# Sponsorships vs Advertising for Booster Clubs: The IRS Rules

> How a booster club keeps sponsor money tax-free: acknowledgment vs advertising under the qualified sponsorship rules, the 2% benefit test, and sample wording.

- URL: https://boosterclub.org/taxes/sponsorship-vs-advertising/
- Section: Taxes
- Updated: 2026-10-08

A business's payment to a booster club is a qualified sponsorship payment, and not taxable, when the business receives nothing of substance in return beyond acknowledgment of its name, logo, or product lines. Once the club advertises for the business, with prices, endorsements, comparisons, or calls to buy, all or part of the payment becomes advertising income that can be taxable as unrelated business income.

The sponsorship chair drafts sponsor packages and copy, the treasurer reviews them against these rules before anything is promised, and the board approves the package each year. The rules come from section 513(i) of the Internal Revenue Code (IRC), Treasury Regulation 1.513-4, and Internal Revenue Service (IRS) Publication 598.

## The Rule

A qualified sponsorship payment is any payment by a person engaged in a trade or business for which there is no arrangement or expectation that the business will receive any substantial return benefit. Use or acknowledgment of the sponsor's name, logo, or product lines in connection with the club's activities is not a substantial return benefit. Advertising is.

The test looks at what the club agrees to provide and what it actually provides, not at what the deal is called. A "sponsorship package" that includes advertising is partly an advertising sale.

## What Counts as Acknowledgment

Treasury Regulation 1.513-4 lists what acknowledgment may include:

- Exclusive sponsorship arrangements ("presented exclusively by").
- Logos and slogans that do not contain qualitative or comparative descriptions. Slogans that are an established part of the sponsor's identity are acceptable.
- A list of the sponsor's locations, telephone numbers, or internet address.
- Value-neutral descriptions, including displays or visual depictions, of the sponsor's product line or services.
- The sponsor's brand or trade names and product or service listings.

Displaying or distributing the sponsor's product at the sponsored event, free or for a price, is also acknowledgment, not an inducement to buy. The regulation's examples treat a sponsor list on an organization's website, with a hyperlink to each sponsor's site, as acknowledgment.

## What Counts as Advertising

Advertising is any message that promotes or markets a business, service, facility, or product. It includes messages containing:

- Qualitative or comparative language ("best," "top-rated," "more than").
- Price information or other indications of savings or value ("20% off," "free consultation").
- An endorsement ("the band's favorite pizza").
- An inducement to purchase, sell, or use the products or services ("stop by this weekend").

## Wording Side by Side

| Acknowledgment (qualified sponsorship) | Advertising |
|---|---|
| "Thanks to Main Street Pizza, 123 Main St., [phone], [website]" | "Main Street Pizza: best pizza in town. 20% off with this program." |
| "Halftime show sponsored by Lakeside Dental" | "Lakeside Dental, the area's top-rated dentist. New patients welcome." |
| "Riverside Auto, exclusive sponsor of the Marching Band" | "Visit Riverside Auto this weekend for 0% financing." |
| Sponsor logo on the scoreboard with its established slogan | Scoreboard message: "Proud to be the Tigers' favorite bank" |

The names above are illustrations, not real businesses.

## Other Benefits to Sponsors: The 2% Test

Sponsor packages often include tickets, a gala table, a reserved parking space, or a reception. These are benefits separate from acknowledgment. The regulation disregards them if their total fair market value for the year is not more than 2% of the payment. If they exceed 2%, the entire value of the benefits, not only the excess, is a substantial return benefit, and only the part of the payment above that value is a qualified sponsorship payment.

| Sponsor pays | Benefits provided | 2% of payment | Result |
|---|---|---|---|
| $5,000 | Two game passes worth $75 total | $100 | Benefits disregarded; all $5,000 is a qualified sponsorship payment |
| $2,500 | Four gala tickets worth $60 each ($240) | $50 | $240 is a substantial return benefit; $2,260 is a qualified sponsorship payment |

Publication 598 says the benefit portion is treated as a separate transaction, and it is generally not taxable if the benefit is not substantial or providing it is a related activity. The club must make a reasonable, good faith valuation of benefits; the regulation allows the IRS to make its own allocation when a club does not.

## Exclusivity

- **Exclusive sponsor.** Announcing that a business is the only sponsor of an event, or the only sponsor from its industry, is generally acknowledgment.
- **Exclusive provider.** An agreement that limits the sale, distribution, availability, or use of competing products at the club's activity is generally a substantial return benefit. A beverage company that pays the club so that only its drinks are sold at the concession stand is buying exclusivity, and the value of that right is not a qualified sponsorship payment.

## Contingent Payments

A payment whose amount depends on attendance, broadcast ratings, or other measures of public exposure is not a qualified sponsorship payment. A sponsor may condition payment on the event actually taking place.

