Your church's annual fall festival is two months away, and you are looking for creative and appropriate ways to generate income from it. You get a call from a local car dealer who is familiar with your festival. The dealership offers to be the exclusive sponsor of the event by paying your church $20,000, so long as you recognize it as the exclusive sponsor by placing a large sign at the entrance with the following message: "Tri-City Motor Company; Exclusive Sponsor; tricitymotorcompany.com." The dealer also wants to display six new vehicles at the entrance of the festival as a part of the arrangement.
Can you accept the dealer's offer without jeopardizing the church's tax-exempt status? If you do, is the $20,000 payment taxable as unrelated business income to the church? You may be surprised by the answers to this and other questions about the often misunderstood world of unrelated business income.