Through years of representing tax-exempt organizations that leverage and operate noncommercial, over-the-air broadcasting as an integral part of the organizations’ charitable, religious, or educational activities, I have had the opportunity to dive into the Federal Communications Commission (“FCC”) regulations to help ensure the noncommercial stations remain within the regulatory guardrails relative to acknowledgements, advertisements, and other underwriting legal matters.
Over-the-air acknowledgements also trigger potential federal income tax issues, such as unrelated business taxable income, when an acknowledgement is, under the Treasury regulations, an advertisement, rather than a qualified sponsorship.
Noncommercial radio stations are wise to have a good faith understanding of these important regulatory issues. This Freeman Law Insights blog should assist in that effort.
For-Profit Advertisements are Prohibited, But Acknowledgements are Permitted
A noncommercial educational FM broadcast station may be licensed only to a nonprofit educational organization, and the station must be used for the advancement of an educational program. See 47 C.F.R. § 73.503(a).
Each [noncommercial educational] station shall furnish a nonprofit and noncommercial broadcast service. Noncommercial educational FM broadcast stations are subject to the provisions of [section] 73.1212 [of the FCC regulations] to the extent they are applicable to the broadcast of programs produced by, or at the expense of, or furnished by others. No promotional announcement on behalf of for profit entities shall be broadcast at any time in exchange for the receipt, in whole or in part, of consideration to the licensee, its principals, or employees. However, acknowledgements of contributions can be made. The scheduling of any announcements and acknowledgements may not interrupt regular programming, except as permitted under paragraph (e) of this section.
47 C.F.R. § 73.503(d) (setting forth the licensing requirements for noncommercial radio stations) (bold emphasis added; italics in original).
Thus, noncommercial educational stations may not broadcast advertisements for for-profit entities in exchange for any form of consideration or remuneration.
“Advertisement” is defined as a program material broadcast “in exchange for any remuneration” and intended to “promote any service, facility, or product” of for-profit entities. See 47 U.S.C. §399b(a). However, for-profit contributors of funds, such as underwriters or sponsors, to noncommercial stations may receive on-air acknowledgements. Such acknowledgements may be made for identification purposes only, and must not promote the contributors’ products, services, or business.
As a general rule, acknowledgement should be limited to the sponsor’s name but may include slogans which identify but do not promote value neutral descriptions of a product line or service, brand and trade names of products or services, location, phone and website.
Generally, acceptable acknowledgements of for-profit sponsors or underwriters may include:
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- logograms and slogans that identify but do not promote;
- location information;
- value-neutral descriptions of a product line or service; and
- brand names, trade names, and product service listings (generally a limit of 3 menu listings is recommended to avoid running afoul of the “menu listing” prohibitions).
Sponsorship Identification Rules – Identifying the True Identity of Persons from or for Whom Consideration is Received
Pursuant to FCC regulation section 73.1212 – which is applicable to all broadcast stations and which is referenced in section 73.503(d) applicable to noncommercial stations as discussed above – provides the sponsorship identification requirements. The common of those regulations applicable to noncommercial stations are summarized below:
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- When a broadcast station transmits any matter for which money, service, or other valuable consideration is either directly or indirectly paid or promised to, or charged or accepted by the broadcast station, the broadcast station, at the time of the broadcast, shall announce at the beginning of the broadcast: (1) that the program is sponsored and (2) by whom or on whose behalf such consideration was supplied.
- The name of the Sponsor. The broadcast station should identify the actual entity or a trade or brand name. If the consideration received by the broadcast station was paid by an agent, the broadcast station should include the name of the sponsor, not the agent.
- Leads/Tags. The identification should be preceded or followed by words, such as: “sponsored by,” “paid for by,” “furnished by,” or “brought to you by.”
- The broadcast station must exercise reasonable diligence to obtain from its employees, and from other persons with whom it deals directly in connection with any matter for broadcast, information to enable the broadcast station to make the sponsorship identification announcement.
- The required announcement “shall, in addition to stating the fact that the broadcast matter was sponsored, paid for or furnished, fully and fairly disclose the true identity of the person or persons, or corporation or other group or entity by whom or on whose behalf such payment is made or promised, or from whom or on whose behalf such services or other valuable consideration is received[.]”
- Where an agent or other person or entity contracts or makes arrangements with the broadcast station on behalf of another, and such fact is known or by the exercise of reasonable diligence, could be known to the broadcast station, the announcement shall disclose the identity of the person(s) or entity on whose behalf such agent is acting and not the name of the agent.
