When you’re wondering if a sponsorship payment is sales revenue or a gift, this should provide some helpful information.
Sponsorship payments should be treated as gifts as long as:
- Sponsor receives acknowledgement including name and logo. See list 1 below.
- Sponsor does not receive substantial return benefits. See list 2 below.
- Sponsorship payment amount cannot be determined by level of attendance.
- All About Acknowledgements
- May display name, logo, product lines, slogans.
- May include internet address, locations, telephone numbers.
- May not use qualitative of comparative language (“Coke is better than Pepsi.”)
- May not include price information or indication of savings or value (“Coke is cheaper than Pepsi.”)
- May not include inducement to purchase or use. (“Drink Coke!)
- May not be published in a regularly scheduled magazine or publication, although inclusion in event brochures or materials are allowed.
- May distribute sponsor’s product to the general public at the sponsored event, either for free or for a price.
2. Benefactor Benefits
- Goods, facilities, or other privileges are a return benefit. This might include the value of a table at a career fair or the value of tickets to the event given to the sponsor for no additional charge.
- Intellectual property such as a trademark or patent is a return benefit.
- Advertising is considered a return benefit. (“Drink Coke!” is advertising.)
- Exclusive provider arrangements that limit the sale, distribution, availability, or use of competing products is a return benefit (e.g. only Coke products are available on campus and Pepsi products are never sold or available.) Official provider designation is fine (e.g. “Continental is the Official Airline of Rice Football”.)
- Aggregate fair market value of all benefits provided to the payor during the year cannot exceed 2% of the amount of the payment.
Further reading for the brave or detail-oriented : IRC Section 513(i), Treas. Reg. 1.513-4(c ) (2)(ii)
IRS recap of the IRC section and Treasury regulation:
https://www.irs.gov/charities-non-profits/advertising-or-qualified-sponsorship-payments?_ga=1.148419188.217793992.1480510129
Sponsorship payments should not be confused with sponsored project payments (generally research grants and contracts). Sponsorship gifts should be deposited through Development into a G (gift) fund.
