This year, with so many organizations conducting virtual conferences and trade shows, the question arises as to whether these events might be considered unrelated business activities.
Denali Christian College (DCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii). They are required to file Form 990 annually.
DCC held a “virtual conference” in August 2020. Historically, they’ve held this conference – “Alaska:August:Acts” – in person, on-site each summer for the past 15 years.
In a recent video meeting, DCC’s Chief Financial Officer called to ask, “Could our conference, because it was held virtually this year, be somehow construed as an unrelated business activity by the IRS because it was not in-person as in all other years?”
“Great question,” we replied. “I’ll start by saying that my belief is that the ‘modern’ virtual conferences should be deemed to be the ‘same’ as in-person/face-to-face conferences (especially for the COVID-19 plagued year of 2020).
“Generally, a 501(c)(3) would utilize the first four items (and others) in the list below to make the case for their usual annual conference being exempt from UBIT. In addition, all of the restrictions imposed in 2020 would seem to constitute ‘intervening factors’ that should 1) provide overall, additional relief – not yet specified by the IRS; and/or 2) enhance the case that the event is not regularly carried on – if the IRS wants to define a ‘virtual conference’ as something different from an ‘in-person’ conference, the 2020 virtual event might be the only one the organization ever holds.
“On the surface, the exemptions from UBIT for an in-person conference or trade show would be:
- Related to the organization’s exempt purpose
- Not regularly carried on (once, perhaps twice per year for less than two weeks)
- Qualified sponsorship exclusions
- Volunteer labor
- Trade show exclusion
“If an organization has historically relied only upon the ‘trade show exclusion’ in I.R.C. Section 513(d)(1) as their basis for not including income from their annual event in UBI, this question gets a little more tricky.
“A question that we’ve wrestled with for some time is whether a 501(c)(3) can utilize the ‘trade show exclusion’ of I.R.C. Section 513(d)(1). That section specifically applies to Organizations described in § 513(d)(3)(C). That would be, ‘an organization described in section 501(c)(3), (4), (5), or (6) which regularly conducts as one of its substantial exempt purposes a show which stimulates interest in, and demand for, the products of a particular industry or segment of such industry or which educates persons in attendance regarding new developments or products and services related to the exempt activities of the organization.’ [underline added]
“Section 513(d)(3)(A) defines the term “convention and trade show activity” as any activity of a kind traditionally conducted at conventions, annual meetings, or trade shows. A convention and trade show activity includes, but is not limited to, any activity one of the purposes of which is to attract persons in an industry generally (without regard to membership in the sponsoring organization) as well as members of the public to the show for the purpose of (1) displaying industry products, (2) stimulating interest in, and demand for, industry products or services, or (3) educating persons engaged in the industry in the development of new products and services or new rules and regulations affecting the industry.
“However, we’ve got an interesting twist with Rev. Rul. 2004-112. This ruling discusses (in the fairly early days of “virtual” meetings) ‘Unrelated trade or business—exception for qualified convention and trade show activity—website activity by trade associations.’
“Rev. Rul. 2004-112 gives two examples (both citing a 501(c)(6) “trade association”) and sets forth two criteria that must be met for a the normal ‘trade show exclusion’ (Section 513(d)(1)) to apply to virtual trade shows. In Situation 2 (where organization B conducts a two-week ‘virtual trade show’ completely on its internet site) the IRS deems the event not to meet the ‘trade show exclusion’ because ‘B’s Internet activities are not carried out in conjunction with any international, national, regional, State, or local convention, annual meeting, or show conducted by B. B’s website is not itself a ‘convention, annual meeting, or trade show’ within the meaning of § 513(d)(3) because the website is not a specific event at which B’s members, suppliers and potential customers gather in person at one physical location during a certain period of time and interact face to face.’ So our question is whether or not a ‘video meeting’ would be deemed to equal ‘face-to-face.’ I’d suggest the answer should be – especially in 2020 – yes.”
From I.R.C. Section 513(d)(3)(C):
Qualifying organization. For purposes of this paragraph , the term “qualifying organization” means an organization described in section 501(c)(3) , (4) , (5) , or (6) which regularly conducts as one of its substantial exempt purposes a show which stimulates interest in, and demand for, the products of a particular industry or segment of such industry or which educates persons in attendance regarding new developments or products and services related to the exempt activities of the organization
- As we clearly know, 2020 is a different year with government mandates limiting institution’s ability to host in-person conferences as many have done in the past.
- Revenues from in-person conferences are generally excluded from unrelated business income via several statutory exclusions from UBI.
- An institution hosting a “virtual conference” may still have to deal with UBI from advertising versus qualified sponsorship payments (QSPs).
- It is hoped that the IRS will provide some clear guidance – that transcends Rev. Rul. 2004-112 – in the “virtual conference and trade show” arena – especially for 2020!
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.
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