- When a broadcast station transmits any matter for which money, service, or other valuable consideration is either directly or indirectly paid or promised to, or charged or accepted by the broadcast station, the broadcast station, at the time of the broadcast, shall announce at the beginning of the broadcast: (1) that the program is sponsored and (2) by whom or on whose behalf such consideration was supplied.
See 47 C.F.R. § 73.1212.
Announcements of Third-Party For-Profit Entity Events
Religious, educational, charitable, or governmental events may be an integral part of a tax-exempt organization’s business plan to engage more people to advance the organization’s charitable, educational, or religious purposes. An event owner could be a for-profit business or nonprofit organization. If promoting the event involves exchange of consideration, then the announcement, sponsorship identification, and unrelated business income rules apply to the noncommercial station’s broadcast announcements about the event.
If the noncommercial station is engaged by a third-party to promote an event not organized or purchased by the nonprofit organization that owns the noncommercial station and consideration is exchanged for the promotion:
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- The event must contribute importantly to accomplish the noncommercial station’s tax-exempt purposes. If it does not, the underwriting or sponsorship dollars received in exchange for the over-the-air service may constitute unrelated business income.
- The noncommercial station should document the arrangement using an underwriting or sponsorship agreement.
- The sponsorship identification rules should be applied and followed. See above guidance.
- Factual information only, i.e., specific dates, locations and times of event are allowed once. If the event owner or host and sponsor of the announcement is a nonprofit organization, then the prohibitions applicable to for-profit advertising over-the-air do not apply.
- If the event owner or host or sponsor of the announcement is a for-profit entity, the announcement must not contain qualitative or quantitative content or promotional announcement. No on-air promotion of the for-profit services, facilities, or products.
- Rule-of-thumb length: up to 30 seconds airtime in length.
Bottom line, noncommercial stations should be very deliberate and careful about any broadcast that may involve the promotion of any for-profit entity’s services, facilities, products, or events. Much of that type of broadcasting is prohibited under the FCC regulations and may also result in federal income tax or tax-exemption-related issues.
Unrelated Business Income (UBI) Tax (UBIT) – Qualified Sponsorship Rules
UBIT Rule – Underwriting revenue received from a for-profit or nonprofit organization may be considered UBI and potentially taxable to an organization that is otherwise exempt from federal income tax under section 501(c)(3) of the Code if: (1) the announcement is not a qualified sponsorship and is advertising, or (2) the announcement does not contribute importantly to accomplish the tax-exempt organization’s mission and exempt purposes.
Qualified Sponsorship – A payment received for a “qualified sponsorship” is generally not UBI. A “qualified sponsorship” means any payment made by any person engaged in a trade or business with no expectation of substantial return benefit other than the acknowledgement of the name or logo (or product lines) of such person’s trade or business. Acknowledgement does not include advertising (messages containing qualitative or comparative language, price information, or indications of savings or value, an endorsement, or an inducement to purchase, sell, or use products or services). “In determining whether a payment is a qualified sponsorship payment, it is irrelevant whether the sponsored activity is related or unrelated to the recipient organization’s exempt purpose.” See 26 C.F.R. § 1.513-4(c)(1) (defining “qualified sponsorship payment”).
Substantial Return Benefit – “Substantial return benefit,” as used in section 513 of the Code and Treasury Regulations, means any benefit other than a use or acknowledgement described in Treas. Reg. 1.513-4(c)(2)(iv), which includes “advertising” and rights to use an intangible asset (e.g., trademark or logo) of the exempt organization.
Advertising – “Advertising,” for these purposes, means any message broadcast or otherwise transmitted, published, displayed or distributed, and which promotes or markets any trade or business, or any service, facility or product. Advertising includes messages containing qualitative or comparative language, price information or other indications of savings or value, an endorsement, or an inducement to purchase, sell, or use any company, service, facility or product. See 26 C.F.R. § 1.513-4(c)(2)(v). “A single message that contains both advertising and an acknowledgment is advertising.” Id.
Acknowledgement – Under the Treasury Regulations:
a substantial return benefit does not include the use or acknowledgment of the name or logo (or product lines) of the payor’s trade or business in connection with the activities of the exempt organization. Use or acknowledgment does not include advertising as described in paragraph (c)(2)(v) of this section [see above], but may include the following: exclusive sponsorship arrangements; logos and slogans that do not contain qualitative or comparative descriptions of the payor’s products, services, facilities or company; a list of the payor’s locations, telephone numbers, or Internet address; value-neutral descriptions, including displays or visual depictions, of the payor’s product-line or services; and the payor’s brand or trade names and product or service listings. Logos or slogans that are an established part of a payor’s identity are not considered to contain qualitative or comparative descriptions. Mere display or distribution, whether for free or remuneration, of a payor’s product by the payor or the exempt organization to the general public at the sponsored activity is not considered an inducement to purchase, sell or use the payor’s product for purposes of this section and, thus, will not affect the determination of whether a payment is a qualified sponsorship payment.
