Jen Lindstrom - The Journal Record
Feb 7, 2026
As a tax professional working with nonprofits, I often encounter organizations excited to launch new fundraising ventures.
As a tax professional working with nonprofits, I often encounter organizations excited to launch new fundraising ventures. What’s a great way to bring in a large amount of money with a small amount of effort? Sponsorships. However, I’m also the one that will break the bad news that the surprise is a new tax filing, the 990-T, and a new tax bill. The blind spot organizations face is Unrelated Business Income Tax, or UBIT.
UBIT is a tax on income from a trade or business regularly carried on and not substantially related to the organization’s exempt purpose. Advertising is treated as an unrelated trade or business activity and often creates UBIT when regularly carried on. Many overlook that “regular” can be annually and that “perks” can advertising. The IRS pays close attention to sponsorship arrangements. The line between acknowledgment and taxable advertising can be thinner than organizations realize.
In my experience, sponsorships at annual galas can fall into this area. Organizations offer top-tier perks such as full-page color ads in the event program, the sponsor’s logo and link on the nonprofit’s website, and public recognition at the event. These benefits can attract large sponsors and large tax bills.
The IRS distinguishes clearly between “qualified sponsorship payments” and advertising. Qualified sponsorship payments occur when the business receives only a nominal, neutral acknowledgment, such as a name, static logo, or general “thank you to our sponsors.” These do not create UBIT. However, when a sponsorship package includes a full-page promoting the sponsor’s products or services, the ad portion of the income may become taxable.
Another area where nonprofits must tread carefully is website recognition. Listing a sponsor’s name, logo, or neutral link is generally safe. Adding a link with promotional language, ventures into the advertising territory and can create UBIT. Similarly, neutral public recognition at the event is generally safe, such as a card on the table listing all the sponsors. But be careful during the speech when thanking the sponsors. Excitement and gratitude can turn acknowledgment into advertising by naming names and directing the listeners to take action.
The good news is that these pitfalls are manageable. Limit recognition to names, logos, and neutral slogans, and avoid promotional language in materials and speeches, nonprofits can protect themselves from unexpected tax bills. Segregate payments for advertising and qualified sponsorships, document the fair market value of return benefits, and review materials for compliance before publication. These are best practices that every organization should adopt.
As nonprofit leaders work to avoid UBIT pitfalls, remember that sponsorships are just one piece of the complex puzzle. Another area the IRS is focusing on recently is executive compensation, especially with the expanded definition of covered employees subject to the 21% excise tax on compensation of over $1 million. Staying current on these rules is essential for organizations to maintain good standing.
Unrelated Business Income Tax can be an unexpected and unwanted guest at the party. Sponsorship income remains a powerful tool for fundraising and community engagement, but it’s important to be aware of the IRS rules. With careful planning and a clear understanding, Oklahoma nonprofits can maximize their impact without falling into the UBIT pitfalls.