Reporting Advertising Revenue on Form 990T

Article | April 08, 2024 | Atchley & Associates LLP

Form 990T, also known as the Exempt Organization Business Income Tax Return, is a form used by tax-exempt organizations to report and pay tax on unrelated business income. Advertising revenue is one such type of unrelated business income that should be reported on this form.

Here are a few important points to keep in mind:

1. Unrelated Business Income: Advertising revenue is considered unrelated business income if it results from activities that are not directly related to the organization's exempt purpose. To further explain, taxable advertising revenue is considered to be an ad in a non-profit's magazine where the sponsor promotes their products, facilities or services AND gives price information, or calls the reader to act, call a number or purchase or use the product. If sponsors paid to simply have name recognition or logo in the magazine, then the revenue is not taxable. The distinction between the two is the reader's ability to act on the advertising information.

2. Taxable Income: Unrelated business income, including advertising revenue, is subject to tax. The organization must pay tax on this income at the 21% corporate rate unless it qualifies for an exception.

3. Exceptions and Deductions: Some exceptions and deductions can reduce the amount of tax an organization owes on its unrelated business income. For example, expenses directly related to the production of the income (like printing costs for the magazine in the example above) can often be deducted.

4. Reporting Requirements: Advertising revenue, like all unrelated business income, must be reported on Form 990T. Organizations are required to complete and file this form if they have gross unrelated business income of $1,000 or more.

5. Potential Impact on Tax-Exempt Status: If a significant portion of an organization's total revenue comes from unrelated business activities, it could risk losing its tax-exempt status. For example, a 501(c)(7) social club could risk its tax-exempt status if it receives more than 15% of its gross receipts from the sale of goods or services to non-members or 35% of its gross receipts from any source other than the fees, dues, etc. of members.

In conclusion, it's crucial for tax-exempt organizations to properly report and pay tax on their advertising revenue and other types of unrelated business income. Contact us to ensure you're meeting the required reporting obligations.

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