UBIT Update: IRS Calls Off Further Litigation on Affinity Cards and Mailing List Rentals
The Exempt Organizations Tax Report recently reported an IRS memorandum dated December 16, 1999, which instructed area managers in IRS' Exempt Organizations Division to stop litigating affinity card and mailing list cases unless the factual record clearly establishes that more than insubstantial services are being provided by the exempt organization.

The memorandum was signed by Jay Rotz, an IRS National Office official, who has since left IRS to serve as in-house counsel at George Washington University in Washington, DC. According to the EOTR report, the memorandum stated: "...further litigation in cases with facts similar to those decided in favor of the taxpayer should not be pursued. Accordingly, the suspense on these cases is being lifted as of the date of this memorandum and districts should close the cases."

This is not a green light on all affinity card and mailing list cases. It does mean, however, that cases matching the facts in the string of cases lost by IRS, including Sierra Club, Common Cause, Planned Parenthood, Oregon State University, and University of Oregon, can more confidently be relied upon in determining the UBIT liability from affinity card and mailing list rental income. Please note that these cases indicate that more that if the exempt organization provides more than insubstantial services in connection with its affinity card programs or mailing list rentals, income from such services will be subject to UBIT.

We look forward to more formal guidance from IRS regarding the specifics of its new position on affinity credit cards and mailing lists, particularly the permissible allocation of payments when services are provided in addition to the licensing of intangible property rights.

See: EOTR Weekly (March 13, 2000), p. 58