#Nonprofits #SocialMedia and #Taxes: Is Your Organization Protected?

By Sandra Feinsmith

Social media can offer cost-effective platforms through which nonprofit organizations can better communicate with stakeholders and raise awareness of their causes and fundraising efforts.  Following major online giving success stories such as #GivingTuesday, more nonprofits are actively participating on social media channels to get in front of potential donors: U.S. nonprofits saw 37 percent growth in followers on Facebook in 2013, and 46 percent annual growth in Twitter followers, according to the 2014 eNonprofits Benchmark Study by M+R.

While nonprofit organizations are increasing their use of social media, the IRS has so far provided very little guidance to organizations regarding both the use of social media and its potential tax implications. The official IRS stance is to treat online communications—including email, blogs, Facebook, Twitter and the like—the same as printed media.

The sole, distinguishing snippet of IRS guidance regarding social media is contained in IRC Regulations 1.513-4(f), which describes what qualifies as a Qualified Sponsorship Payment versus Advertising in online activities. To illustrate this, let’s consider a scenario in which a symphony orchestra maintains a website containing pertinent information about the organization and its performance schedule. A business (“Music Shop”) makes a payment to the orchestra to fund a concert series, and in return, the organization adds the business to the list of sponsors it features on its website.  It does not promote Music Shop or advertise its merchandise, but the orchestra’s website does provide a hyperlink to Music Shop’s website. The orchestra’s posting of Music Shop’s name and internet address on its website constitutes acknowledgement of the sponsorship. The entire payment is a qualified sponsorship payment, which is not considered income from an unrelated trade or business.

Now, consider how the following scenario differs:

A nonprofit organization tweets that one of its corporate sponsors is running a special on computers and receives a commission based on the number of tweeters who access the sponsor’s site. As such, under current IRS rules and regulations, the tweet may impact the overall Corporate Sponsorship agreement, the commission would constitute unrelated business income and the tweet would be considered Advertising.

We fully anticipate that, in the near future, the IRS will release more thorough guidance measures for tax-exempt organizations surrounding their social media use. And though this guidance does not yet exist, nonprofits cannot overlook the potential tax liabilities associated with social and digital media use.  IRS agents have been trained to look at and request screenshots of an organization’s website and other forms of online communications. Essentially, online platforms provide open access to your organization’s information, offering an audit trail for the IRS and states regarding:

  • Political and lobbying activities;
  • Consistency of your organization’s online and social media activities with its exempt purpose;
  • Potential sources of unrelated business income—such as advertising—versus Qualified Sponsorship Income; and
  • Charitable solicitation (which is also of interest to state charity regulators).

A lot of damage can be done in 140 characters. In order to make sure your organization is protected, you must take care to accurately report all online activity. To help organize and implement this process, your organization should develop and enforce social medial policies for the organization as a whole, as well as its individual employees and volunteers. As with normal offline activities, consult your tax advisor and legal counsel to make sure the organization’s online and social media activities are structured correctly. This will go a long way in minimizing exposure to regulatory scrutiny, and it will help protect your organization’s reputation.

This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” blog (July 21 2014). Copyright 2014 BDO USA, LLP. All rights reserved.

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