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Monday, July 5, 2010

Nonprofit Association Sponsorship Income: IRS Scrutiny Likely to Increase

According to Marcus Owens, former director of the IRS’s Exempt Organizations Division (the Division that oversees nonprofit organizations), there is evidence the IRS may be considering and/or preparing to step up its review of nonprofit corporation sponsorship revenues.  Mr. Owens points to the IRS’s increased use of questionnaires, which provide the IRS with more information than is provided by ordinary Form 990 tax returns. 

The IRS itself has disclosed that it is focusing on generation of UBI (unrelated business income), use and management of endowment funds, and executive compensation.  This increased focus includes generation of detailed information concerning sponsorship revenues. 

In light of these circumstances, nonprofits should review their UBI and sponsorship programs and revenues, and take steps to ensure they are managing and reporting those revenues correctly.   Even if those revenues have been incorrectly reported in the past, making corrections now will put the nonprofit in a much better position with the IRS than if the IRS discovers the error on its own and the nonprofit has made no efforts to address the matter.  Upon the completion of the review, associations would do well to draft and implement appropriate changes in policies and procedures for the future if deficiencies are discovered.

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