount to a “quid pro quo.”

Document Type

Article

Publication Date

Fall 1996

3-17-2015

Notes/Citation Information

The Kansas Journal of Law & Public Policy, Vol. 6, No. 1 (Fall 1996), pp. 49-75

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