Just because a payment looks like a “qualified sponsorship payment” (i.e. your institution stays within the bounds of these rules – logos, neutral descriptions, no qualitative language) does not mean that a portion might not be deemed unrelated business income due to “substantial return benefits”.


Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

Each December, MBC hosts an eight-team Men’s Basketball tournament. Because of the school’s location in the Florida Keys, the tournament draws a lot of attention.

For the tournament this year, an auto manufacturer agrees to underwrite the expenses of the tournament. MBC recognizes the auto manufacturer by including the manufacturer’s name and established logo in the title of the tournament as well as on signs, scoreboards, and other printed material. The auto manufacturer receives complimentary admission passes to all phases of the tournament.  These passes have a fair market value in excess of 2% of the total payment. Additionally, MBC displays the latest models of the manufacturer’s premier luxury cars at the tournament.


From Treasury Regulation 1.513-4(c)(2)(iv):

Use or acknowledgment. For purposes of this section, a substantial return benefit does not include the use or acknowledgment of the name or logo (or product lines) of the payor’s trade or business in connection with the activities of the exempt organization. Use or acknowledgment does not include advertising as described in paragraph (c)(2)(v) of this section, but may include the following: exclusive sponsorship arrangements; logos and slogans that do not contain qualitative or comparative descriptions of the payor’s products, services, facilities or company; a list of the payor’s locations, telephone numbers, or Internet address; value-neutral descriptions, including displays or visual depictions, of the payor’s product line or services; and the payor’s brand or trade names and product or service listings. Logos or slogans that are an established part of a payor’s identity are not considered to contain qualitative or comparative descriptions. Mere display or distribution, whether for free or remuneration, of a payor’s product by the payor or the exempt organization to the general public at the sponsored activity is not considered an inducement to purchase, sell or use the payor’s product for purposes of this section and, thus, will not affect the determination of whether a payment is a qualified sponsorship payment.

From Treasury Regulation 1.513-4(c)(2)(ii):

[With regard to qualified sponsorship payments] benefits are disregarded if the aggregate fair market value of all the benefits provided to the payor or persons designated by the payor in connection with the payment during the organization’s taxable year is not more than 2% of the amount of the payment. If the aggregate fair market value of the benefits exceeds 2% of the amount of the payment, then (except as provided in paragraph (c)(2)(iv) of this section) the entire fair market value of such benefits, not merely the excess amount, is a substantial return benefit. Fair market value is determined as provided in paragraph (d)(1) of this section.

From Treasury Regulation 1.513-4(d)(1)(ii):

Fair market value. The fair market value of any substantial return benefit provided as part of a sponsorship arrangement is the price at which the benefit would be provided between a willing recipient and a willing provider of the benefit, neither being under any compulsion to enter into the arrangement and both having reasonable knowledge of relevant facts, and without regard to any other aspect of the sponsorship arrangement.

From Treasury Regulation 1.513-4(f), Example 3:

MBC’s use of the manufacturer’s name and logo and display of cars in the tournament area constitute acknowledgment of the sponsorship. However, the admission passes are a substantial return benefit. Only that portion of the payment, if any, that MBC can demonstrate exceeds the fair market value of the admission passes is a qualified sponsorship payment.

Bottom Line

The concept of “substantial return benefits” in the corporate sponsorship rules are technical.  This is evidenced by the length of the “Rules” section above.  It would be best to run corporate sponsorship agreements by your skilled, knowledgeable, and experienced tax advisor.  He or she will be able to help your school navigate the intricacies of the reporting requirements.

Specific questions? Email Dave Moja.

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.