26 C.F.R. § 1.513-4(c)(2)(iv).
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Examples of Potentially (if not Probably) Inappropriate Content for Noncommercial Station Broadcasting FCC Acknowledgement and Advertisement Regulations Applied |
| Below is a link to an instructive FCC letter opinion that addressed a noncommercial station’s promotions that exceeded the permissible acknowledgement rules.
The FCC letter opinion is not binding on anyone other than the subject organization, but the information in the letter opinion is instructive on the law in this FCC arena. At the end of the letter opinion there are a number of examples of content that the subject organization broadcast which the FCC found to be in violation – either in impermissible comparative, qualitative and descriptive language, or for exceeding identification (i.e., constituted promotion of for-profit goods, services, or facilities) in violation of FCC regulations. Those examples are listed below. Federal Communications Commission Letter Opinion (March 23, 1999); Evansville-Vanderburgh School Corporation, Licensee, Noncommercial Education Station WPSR (FM) https://docs.fcc.gov/public/attachments/DOC-338633A1.pdf |
| Announcement Subject: Orthopedic Associates
Orthopedic Associates, professionals in sports medicine, are happy to join other community leaders in underwriting USI Basketball radio broadcasts. Orthopedic Associates operates an emergency sports clinic for diagnosis and treatment of sports injuries. Each doctor is board certified by the American Board of Orthopedic Surgery. There is also an on-site physical therapy unit available. Orthopedic Associates, your first team for quality care. . . . (The bolded/italicized segments appear to promote underwriter through references that contain impermissible comparative, qualitative and descriptive language.) |
| Announcement Subject: Lady Eagle Basketball Camp
The Lady Eagle Basketball Coach James Dougal will once again hold a series of basketball camps on the USI campus during the summer of ‘98. Six of the current Lady Eagles attended camps during their junior high and high school days. The [unintelligible] basketball camps include camps for grade school players as well as an overnight junior high camp. And new this year separate shooting and post-player camps, former and current USI players will be assisting the Lady Eagles basketball coaching staff in the 8th annual [unintelligible] basketball camps. For more info, contact the USI Basketball Office. (The bolded/italicized segments appear to exceed the identification-only purpose of underwriting announcements through impermissible descriptive references to the underwriter’s instructional camps.) |
| Announcement Subject: Schnucks
Schnucks, the friendliest store in town, has made it convenient for those people wanting to order a flower bouquet or just buy a single flower, for any occasion. The floral department is located inside many of the Schnucks’ stores, the floral department has predesigned bouquets available or can design to individual specifications. Along with the flowers there is a full line of party balloons to choose from. Food, flowers and more, Schnooks and it’s floral department. That’s Schnucks, a proud sponsor of USI Basketball. (The bolded/italicized segments appear to promote underwriter through references that contain impermissible comparative, qualitative and descriptive language.) |
| Announcement Subject: Mediamix Communications
Communication. Effective communication is imperative for any successful company. Effective communication is Mediamix. Whether your audience is your customer or your employees, Mediamix Communications will design a unique and meaningful plan for you. From corporate publications and videos to creative broadcast production, and effective advertising strategies, the energetic and experienced Mediamix staff maximizes their every resource and talent, and we deliver results. Mediamix Communications, because our business is yours. (The bolded/italicized segment appears to be replete with references that promote the underwriter through use of impermissible comparative, qualitative and descriptive language.) |
| Announcement Subject: Ohio Valley Cable and Wireless Systems
Ohio Valley Cable and Wireless Systems is proud to join the Screaming Eagles as a basketball and radio underwriter. Ohio Valley Cable offers movies, weather and sports. There’s TCM, Turner Classic Movies, the Weather Channel, and ESPN 2. The Sports Deuce includes its entire lineup of college basketball games. In addition, all local network affiliates are included, including WAOZ. The service from Ohio Valley Cable, there’s no equipment to purchase, and no contract needed. Serving all the Evansville metro area, Ohio Valley Cable and Wireless Systems . . . . (The bolded/italicized segment contains language that appears to provide impermissible price information and otherwise seeks to induce business patronage.) |
| Announcement Subject: Subway Sandwiches
