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May unrecognized organization sell ad space?

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May unrecognized organization sell ad space?

Is a nonprofit organization that is not recognized as a tax-exempt charity under Section 501(c)(3) out of line when it sells ads as a sponsorship for an event and gives the business people the belief their ad is tax deductible because the event is held by a nonprofit organization?

You could be in trouble under a state charitable solicitation registration law if you are giving the impression that the sponsorship is deductible as a charitable contribution when it isn’t. Many state laws make it illegal to misrepresent facts when you are seeking contributions. You are a good example of the fact that not all nonprofits are charities and not all contributions are charitable. (See Ready Reference Page: “What Do We Mean When We Say Nonprofit?”) If your gross revenues are normally more than $100,000 a year you may be required by Section 6113 of the Tax Code to notify donors that the contributions are not deductible as charitable contributions.
Most businesses are not particularly concerned, however, whether their sponsorship is deductible as a charitable contribution or deductible as a business expense. Charities and other nonprofits care more than businesses because it is usually better for nonprofits to receive contributions than other types of income and how the “ad” is worded may make a big difference in its classification. (See Ready Reference Page: “IRS Finalizes Regs Covering Sponsorships.”)
Friday, January 23, 2009

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