Booster volunteers are instrumental in extending your organizations’ reach. They help advertise the club and seek donors to support middle and high school student activities and events. But what is the difference between booster club sponsorship and booster club advertising for raising funds and awareness?
The language around sponsorships is clear. Sponsorships can result in ongoing relationships between a club and its backer in return for basic recognition—that’s it. Thus, boosters cannot formally advertise nonprofit qualified sponsorship in ways that offer substantial returns or benefits to their backers. In other words, the arrangement does not extend past sponsor acknowledgment[1].
Advertisements Vs. Qualified Sponsorship
It’s necessary to distinguish between qualified sponsorship and advertising. Your booster club must know these differences to avoid owing taxes or running into issues with the US Internal Revenue Service (IRS).
This article covers the legalities of booster club advertising and qualified sponsorship payments. It explains what is and what is not considered advertising so that you can proceed to do either with confidence.
Advertising, According to the Internal Revenue Service
Advertising is the promotion or endorsement of any salable product or service. Ad messages typically include prices, comparative language, and promote the value aspect of a product or service. For example, suppose your club sells advertising space in its newsletter or website. In that case, it becomes subject to unrelated business income tax (UBIT). Your group will need to account for this consideration in your taxes.
Legal Booster Club Advertising
Your club can formally sell advertisement space as long as you declare it, but there will be corporate taxes and extra paperwork. To report your unrelated business income on time, visit the IRS website to file a 990-T form. Failure to do this may result in harsh penalties.
| Beware of IRS Penalties Failure to surrender your organization’s form 990 on time may incur daily penalties of $20 but not exceeding $10,000 or 5% of your club’s gross receipts if they do not surpass $1,000,000[2]. |
When Sponsorship Promotion Is NOT Booster Club Advertising
A qualified sponsorship payment (QSP) differs from traditional advertising. Companies or individuals can offer payments but without any promise of return on their investment other than recognition. QSP also dictates what language and images can be used to recognize sponsors. Forms of acknowledgment may include the names of donors and company logos. Also allowed are low-cost product or service contributions of insubstantial value.
Understanding Quid Pro Quo Contributions
Your organization can thank donors with low-cost or insubstantial gifts. You can offer these only as a token of your appreciation to avoid being misconstrued as a kickback. You may provide a charitable gift of insignificant monetary value to a donor in exchange for their funds. That could be a coffee mug sporting your booster logo or branded apparel and other merchandise. What you cannot do is reciprocate a donor’s sponsorship with a gift of notable value or offer anything that could be considered a quid pro quo.
According to the IRS, low-cost items in 2022 have a fair market value of ≤ $117 or worth ≤ 2% of the donor’s payment, whichever is less. The IRS adjusts these limits each calendar year based on annual inflation, so be sure to check the current monetary value.
Example of Token Exceptions
You must disclose to the IRS any goods or services offered in exchange for donor contributions of $250 or more unless exempt (see next).
| Know Your Booster Club Donors Major donors tend to give less often, but they often offer more considerable donation sums than regular contributors. A club’s most valuable sponsor is usually the recurring donor who supplies you with a sustained, reliable source of income. How to Get Corporate Sponsorship for Your Booster Club |
Say your benefactor contributed $500 to the club. And you give them an $8 baseball cap bearing the club’s logo as a token of appreciation. The cap’s value is less than 2% of that payment. So, in this case, you can legally state that no gift was given in return for the $500 contribution.
There are other exemptions for membership benefits and intangible religious benefits exceptions.
See IRS charitable contributions for more.
Be Mindful of Social Media Promotions
Today, many athletic boosters and other clubs use social media (SM) posts as an effective part of their messaging strategy. SM proves particularly helpful for publicizing upcoming events and partnerships. However, be as mindful of UBIT and qualified sponsorships rules online as you are in the real world.
