What is the first thing a MOAA chapter would have to do in order to accept advertising or sponsors for its newsletter?
Your chapter will need to incorporate as a qualifying nonprofit organization, as determined by the Internal Revenue Service (IRS). Most chapters incorporate as a 501(c)(19), which signifies they are a nonprofit veterans’ organization.
To incorporate as a 501(c)(19), at least 75 percent of the your chapter’s members must be past or present members of the armed forces (veterans) of the United States. “Substantially all” (90 percent) of the other members must be cadets or the spouses, widows, or widowers of veterans or cadets.
What else should I do?
Take time to read IRS Notice 1336: New Rules for Tax-Exempt Organizations followed immediately by IRS Publication 3386: Tax Guide for Veterans’ Organizations that spells out what you can and can’t do as a tax-exempt veterans’ organization. You also should read and IRS Publication 598: Tax on Unrelated Business Income of Exempt Organizations. If you have additional questions, call the IRS at (877) 829-5500.
Some chapters refer to those who place “ads” in their publications as sponsors, and other chapters call their sponsors advertisers. What is the difference between an advertiser and sponsor?
According to IRS Publication 598: Tax on Unrelated Business Income of Exempt Organizations, a qualified sponsorship payment is any payment made by a person engaged in a trade or business for which the person will receive no substantial benefit other than the use or acknowledgement of the business name, logo, or product lines in connection with the organization’s activities.
For example, you can print a sponsor’s business card, but you can’t list prices or allow a sponsor to claim their product is better than another. At that point, your sponsor becomes an advertiser.
Unlike a sponsor, an advertiser’s message includes: qualitative or comparative language, price information, or other indications of savings or value; endorsements; and inducements to purchase, sell, or use the products and services.
Can newsletter sponsors deduct the costs they pay to publish information in our chapter’s newsletter?
Sponsors only will be able to deduct their expenses as a donation under Internal Revenue Code (IRC) 170(c)3 if the chapter is a qualifying nonprofit veterans organization, such as a 501(c)19, and meets the IRS’ membership requirement that states that at least 90 percent of the members are war veterans. (“War veterans” are defined as persons who have served in the U.S. Armed Forces during a period of war.) Substantially all other members must be cadets, spouses, or widows or widowers of war veterans or cadets.
Can I accept political ads?
We strongly suggest you don’t run political ads, since MOAA is a nonpartisan organization. If you do accept political advertising, be aware there are tax implications.
How do I determine what to charge a sponsor or advertiser?
Your rates should be geared to try to cover the costs of publishing your newsletter. For example, a 258-member chapter in Alabama charges $150 per year to run a sponsor’s business card in the chapter’s newsletter, which is published six times a year. Meanwhile, a 618-member chapter in Texas charges $240 to run a sponsor’s business card in their newsletter six times per year.
In general, your advertising rates should reflect your circulation (number of members your newsletter goes to) and your publication costs. Larger chapters with a higher circulation will incur higher publication costs. Therefore, they should charge their sponsors and advertisers more.
Will this affect my chapter’s tax filing status?
Payments received from qualified sponsors are exempt from taxation. Payments from qualified sponsors are any payment made by a person engaged in a trade or business for which the person will receive no substantial benefit other than the use or acknowledgement of the business name, logo, or product lines in connection with the organization’s activities. Example: You print a sponsor’s business card, but don’t list prices or allow a sponsor to claim their product is better than another.
However, income generated from the sale of advertising is considered unrelated to the exempt purposes of veterans’ organizations under the tax code. Income from this source is taxable, and your chapter will need to file Form 990-T, Exempt Organization Business Income Tax Return. (Exclusions do apply. See paragraph below.) The threshold at which your chapter must file a 990-T is $1,000 of gross unrelated business income, such as advertising, per year.
Although advertising revenue generally is taxable, exclusions do apply if your chapter is a 501(c) 19 nonprofit veterans’ organization. One of those exclusions is volunteer labor, in which substantially all (85 percent) of the work is performed by volunteers without compensation. (Read page 29 of IRS Publication 3386: Tax Guide for Veterans’ Organizations.)
A chapter must determine if 85 percent of the activities associated with putting their newsletter together are performed by volunteers. This includes the generation of articles, layout of the newsletter, printing, and distribution of the newsletter. In addition, the solicitation of advertising must be done by members of the chapter who are volunteers, and the chapter is a 501(c)19; the purpose of generating this revenue is to cover the costs of the newsletter, which only goes to members and potential members; the purpose of the newsletter is to disseminate information relevant to the membership; and advertising revenue that is generated must not be used by the members of the chapter as a form of compensation or for any other reason. However, excess revenue must be used to further the purposes of the exempt organization.
Chapters that do not accept advertising or have qualified sponsors still are required to file Form 990-N (e-Postcard). 990-N forms are filed by small tax-exempt organizations with gross receipts of $25,000 or less.
Will accepting advertising or sponsors affect the mailing rate on my newsletter?
It could, depending on the type of ad you run in your newsletter. The U.S. Postal Service has special standards that apply to Nonprofit Standard Mail. You will lose your Nonprofit Standard Mail rate if your publication accepts ads or promotional materials for credit, debit, or charge cards; insurance policies; or travel arrangements/travel companies.
For example, a chapter in Florida lost its Nonprofit Standard Mail rate because its newsletter runs ads from USAA, which sells insurance. The chapter now mails out its newsletter using the Presorted Standard U.S. Postage rate, which costs less than first-class mail but more than Nonprofit Standard Mail.
Bottom line: When in doubt, check with your postmaster to see if any of the ads or sponsors you have in your newsletter will affect your chapter’s Nonprofit Standard Mail rate. You also can read get more information by reading the Frequently Asked Questions section of the U.S. Postal Service’s Quick Service Guide 703.