IRS Moves to Tax College Football Bowls on Payments

The Internal Revenue Service on Tuesday restated its intention to tax college football bowls and other tax-exempt organizations on corporate sponsorship payments received in exchange for advertising.

No tax will be imposed, the IRS said, if an otherwise tax-exempt organization merely acknowledges a sponsor’s payment.

“But where the exempt organization offers a business service in exchange, such as advertising, the payments are taxable unrelated business income,” the IRS said in a proposed regulation.

The rule is the third attempt in 14 months to clarify tax treatment of sponsorship payments. It grew out of a ruling that held the Mobil Cotton Bowl and the John Hancock Bowl liable for taxes on contributions by their corporate sponsors--an estimated $2 million a year from Mobil Oil Corp. and $1 million a year by John Hancock Mutual Life Insurance Co.

The IRS reasoned that the companies were not making disinterested gifts to the bowls but, rather, were simply paying for advertising--a business venture not related to the bowls’ tax-exempt purpose.

The new regulation attempts to define activities that are considered advertising and, thus, would give rise to a tax.

“Examples . . . are where a contract stipulates that the size of the sponsorship payment is dependent upon the size of the event’s audience, or where references to the corporation’s sponsorship include a promotion to buy the corporation’s product,” the IRS said.