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This occurs when university makes sales of food, novelty items, t-shirts and other such items. If the university makes concession sales to students, faculty, and staff, the activity falls within the convenience exception and is not treated as UBTI. If the concessions are sold to anyone at a related event, such as a football game or a student play, the sales are treated as an integral part of the event and not subject to UBIT. If the concessions are sold to members of the general public or to anyone else in connection with an unrelated event, the concession activity will not be treated as related and will be subject to UBIT. (Top)
This arises in one of three instances: (1) university has conference center/facilities at which institution related meetings and conferences are conducted; (2) university rents such facilities to other entities, both non-profit and profit; (3) university enters into a contract with another entity to provide special training programs and classes for its employees.
There is no UBTI in the first situation. If under the other two UBTI is determined, it might be excluded under the rental income exclusion, depending on the degree and extent of the university-provided services. In TAM 9137002, a state university entered into contracts with an operating company to provide instruction in support of certain courses. The contract provided all material which became an integral part of the contract, as well as information prepared by the university, or as a result of work done for the course, should be the exclusive property of the operating company. The university and the operating company both provided computing resources, and the university provided two instructors, teaching assistants, and a secretary. The operating company provided instructional materials and classroom space. The teaching was part of the instructors' regular load and undergraduate credit if desired. The IRS held it was demonstrated the courses were educational and furthered the mission of the university. Therefore the income was not taxable. In TAM 7840072, a state college leased its facilities to various non-profit and commercial entities to conduct various conferences, seminars, and training programs and who used the college's dormitories, cafeterias, meeting halls, and other facilities. The college also conducted conferences and seminars open to the general public. The IRS held the college's direct conduct of conferences and seminars is substantially related to its exempt function. The leasing activities do not contribute importantly to the exempt purposes and are included in UBIT. Finally, in PLR 9824048, income from a conference center and lodging facility constructed and operated by an organization affiliated with a university, which was used primarily for executive education and continuing professional education types of training, was not subject to UBIT. (Top)
A corporation or a business makes a payment to the University in return for some mention or acknowledgement of the business's products or services. The issue is whether this is fundraising and acknowledgement, or the sale of advertisements. Under Reg 1.513 a qualified sponsorship payment is not UBTI. A qualified sponsorship payment occurs when a payment is made to an organization by a person engaged in a trade/business and there is no expectation the person will receive a "substantial return benefit" in exchange. It does not matter whether the sponsored activity is related or unrelated to the exempt purposes of the organization or whether the activity is temporary or permanent. The regulations apply to ongoing events like annual fundraisers.
A substantial return benefit is any benefit other than a use or acknowledgement of the payer's name or logo in connection with the organization's activities, or certain goods/services with an insubstantial value. A use or acknowledgement can include logos or slogans that do not contain qualitative or comparative descriptions of the payor's products, services, facilities or company. Such logos/slogans need to be an established part of the payor's identity. A good/service has an insubstantial value when the aggregate fair market value of all the benefits provided to the payor/persons designated by the payor in connection with the payment during the organization's taxable year is not more than 2% of the payment amount. The existence of a written sponsorship agreement does not prevent the qualified classification the agreement terms determine the classification. If payment is based on the degree of public exposure to a message the payment will be classified as nonqualified; however, a contingent event will not have the same effect.
On the Internet, an exempt organization can provide links on its website and notices of certain benefits provided to the organization's members by certain providers. If the organization does not charge a fee for the listings or the links, the IRS has held the links are not advertising they were acknowledgments and not subject to UBIT. In addition, banner advertising featured on the website is not advertising if it appears on the website generally, and not part of an online periodical. If a corporate sponsorship payment were for both periodical advertising and advertising that appeared on the website generally, then the payment would have to be allocated. (Top)
Dormitory space is rented to other organizations or individuals, usually in the summer. A question arises as to whether this rental activity is substantially related to the school's education purposes. A 1990 IRS ruling analyzed the following summer rental programs at a college:
a. Summer internship rental program Students from schools around the country stayed in dorms while taking part in summer internship programs at local corporations and law firms. The college also conducted career counseling sessions for the students and a biweekly seminar program focusing on law and business, and allowed the use of the library and other education facilities.
b. Organizational education Organizations (both profit and non-profit) rented space to conduct educational classes, seminars, and workshops. Some classes used the college's facilities. For profit-organization classes, the college required the following: classes be educational in nature and not directed at enhancing the sponsor's commercial objectives, the sponsor use the school's facilities, and the company submit a course description to allow the college to monitor the classes to ensure the educational nature.
The IRS held both programs did not generate UBTI for three reasons: the school established requirements and criteria to ensure activities were educational in nature, the school provided other educational benefits, such as career counseling, and it made it non-dormitory facilities available to the individuals.
Two other IRS rulings are also instructive. In the first, a state college could allow a non-profit professional theatre group to use its facilities each summer, as well as various non-profit and commercial entities which conduct conferences, seminars, and training programs. However, the lease of facilities and dormitories to a NFL football team as a pre-season training camp did not contribute importantly to its exempt purpose and was UBTI. In the second, a college held two summer sessions of hockey camp for boys ages 8 to 14, as well as a summer camp run by a professional football team and outside organizations' educational conferences. The hockey camps were considered in furtherance of exempt educational purposes, as were the educational conferences. The leasing of the facilities to the professional football team did not further the educational purposes, but was exempt under the rental exclusion. (Top)
These contracts are divided into two subcategories, and examples are in the Regulations:
- a. Exclusive sponsor arrangements a company sponsors an event and the organization agrees the company will be the exclusive sponsor; then in most cases states such in its event publicity. The IRS holds this arrangement, in and of itself, is not regarded as a substantial return benefit that generates UBTI.
b. Exclusive provider arrangements "an arrangement that limits the sale, distribution, availability, or use of competing products, services, or facilities in connection with an exempt organization's activity." Treasury Reg 1.513-4. Such an arrangement is held by the IRS to be a substantial return benefit and taxable as UBTI. (Top)