In a Technical Advice Memorandum earlier this year, the IRS declared an athletic trade association liable for unrelated business income tax (UBIT) in connection with the association’s discount certificate program. This declaration came after the regional trade association administered a system of discount certificates, and sports facilities (let’s say, proprietary golf courses) agreed to discount fees deeply to holders of the certificates.
Players could buy the certificates from sports facilities or from the trade association itself. As a result, the trade association derived substantial income from the certificate program, in fact noting at a meeting that the program provided a source of funding for many of the association’s programs.
The IRS found that the discount certificate program really amounted to advertising for the sports facilities rather than encouragement of the sport.
This ruling follows in a line of rulings that treat coupons and give-aways as advertising subject to UBIT. In an earlier ruling, the IRS had held that a civic association incurred UBIT in connection with a program of encouraging downtown shopping through a system of stamps to validate parking.
The ruling advised the association, however, that it would not lose its tax-exempt status for conducting the program, which enables the association to continue with the program, if it wishes, by paying the UBIT.