Q: What kind of ads are we prohibited from selling in our nonprofit
publications, and why?
Answer: You advertising sales program is impacted
by three factors that might limit what ads you can sell: your
organization’s policies, your US Postal Service permit
status, and the total income you report to the IRS. All three
are covered in our new book due for publication in Spring 2007.
Here’s a quick summary.
Organizational prohibitions – most nonprofit organizations
reject ‘sin’ ads such as tobacco, alcohol and pornography,
and your organization may have other ethical or mission-driven conflicts
with certain advertisers. Ask your organization’s leadership
to draw up a list of products that would compliment your mission and
sell ads to those companies.
Postal restrictions – the post office charges higher prices
for advertising material than for editorial content. No matter what
kind of mailing permit you obtain, you will pay more postage if you
carry ads. But that extra postage is generally easy to recover from
ad income. In addition, if you mail by one specific permit category – nonprofit
standard mail – then you are prohibited from running any ads
for financial services, travel, or insurance. All of the postal regulations
are available in the Domestic Mail Manual on
their website. You can also get help with this question from your printer
or circulation consultant.
IRS restrictions – ALL advertising income is classified
ad ‘unrelated business income’ by the IRS, but it does
not directly prohibit any kinds of ads from nonprofit publications
or websites. You will pay taxes on your profits from advertising sales
(meaning any ad dollars that exceed your publishing costs). The IRS
provides explicit instructions for calculating advertising sales profits
at their website: General
Rules for UBIT and for more information on IRS rules about UBIT,
read IRS Publication 598, Tax on Unrelated Income of Exempt Organizations,
available online at www.irs.gov, or by calling the IRS at 800-829-3676.
You should share these documents with your accountant.
This topic is covered in our new book from Nolo publishined
in May 2007, Every Nonprofit's
Guide to Publishing.
You can email us if you have other questions we should answer.