HAPPY NEW YEAR!
At Issue
As we begin a new year, we’ve had several questions about Christian colleges participating in or operating “travel tours” or “Bible cruises”. There can be some interesting tax effects regarding these activities.
Situation
Saltwater Christian College (SCC) is a nonprofit organization under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii). For several years, the President and some faculty from SCC have participated in a “Footsteps of the Apostles” Mediterranean cruise. The cruise is operated by a national for-profit travel company.
The SCC Accounting team has just received the contract for the next “tour”. They are concerned about potential unrelated business income tax issues. They ask us if the payments to SCC for use of their name and providing a mailing list might result in UBIT.
Rules
Technical Advice Memorandum (TAM) 90-27-003:
TAM 90-27-003 is particularly helpful in that it discusses selected aspects of an organization’s travel tour program in great detail. Specifically, it provides an analysis of three different travel tours of the organization, only one of which was deemed to be related to exempt, educational purposes.
From IRS “CPE Text” 1996:
“Royalties
IRC 512(b)(2) excludes from the computation of unrelated business taxable income all royalties (including overriding royalties) whether measured by production or by gross or taxable income from the property and all deductions directly connected with such income.
A travel company could pay an exempt organization for the use of its name in connection with a travel tour, and the payments to the organization would generally be characterized as exempt royalties. However, the use of an exempt organization’s mailing list in addition to the use of its name may cause complications.”
(Note: Be careful not to provide services with respect to furnishing a mailing list.)
Bottom Line
For several years, “travel tours” have been an area of interest for colleges – and the IRS. We have only covered one facet – “royalty payments” – in this example. You should ensure that any agreements you enter into with tour providers contain wording that would characterize payments to your college as “royalties”. We will cover more aspects of “travel tours” in future posts.
It makes sense to touch base with a qualified tax advisor on this issue. He or she will be able to help you navigate these potentially treacherous waters.
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.