Subway Sandwiches on West Lloyd is a proud sponsor of University of Southern Indiana Basketball on radio. Subway Sandwiches on West Lloyd is currently featuring its fresh value meals. One can choose from one of eight different sandwiches, complete with chips and a 21 oz. drink. The fresh value meals from subway sandwiches comes with a money-back guarantee for satisfaction. That’s a Subway Sandwiches fresh value meals and USI Basketball. (The bolded/italicized segment appears to promote underwriter through references that contain impermissible price information, and otherwise seek to induce business patronage.) |
| Announcement Subject: Raben Tires
Since 1952, Raben Tires has been serving the tri-state’s tire and automotive service needs. Some of Raben Tires’ most recognized brand-name tires are Goodyear, Michelin, and Dayton. Raben has a large selection of all-season tires for pasture performance, light trucks, and 4×4’s on many sizes and styles. Raben Tires offers free tire mounting, free lifetime tire rotations with purchase, and free estimates and brake inspections. Raben also offers a free shuttle service if you need a ride. Raben would like to thank the tri-state area for 45 good years. See your friends at any of the 10 convenient tri-state Raben Tires locations. (The bolded/italicized segment is replete with references that induce the listener to buy and appear to promote the underwriter through language that is impermissibly comparative, qualitative, and 6 descriptive; and that provide prohibited price information.) |
| Announcement Subject: Old National Bank
Financial services from people with old-fashioned know-how is a way of life for us at Old National. Because being your bank for life is more than just a good day’s work, it’s our life’s work. Here’s to life, from your bank for life, Old National. (The bolded/italicized segment appears to promote underwriter through references that contain impermissible comparative, qualitative and descriptive language.) |
| Announcement Subject: Evansville State Farm
With Evansville State Farm agent Jim Doman you’re not just a number, you’re an individual with your own insurance needs. Whether its car, home, health or life insurance, your good-neighbor State Farm agent can make sure that one has the insurance that’s right. State Farm Agent Jim Doman at . . . for all your insurance needs, or any questions you have about insurance. Jim Doman State Farm Insurance is proud to underwrite these USI Basketball games on radio. (The bolded/italicized segment appears to promote underwriter through references that impermissibly intend favorable comparison to competitors, or otherwise invite business patronage.) |
| Announcement Subject: Shyler’s Memphis Pit Barbecue
When you’re really hungry, remember Shyler’s Memphis Pit Barbecue, where there’s the salad, the potatoes, and the barbecue. Shyler’s got babyback ribs and St. Louis style too. Whether it’s to eat in, carry out, or catering for that small to large party. Shyler’s Memphis Pit Barbecue, you don’t know barbecue until you’ve had Shyler’s. (The bolded/italicized segments appear to promote underwriter through references that impermissibly intend favorable comparison to competitors, or otherwise invite business patronage.) |
| Announcement Subject: Clayton’s Fine Dry Cleaning
Clayton’s Fine Dry Cleaning is right on the way to wherever one is going with nine locations in Evansville, Newburgh, and Mt. Vernon. Clayton’s has canopy-covered drive-thrus and attendants to offer in-car service to make dropping off and picking up one’s cleaning convenient. And with Clayton’s Sanitone dry cleaning process, it’s easy to see why people trust Clayton. (The bolded/italicized segments appear to promote underwriter through references that contain impermissible comparative, qualitative and descriptive language, and that otherwise invite business patronage.) |
| Announcement Subject: Edco Evansville
Edco Evansville wishes good luck to Screaming Eagles during the 1997-98 campaign. Edco 7 Evansville operates two gas stations with convenience stores in Evansville . . . . Each store offers Pennzoil gasoline while the convenience store offers items for the person on the go. Edco Evansville is also the number-one lottery ticket retailer for Hoosier and Powerball lottery tickets in Region Seven. That’s Edco of Evansville. (The bolded/italicized segment appears to promote underwriter through reference that impermissibly intends favorable comparison to competitors.) |
| Announcement Subject: Shyler’s Memphis Pit Barbecue
When you’re in the mood for barbecue, you can take Shyler’s home with you. For a meal fit for the family, one can call and carry-out for that extra large meal, there’s also catering too. Parties, lunches, reunions and more, the catering van brings it to your door. For Shyler’s and catering too, one can call. . . . Shyler’s Memphis Pit Barbecue, you don’t know barbecue until you’ve had Shyler’s. (The bolded/italicized segments appear to promote underwriter through references that contain impermissible comparative, qualitative and descriptive language, and that otherwise invite business patronage.) |
| Announcement Subject: Old National Bank