## Periodicals Are Different

The qualified sponsorship rules do not apply to acknowledgments in periodicals. A periodical is regularly scheduled printed material, including electronic material, that is not related to and primarily distributed in connection with a specific event. A game-day program or concert program is tied to a specific event and is not a periodical. A monthly newsletter or a regularly published magazine is a periodical, and sponsor recognition in it is governed by the advertising rules for periodicals.

## When Part of a Package Is Advertising

If a payment buys both acknowledgment and advertising, only the fair market value of the advertising is advertising income; the rest remains a qualified sponsorship payment. Advertising income is taxable only when the ad sales are regularly carried on and no exception applies. When parent volunteers sell and produce the ads, the volunteer workforce exception often applies. See [Unrelated Business Income Tax for Booster Clubs](https://boosterclub.org/taxes/ubit/).

## Written Sponsorship Agreements

The regulation states that having a written agreement does not by itself disqualify a payment; the terms decide. A short written agreement protects both sides. It should state:

1. The sponsor's legal name and the amount and due date of the payment.
2. Exactly what recognition the club will provide, and where.
3. Any tickets or other benefits, with their fair market value.
4. That the club approves all copy and will not include prices, endorsements, comparisons, or calls to buy (unless the club deliberately sells an ad).
5. Whether any exclusivity is provided, and what kind.
6. That use of the school's name or logo requires district approval. See [School District Fundraising Policies](https://boosterclub.org/fundraising/district-policies/).

## Acknowledging Sponsors

Treasury Regulation 1.513-4 treats qualified sponsorship payments of money or property as contributions received by the club when computing its public support. Whether the sponsor deducts the payment as a charitable contribution or a business expense is the sponsor's question. For a payment of $250 or more, the club sends a written acknowledgment describing any benefits provided and their value. See [Donation Receipts and Acknowledgment Letters](https://boosterclub.org/taxes/donor-acknowledgments/).

## Common Mistakes

- **Writing the sponsor's ad copy for them.** Volunteers add "the best" or a coupon to be helpful, and the payment becomes advertising.
- **Selling pouring rights as a sponsorship.** Exclusive provider deals are a substantial return benefit, and the value is not a qualified sponsorship payment.
- **Ignoring the gala table.** Benefits above 2% of the payment are never valued, and the club's acknowledgment overstates the sponsor's gift.
- **Paying on attendance.** "$1 per fan" sponsorships are contingent payments and fail the test.
- **Treating the newsletter like a program.** Sponsor logos in a monthly newsletter fall under the periodical rules, not the sponsorship safe harbor.

## Checklist

- [ ] Draft the sponsor package listing recognition and any benefits with fair market values (sponsorship chair)
- [ ] Review package wording against the acknowledgment and advertising lists (treasurer)
- [ ] Approve the package and pricing at a board meeting (board)
- [ ] Use a short written agreement for each sponsor that states recognition, benefits, and copy approval (sponsorship chair)
- [ ] Check each benefit package against the 2% test and record the valuation (treasurer)
- [ ] Decline or separately price any exclusive provider or attendance-based terms (board)
- [ ] Approve all sponsor copy before printing or posting (sponsorship chair)
- [ ] Send a written acknowledgment for every sponsorship of $250 or more (treasurer)
- [ ] Record any portion that is advertising separately in the books (treasurer)

## Related Pages

- [Corporate Sponsorships for Booster Clubs](https://boosterclub.org/fundraising/sponsorships/) for building packages and pitching sponsors
- [The Booster Club Sponsor Pitch](https://boosterclub.org/marketing/sponsor-pitch/) for letter templates
- [Unrelated Business Income Tax for Booster Clubs](https://boosterclub.org/taxes/ubit/) for when advertising income is taxable
- [Donation Receipts and Acknowledgment Letters](https://boosterclub.org/taxes/donor-acknowledgments/) for what to send sponsors
- [School District Fundraising Policies and MOUs](https://boosterclub.org/fundraising/district-policies/) for use of the school's name and logo

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*This page is general information for volunteer-run booster clubs. It is not legal,
tax, or accounting advice, and BoosterClub.org is not a law firm, accounting firm, or
government agency. Rules change and vary by state and district. Confirm current
requirements with the IRS, the relevant state agency, the school district, and a
qualified professional before acting. If a fact on this page is out of date, we want
to know.*

## Sources

1. IRS: https://www.irs.gov/pub/irs-irbs/irb02-21.pdf
2. IRS: https://www.irs.gov/publications/p598
3. IRS: https://www.irs.gov/pub/irs-pdf/p1771.pdf
4. IRS: https://www.irs.gov/instructions/i990ez