Athletic Department UBI Activities Joe Irvine The Ohio State University Jodi Kessler Harvard University Athletic UBI Topics Broadcasting Rights Concession Contracts Concerts Facilities Rental Camps Recreation Facilities Coaches Shows Web Pages Parking 1
UBI Considerations Is the income considered related or unrelated? Does the income qualify for an exclusion or exception such as royalty or sponsorship? If the activity is conducted by a third party, is the third party your agent? Broadcast Rights Athletic activities at schools are substantially related to their educational functions Caution IRS may attempt to treat the purchaser of the broadcast rights as an agent and attribute the broadcaster s advertising revenue to the University. 2
Concession Contracts Concession sales to students, faculty and staff are not UBI under the convenience exception. Concessions sold during a related activity are considered related Concessions sold to the general public may be UBI. What if an independent contractor runs concessions? Concerts Professional theater companies and symphony orchestras No UBI the events contribute importantly to the overall educational and cultural function of the university. 3
Concerts (Cont.) Rock and similar concerts not substantially related? UBI depends upon facts and circumstances. The more similar it is to a commercial activity, the more likely it will be UBI. Concerts (Cont.) Ways to potentially avoid UBI Lease facility without providing significant services. Significant student involvement Only allow events the IRS has ruled do not create UBI. 4
Facilities Rentals UBI will depend on whether the university provided services along with the rental. The services resulting in UBI go beyond services normally provided by a lessor to maintain the property. Camps University Operated not UBI, considered to be in furtherance of exempt educational activity Third Party Operated UBI treatment will depend on whether the university provides services in relation to the camp or merely rents real property. 5
Recreational Facilities When recreational facilities, including golf courses, are made available to the general public that income is generally considered to be UBI. State Universities may be able to argue that the operation of the facility is lessening the burdens of government. Is alumni use related? Coaches Shows University produced shows if advertising is sold then revenue in excess of expenses will be considered UBI. Third party production royalty income on selling right to produce the show. Profits will be UBI if the third party is considered an agent of the university. 6
Web Pages Fixed fee for use of name and logo arguably treated as royalty income. Services provided by the University - may be considered related if the services are provided to promote the athletic department. University receives any portion of ad revenue likely all UBI. Parking Generally parking for university athletic events will be considered related. Parking for other events held at athletic facilities will depend on whether the event itself is related. If the event is unrelated look at whether the convenience exception will apply or any services are provided by the university. 7
Agency Issues If a third party provides any of the above the taxation of the revenue will depend on whether the third party is deemed an agent of the university. If so the income generated by the agent retains the same revenue character when passed through to the university. Agency Relationship Determination Determined by state law, generally look at several characteristics: Intention of the parties to have one act on behalf of the other, The agent has the power to bind the principal by his actions, and The principal has the right to control the actions of the agent. 8
Royalties Excluded from UBI unless: Income is received from debt-financed property Income is received from controlled organizations Thank you 9