Contents

§ 23.3 CORPORATE SPONSORSHIP RULESinformation return requires a tax-exempt organization to identify each incomeproducingactivity; a separate line is provided for special fundraising events. 25As discussed, it has been the view of the IRS for years that charitable organizationsthat conduct special events have the obligation to notify the participantsin these events of the amount (if any) expended for their participation in theevent that is deductible as a charitable gift. 26 Also, as discussed, legislation thattook effect in 1993 requires charitable organizations to make a good faith estimateof the value of benefits, services, and/or privileges provided to a donor asthe consequence of a gift and to notify the donor that only an amount in excessof that value is deductible. 27§ 23.3 CORPORATE SPONSORSHIP RULESThe federal tax law includes rules pursuant to which, under certain circumstances,a payment from a corporate sponsor to a tax-exempt (usually charitable)organization is treated in essence as a contribution, rather than being consideredunrelated business income.(a) BackgroundThe IRS caused a substantial stir in 1991 by determining that a payment receivedby a college bowl association from a for-profit corporation sponsoring a bowlfootball game was taxable as unrelated business income, because the paymentwas for a package of “valuable” services rather than a gift. This IRS pronouncementwas a technical advice memorandum passing on the federal tax consequencesof corporate sponsorships, arrangements under which the sponsoringbusiness has the corporate name included in the name of the event. 28 (One of themost visible of these situations was the Mobil Oil Corporation’s sponsorship ofthe Cotton Bowl, once known as the Mobil Cotton Bowl.) The associationsinvolved contended that the payments were gifts, but the IRS held that the companiesreceived a substantial quid pro quo for the payments. This determinationraised the question, once again, of whether a payment is a “gift” when the“donor” is provided something of value in return.Charitable organizations throughout the United States became concernedabout this IRS initiative—and properly so, as it had implications far beyond collegeand university bowl games. The IRS bowl game technical advice memorandumraised the deeper question of when the extent of donor recognition rendersa payment not a gift or only partially a gift.The IRS promptly recognized this problem. Thus, it soon thereafter promulgatedproposed guidelines for its auditing agents to use when conducting examinationsof tax-exempt organizations. 29 The issuance of these guidelines wasfollowed by hearings conducted by the IRS in mid-1992; in that connection, the25 For more details on the federal reporting requirements for charitable organizations in the fundraising setting,see Fundraising § 5.9.26 See § 22.1.27 See § 23.1.28 Tech. Adv. Mem. 9147007.29 Ann. 92-15, 1992-6 I.R.B. 51. These guidelines are summarized in § 23.3(b) of the first edition of this book. 623