Todays higher education ecosystem requires innovative ways to promote brands, increase enrollment and engage alumni. Take the following hypothetical situation, Random University is a well-established university with an engaged alumni group. The Random University Alumni Association was incorporated and formed as a nonprofit organization. The Alumni Association was granted tax-exempt status as a 501(c)(3) organization. The association promotes the interests and ideals of Random University, all in efforts to promote loyalty of students and alumni, and encourage support in the Universitys educational programs. The association developed an affinity credit card program with the High Bank. [the association used an extensive bidding and review process before choosing High Bank for the affinity card program].

In the extensive program agreement, High Bank gained access to the Associations mailing list to promote low-cost credit cards (with all logos/marketing materials related to Random University); the Alumni Association promoted the credit cards to alumni and current students. A variety of other incentives were included in the agreement. The Alumni Association earned over $500,000 in gross revenue from the affinity credit card program.

Question: The board of the Alumni Association has come to you to ask whether or not this income stream is unrelated business income. The board and management are interested in determining an answer, as they are aware this is a common practice in the industry. A member of the board heard from friends that selling mailing lists are not related to an exempt purpose, whereas another board member googled the topic and found numerous articles on implications of ad and royalty income.

Partial list of research hints:

IRC 501 (Used this)

IRC 511, 512, 513 (Used this), 514

Louisiana Credit Union League v. U.S., 51 AFTR 2d 83-451

Additional Primary Authorities:

502 and 503

243(Amount of deductions that can be taken for each type of income)

Rev. Rul. 72-431, 1972-2 CB 281 -- IRC Sec(s). 513 (Used this)

Rev. Rul. 81-178, 1981-2 (Discusses payments for use of intangibles like logos/trademarks and is considered royalty income)

Common Cause v. Commissioner, 112 T.C. 332 (1999)

Sierra Club, Inc. v. C.I.R., 86 F 3d 1526 (1996)

Disabled Am. Veterans v. United States, 650 F.2d 1178 (1981)

Fraternal Order of Police, Ill. State Troopers, Lodge No. 41 v. Commissioner, 87 T.C. 747, (1986), aff'd, 833 F.2d 717 (7th Cir. 1987) (I believe this proves it is not considered advertising expense depending on the fact of whether Alumni Association took an active role in the advertisement or not)