On August 19, 2019, USAE News provided commentary on the pitfalls surrounding corporate sponsorships, based on an alert, "Raising Revenue and Trimming Tax: A Nonprofit's Guide to Corporate Sponsorships, " by Cindy Lewin, Brian Melnyk, and Judith Kim.
According to the alert, if a corporate sponsorship is not structured properly, it can result in taxable income to the nonprofit. A nonprofit may decide to pay tax in order to receive more income, but some nonprofits find themselves paying tax inadvertently.
"Contrary to what the term suggests, a tax-exempt nonprofit is not immune from all federal income tax, " the alert said. "A nonprofit may be subject to federal corporate income tax—called the unrelated business income tax (UBIT)—on income from activities that are not substantially related to its exempt purposes. The tax is imposed at the regular corporate rate of 21%, and state income taxes may also apply, depending on the state. This tax takes a significant bite out of a nonprofit's revenue from a taxable activity. "