Does a Non-Profit 501(c)(3) Realize Unrelated Business Taxable Income (UBTI) For Advertising?

June 21, 2017

Non-profit organizations which are exempt from income tax under §501(a) are subject to tax on unrelated business income. §§501(b), 511. Unrelated business income is gross income derived by any organization from any unrelated trade or business, regularly carried on by it, less the deductions allowed. §512. An “unrelated trade or business” is a trade or business which is not substantially related (aside from the need of such organization for income or funds) to the purpose of the organization. §513. However, “unrelated trade or business” does not include a trade or business where substantially all the work is performed for the organization without compensation. §513(a)(1). See Rev. Rul. 75-201, 1975-1 CB 164.

The sale of advertising in a publication published by an exempt organization is an unrelated trade or business when the advertising activity is regularly carried on. Reg. 1.512(a)-1(f)(1). See also Rev. Rul. 73-424, 1973-2 CB 190.

Courts have held advertising revenue not to constitute unrelated business income in some circumstances. For example, in National Collegiate Athletic Assn. V. Comm., (1990, CA10) 66 AFTR 2d 90-5602, 914 F.2d 1417, 90-2USTC 50513, revg (1989) 92 TC 456, advertising revenue received by the NCAA from the sale of programs of its annually sponsored championship tournament was not unrelated business income where the tournament lasted less than three weeks and occurred only once a year.

IRS Chief Counsel “strongly disagrees” with the Tenth circuit. The IRS argues the state court should have taken into account the time spent soliciting the advertisements and preparing the advertising for publication. IRS announced it will continue to litigate the issue in appropriate cases. Action on Decision 1991-015, 7/3/91.

IRS distinguished NCAA where a state university received income from advertising placed in its football souvenir programs. Here, a significant time span was involved over which the activities were conducted. The football season lasted three months and the work in setting up the programs and soliciting adverting took even longer. IRS letter ruling 9137002.

Assuming that the journal is published periodically throughout the year, an exempt organization should not rely on National Collegiate Athletic Assn. The periodic publishing and on going solicitation efforts will likely constitute a unrelated business regularly carried on. See §512.

The court also held advertising revenue does not constitute unrelated business income in US v. American College of Physicians, (1986 S.Ct). In American College of Physicians, the court found that the advertising business contributes importantly to the university’s education program through the training of students.

Also, advertising revenue does not constitute unrelated business income if the advertising contributes to the organization’s purpose. For example, publication of legal notices in a bar association journal contributes to the association’s exempt purposes by promoting the common interest of the legal profession through providing a single source of information regarding legal events in the county and therefore, wouldn’t result in unrelated business income. Rev. Rul. 82-139, 1982-2 CB 108. However, advertising revenue received by a bar association for ads place in its attorney directory are taxable income since the advertising is commercial in nature and represents an effort on the part of advertisers to maximize sales to a certain segment of the public. IRS Letter Ruling 9148054.

Similarly, magazine advertising revenues received by an exempt trucking association did not contribute to the association’s exempt purposes where the advertising represented marketing efforts by the advertisers to sell their product. In this case, no systematic effort was made by the organization to advertise products related to the editorial content and no effort was made by the organization to limit advertisements to new products. Florida Trucking Assn Inc. (1986) 87 TC 1039.

It is clear that, with a few exceptions, advertising revenues received by a 501(c)(3) exempt organization will often generate unrelated business taxable income (UBTI).

How You Can Tap Into the Billion Dollars Advertising Business of Google

June 21, 2017

Unlike the internet advertisements of old (largely banner ads, flashy boxes and annoying pop-ups), you earn money each and every time your site visitors click on a Google AdSense ad that is placed on or within your site. They do not have to purchase something in order for you to earn a commission. All they have to do is click!

You no longer have to worry about busy, distracting, (sometimes obnoxious) internet ads crowding up your site. Instead, Google AdSense ads are text ads, which are proven to have a much higher click-through rate than traditional banner ads. And in fact, there is much more to it. Google AdSense makes making money easy!

If you are considering creating a Google AdSense account, here are some tips for success:

Tip #1: Build a site with a professional look, tone and feel.

Your business depends on the effectiveness of your website, so make sure it’s the best it can be from look and feel to messaging and ease of use. It’s important to also note that Google does NOT accept sites that are created using free domains, so be sure to register a unique domain through a reputable service.

Tip #2: Your site should include valuable content.

Your site should include language that is not only relevant to your target market,you’re your message should be enticing and provide valuable information. You want to convince your customers how valuable you are, not just hope they see it for themselves. On another note, Google will quickly recognize if your site is not legitimate, so be sure that your business is up and running to prove you are not just loading ads into your site to make money.

Tip #3: Work on driving traffic to your site.

Proper SEO techniques and keywords are absolutely critical when trying to top search engines. If you aren’t familiar with this process, be sure to learn more. It will serve you well moving forward. No matter what, driving traffic to your site is absolutely crucial for success.

Tip #4: Set up your Google AdSense account.

As previously noted, Google makes the entire process of setting up an AdSense account extremely user-friendly. They will walk you through the registration process and get you started with customizing and placing ads on your site in no time. They even offer valuable help tools and resources as you continue to grow and become more familiar with their products and services.

Tip #5: Network! Network! Network!

Nothing is better than word of mouth, so reach out to friends, family, peers, and colleagues to spread the word about your site. The more people who visit, the more people who will click on ads… and the more money you will make!

So what are you waiting for? Get out there and grow your business. Build a quality site that looks and sounds great. Create a Google AdSense account and watch the money roll through the door… and the mailbox! You’ll be happy you did.