Is underwriting considered tax-deductible?
It can be, and this is why some stations have set up 501 (c)(3) “friends of” groups to accommodate such requests. This decision is made on a station by station basis, with legal counsel strongly advised. Corporate sponsors wishing to make their underwriting dollars tax-deductible should also be advised to consult counsel. Here’s a little more as to why this can be more complicated than not:
Although underwriting revenue can be treated as a charitable contribution by the station, it may be treated either as a charitable contribution OR as a business expense by the underwriter, pursuant to Section 162 and 170 of the Internal Revenue Code.
Stations may safely inform underwriters that their payments may be treated as a charitable contribution or as an ordinary and necessary business expense, but it is best if stations do not to try to make that choice for the underwriter. First, it is always dangerous to give tax advice to a third party, particularly when you don’t have all the facts. Charitable donations and business deductions are each subject to certain limitations, but the limitations are different. The underwriter’s CPA or CFO will be in a better position than the station to decide which status is economically preferable for the underwriter. And economic considerations may not be the only relevant ones. Some companies like to look philanthropic by showcasing their charitable contributions; others like to minimize gifts to charities in order to look like hard-nosed business men. The underwriter is in a far better position to make that call than the station.