Mind Your Language on Social Media
The language you use matters, so you can only acknowledge a donor’s contribution on SM platforms. If any posts appear to endorse your sponsor’s products or services, you could find yourself in trouble. Moreover, your posts should also include disclosures so that followers understand that the content is part of a partnership.
Each SM platform has specific rules on structuring disclosures for certain types of posts. The point is to acknowledge and abide by these rules and the Federal Trade Commission guidelines at all times.
Booster Club IRS Requirements Best Practices
When Booster clubs get into trouble with the IRS, it’s usually due to ignorance rather than avoidance. However, the IRS has little leniency for those unfamiliar with its rules and regulations. So, how do you think your organization would fare if it were audited today? If you are unsure, these IRS best practices will help.
Booster Club Advertising Audit Tips
When a donor offers a qualified sponsorship, it may not adhere to IRS rules and be considered advertising. Therefore, always review contracts carefully to ensure they meet IRS requirements. Scrutiny doesn’t have to be more complicated than a box-checking exercise. Use the do’s and don’ts below as best practices to keep your sponsorship deals legitimate.
Qualified Sponsorship Payment Do’s
Your booster club may need to tailor sponsorships, so that donor contributions meet the IRS definition of qualified sponsorship payments.
Do
- Display sponsor location, address, and phone numbers
- Use logos and slogans that do not advertise or promote value of products/services
- Use value-neutral descriptions, displays, or visual depictions of products/services
- Display sponsor brand or trade names
- Use straightforward product or service listings
Qualified Sponsorship Payment Don’ts
You must declare anything considered traditional forms of advertising. If you want to stay away from your sponsorships being construed as conventional ads, avoid the following:
Don’t
- Use qualitative/comparative language, e.g., “The Best Ice Cream in Town!”
- Advertise prices, price comparisons, price discounts, etc.
- Commit an inducement to purchase, “Buy Now”
- Accept business endorsements, “The Official Pharmacy of…”
- Accept donations based on the amount of public exposure offered
Keep in Line with IRS Booster Guidelines
To be organized is to be in control. That’s the secret behind a well-run booster organization, and these five tips will help you ensure you stay within IRS guidelines:
- Elect a treasurer to oversee your organization’s financials
- Maintain financial guidelines by following nonprofit business best practices
- Consider hiring an auditor, especially if you become overwhelmed, many offer pro-bono services
- Keep clean and organized records of your financial statements on hand
Use One Bank Account
A single bank account for all your booster club funds keeps your accounting simple, but it also saves confusion and is one way to reduce the risk of embezzlement. This arrangement means your club deposits all its income into one consolidated account and pays all expenses from it.
Embezzled funds from nonprofit organizations happen more than people realize. AIM’s affordable insurance tailors coverage that protects booster club’s against such incidents to safeguard booster funds from theft, embezzlement, or loss.
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Non-Profit State and Booster Club Guidelines
Your booster club is a separate organization from your student’s school and school district. Despite that, all group activities and fundraising—including sponsorships and advertising—must follow the approved guidelines of your school district’s governing board. Vital to good governance of your group’s fundraising is a clear chain of command and regularly reviewed written policies.
Non-501(c)(3) State and Booster Guidelines
The same rules apply if your booster club has not filed for 501(c)(3) status and operates as a for-profit organization. In this case, you still need to demonstrate to your school district that you comply with all applicable laws on approved guidelines and fundraising. That typically includes reporting revenue and expenditures. And as a non-501(c)(3) club, you must remain in good standing with your state and federal laws.
Key Takeaways
Sponsorship acknowledgments and advertising can appear similar to a fledgling booster club. But only the latter is subject to unrelated business income tax.
The IRS considers advertising as any promotional material or message that emphasizes the value or advertises a trade or business, product, or service. And it deems nonprofit qualified sponsorship donations as payments to the group with no expectation of return other than recognition.
Directors and Officers Liability coverage protects your booster organization and its officers. It defends you from lawsuits brought about by someone who seeks to sue you for decisions, statements, or wrongful/inappropriate actions made by your officers.