Sponsorship package

A sponsorship package is the short document you hand a local business when you ask it to sponsor an event, a program or your year. It sets out what you're asking for, the levels a sponsor can choose from, and what each level gets. This template gives you a cover letter, a tier table, a benefits menu and a one-page agreement. Our guide to working with businesses explains the different kinds of business support, and our fundraising events guide covers the event side.

The tax line: acknowledgment or advertising

Payments from a business are not taxed as unrelated business income (income from a business activity that isn't part of your charitable purpose) when they are qualified sponsorship payments. Section 513(i) of the Internal Revenue Code and Treasury Regulation 1.513-4 set the rules. In short, a qualified sponsorship payment is one where the sponsor expects no substantial return benefit other than the use or acknowledgment of its name, logo or product lines in connection with your activities.

Acknowledgment is fine. According to the regulation, you can show or mention:

• the sponsor's name and logo, and slogans that don't contain qualitative or comparative descriptions
• its location, phone number and internet address
• value-neutral descriptions of its product lines or services, and its brand or trade names
• the sponsor's product displayed or handed out at your event, which isn't treated as an inducement to buy
• the sponsor's name and web address, with a link, on your website
• the sponsor named as the "exclusive sponsor" of an event

Advertising is different. The law describes advertising as messages with qualitative or comparative language, price information or other indications of savings or value, endorsements, or inducements to buy, sell or use the sponsor's products or services. Under the regulation, a message that mixes acknowledgment and advertising counts as advertising.

Other things that can make it taxable:

• Exclusive provider deals. Agreeing that only the sponsor's products will be sold or used at your event (for example, "only Brand X drinks served") is generally a substantial return benefit. Calling them the "exclusive sponsor" generally isn't.
• Payments tied to attendance. A payment isn't a qualified sponsorship payment if the amount depends on attendance, ratings or other measures of public exposure. It can depend on the event actually happening.
• Your regular publications. Acknowledgments in your regularly scheduled printed or electronic publications, such as a quarterly magazine, are treated differently, unless the material is about a specific event and mainly handed out there. Acknowledgments in a program booklet handed out at your gala can qualify; sponsor recognition in your regular newsletter falls outside the sponsorship rules and is treated under the rules for periodicals.
• Perks. Tickets, a hosted table, use of your logo by the sponsor, or a member discount are benefits. Under the regulation, they are disregarded only if their total fair market value is not more than 2% of the payment. If they are worth more, the whole value of the benefits counts, and only the part of the payment above it is a qualified sponsorship payment.

When a sponsor gets something beyond acknowledgment, the payment isn't lost: you split it. The part above the fair market value of what they got can still be a qualified sponsorship payment. The rest is treated under the normal unrelated business income rules. Value perks in good faith, write down how you did it, and talk to an accountant before you offer anything beyond name, logo and thanks.

Tickets for sponsors

If your sponsorship tiers include event tickets, a sponsor who pays more than $75 and gets tickets has made a quid pro quo contribution. The IRS requires a written statement that only the amount above the value of the tickets may be deductible as a gift, with a good-faith estimate of their value. A charity that fails to do this can be fined $10 per contribution, up to $5,000 per fundraising event or mailing.

How to adapt it

• Pick two to four tiers. Fewer is easier to sell. Set amounts from your event budget and what local businesses have given before, not from another charity's package.
• Name tiers after your cause, not metals, if that suits you: "Seedling, Sapling, Oak" for a garden charity.
• List only benefits you can deliver. Every benefit you list is a promise.
• Fill in a fair market value for each perk. Use what the same thing would cost to buy, such as the ticket price.
• Have the agreement reviewed. The sponsorship agreement is a contract. Have a lawyer review it, and an accountant review how you value perks, before you use it. State rules on contracts and on business promotions tied to charities vary.
• Check the sponsor against your policy. Agree with your board which businesses you will and won't accept. Our gift acceptance policy template lists the gifts you will review before accepting.