The internet is a powerful communication tool that enables charities to increase their visibility and broadcast their message, vision and mission. According to a Guidestar survey, more than 90% of charities have websites and are using them to connect with their internal and external stakeholders. Potential tax issues arise when a charity uses its website and the internet to fundraise, lobby, market or sell products.

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April 2014Web Presence and Internet Concerns for Nonprofit Organizations: Hyperlinks
The internet is a powerful communication tool that enables charities to increase their visibility and broadcast
their message, vision and mission. According to a Guidestar survey, more than 90% of charities have
websites and are using them to connect with their internal and external stakeholders. Potential tax issues arise
when a charity uses its website and the internet to fundraise, lobby, market or sell products. For example, a
hyperlink used to acknowledge a sponsor could create unrelated business income for the organization.
Using the internet to accomplish a task does not change the way the tax laws apply to that task. The IRS
believes that advertising is still advertising and fundraising is still fundraising. The IRS will apply the Internal
Revenue Code and judicial authority to an organization’s online activities as it would to those same activities
conducted in the more traditional manner. IRS Announcement 2008-84 provides insight into how the IRS will
apply the tax laws when evaluating an exempt organization’s web activities.
Something as simple and common as a hyperlink that is used to acknowledge a sponsor could lead to the
creation of unrelated business income for the charity. For example, a major corporate donor has generously
volunteered to underwrite a significant portion of the expenses associated with a charity’s annual fund-raising
event. As part of the sponsorship agreement, the charity will provide a hyperlink on its website to the corporate
donor’s web site. So far, the agreement meets the guidelines for a qualified sponsorship payment.
What actions on the part of the charity and the part of the corporate donor will recharacterize the payment from
qualified sponsorship to advertising revenue classified as unrelated business income?
Use of Hyperlinks
A hyperlink is simply a link posted on a website that launches another website or document. The use of the
hyperlink by itself does not create unrelated business income. Hyperlinks simply provide access to content on
a sponsor’s website. PLR 200303062 states that “providing a link to a sponsor’s website in connection with an
acknowledgement of a sponsorship payment will not be treated as advertising …and will not constitute an
unrelated trade or business.” As long as there is not an endorsement or other promotional materials, exempt
organizations can post sponsor hyperlinks on their websites without forfeiting qualified sponsorship status.
The IRS guidelines that define advertising and qualified sponsorships payments remain the same for content
provided in hard copy or seen on the internet. Hyperlinks provide an additional delivery system to
acknowledge donors.

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Advertising versus corporate sponsorships
Advertising revenue creates unrelated business income. The difference between advertising and sponsorship
acknowledgement is in the content of the message. If the message contains qualitative or comparative
language, prices, indications or savings or value, endorsements or inducements to purchase, sell or use
products or services, it is considered advertising.
A qualified sponsorship payment is a payment made in which the donor has no expectation of substantial
return benefit beyond the use and acknowledgement of its name, logo, locations, contact information, or value-
neutral descriptions of the sponsor’s good or services. The acknowledgement identifies the sponsor without
promoting its products, services or facilities. The value of any benefits provided to the sponsor such as goods
or services should not exceed 2% of the sponsorship payment.
Regulation § 1.513-4(f) provides guidance on the hyperlink issue with a number of examples. In one example,
a Section 501(c)(3) orchestra includes the names and internet addresses of its sponsors on the orchestra
website. The internet addresses appear as hyperlinks that connect the orchestra’s website with the sponsor’s
website. The example establishes that an exempt organization can post a sponsor’s hyperlink without
generating unrelated business income.
Another example in the same regulation demonstrates how a qualified sponsorship payment can become
advertising revenue. In that example, a health care charity receives funding from a pharmaceutical company.
The charity’s website has a hyperlink that connects to the corporate sponsor’s website. On the corporate
sponsor’s website, a message states that the charity endorses the use of the company’s product and suggests
that you ask your doctor for a prescription if you have this medical condition. The charity reviewed the
message and gave permission for the endorsement to appear. The regulation concludes that the hyperlink
and the endorsement are advertising. The qualified sponsorship exception is not available when an exempt
organization provides promotional material on its own website or that of the sponsor.
A word of caution
The address of your organization’s website is shown near the top of page one of Form 990. An IRS agent has
immediate access to your website simply by typing the address. As stated earlier, the old tax laws still apply to
the new medium of the internet. Without leaving the office, an IRS agent can “audit” your organization simply
by pulling up the organization’s website and clicking through the pages. Take a moment to look at the content
and links posted on your website in light of the potential for IRS review.

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If you have questions regarding the use of hyperlinks, or would like assistance in determining whether your
organization's qualified sponsorships might be regarded as advertising by the Internal Revenue Service,
please contact your local CBIZ MHM tax professional.
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