Dear Mom and Dad, school is good, send money. Dear Son, your writing skills are improving. We’ll send cash on one condition, get collegiate checking from Old National. Unlimited check writing, no monthly service charge, no minimum balance, plus a MAC/ATM card, 24 hour banking, no transaction fees, no matter where you use it, even that dreadful Daytona Beach, and with your own Visa or Mastercard you won’t have to grovel for money. Get collegiate checking from Old National, and get a haircut. Love, Dad. Old National, you bank for life, an equal opportunity lender. (The bolded/italicized segment appears to promote underwriter through references that contain impermissible comparative, qualitative and descriptive language; that provide prohibited price information; and that otherwise invite business patronage.) |
| Announcement Subject: Prudential
(first voice) Look at those little hands, he’ll be a surgeon, a brain surgeon, we’ll send him to the best schools, well, that’s like $160,000. OK maybe not a brain surgeon, a regular surgeon, that gets it down to $140,000. Hey, maybe a tree surgeon, what am I saying. How did dad do it? (second voice) Son, I called Prudential. (first voice) I think I’ll call Prudential. . . . (The announcement appears to exceed identification-only purpose of permissible underwriting acknowledgements through references that imply sponsor provides exemplary service.) |
| Announcement Subject: Clayton’s Fine Dry Cleaning
Clayton’s Fine Dry Cleaning is proud to sponsor USI basketball. Clayton’s offers free pick-up or delivery at one’s home or office, the Indiana Department of Environmental Management has named Clayton’s a five-star designee as a certified master dry cleaner. With locations in Evansville, Newburgh, Booneville, and Mt. Vernon, Clayton’s offers sewing and repair as well as drive-thru car service. That’s Clayton’s Fine Dry Cleaning and USI Basketball. (The bolded/italicized segment appears to promote underwriter through references that contain comparative, qualitative and descriptive language, in addition to prohibited price information and an inducement to use dry cleaners.) |
| Announcement Subject: Raben Tires
Raben Tires has been serving the tri-state’s tire and automotive service needs since 1952. Raben Tires carries Goodyear, Michelin, and Dayton and offers complete car care. Raven’s certified auto services guaranteed nation-wide and many of Raben’s technicians are ASE certified, which means automotive service excellence. Raben’s technicians work with state-of-the-art diagnostic equipment and attend training schools to stay abreast the latest auto service innovations. Raben Tires would like to thank the tri-state for 45 good years. See your friends at any of the ten convenient tri-state Raben Tires locations. (The bolded/italicized segments appear to promote underwriter through references that contain impermissible comparative, qualitative and descriptive language. In addition, use of the term “guaranteed” appears to constitute inducement to patronize underwriter’s business.) |
| Announcement Subject: Old National Bank
It’s the people who make a difference in your community. And in your community bank. I’m Mike Hanton, president of Old National Bank, providing you with the latest in financial services, from people with old-fashioned know-how is a way of life for us at Old National. Because being your bank for life is more than just a good days work, it’s our life’s work. Here’s to life, from your bank for life, Old National. (The bolded/italicized segment appears to promote underwriter through references that contain impermissible comparative, qualitative and descriptive language.) |
| Announcement Subject: Prudential
There are lots of ways you can make money with a quarter. You can put it in a bank, and over the next 30 years, with compounded interest, your quarter could earn $1.78. You might invest it in the stock market, or you can invest a quarter and change your whole financial future. For a mere quarter you could be on the road to financial security. With money for the kid’s education 9 and a weekend home in the country. Where can you get such a return on 25 cents? By using it to call your Prudential representative. Someone who can start you on the way to a secure future. From life insurance to annuities, Prudential’s financial products can provide you with tax deferred growth. Representing Prudential in Posen and Vanderburgh counties is John Willis. He can help one find solutions in tune with one’s insurance and financial security needs. One can call John at. . . . (The bolded/italicized segment appears replete with references promoting the underwriter through impermissible comparison to business competitors, and that otherwise invite business patronage.) |
| Announcement Subject: Shaffer Tours
March and April are busy months from Motorcoach Tours at Shaffer Tours on Evansville, as basketball, baseball, and hockey take center stage. It’s hockey on March 7th as the St. Louis Blues play host to the Dallas Stars. Then on March 8th its time for the NBA with the Indiana Pacers and Coach Larry Bird matching up against his old team, the Boston Celtics in Indianapolis. For those looking for an early taste of baseball, the week of March 7th its off to spring training in Orlando complete with seven games and sightseeing. That’s Shaffer Motorcoach tours at. . . . (The bolded/italicized segment appears to promote underwriter through references that impermissibly call listeners to action.) |
