A Gray Area: Virtual Exhibits and Unrelated Business Income Tax (UBIT)  

The Society for Human Resource Management’s (SHRM) 2019 Annual Conference & Exposition at the Las Vegas Convention Center attracted more than 18,000 participants. Like many events in 2020, this year’s conference was canceled due to the pandemic. How will U.S. tax rules impact virtual exhibits and sponsorships? The short answer: It’s unclear given the 16-year-old IRS guidance that suggests that income received from virtual-only trade shows may be taxable. What is clear: It’s an issue that nonprofit leaders and show organizers will need to address if their association’s digital events generate revenue from virtual exhibits — and potentially registration and sponsorships — without an in-person component. As COVID-19 has forced many groups to take their in-person events online in 2020 and early 2021, associations that want to lessen their exposure to unrelated business income tax (UBIT) need to plan with care when moving events to a completely virtual format. Two attorneys who specialize in working with nonprofits offer their opinions on whether this income will be considered as taxable, given the current environment and technology innovations since 2004, when IRS Revenue Ruling 2004-112 was issued. “A case could be made for the safe harbor [protection of tax liability] of virtual booth revenue if the virtual trade show is held in conjunction with virtual member or committee meetings, education, and networking — not as standalone trade show,” said Jim Anderson. Anderson is an attorney with Washington, D.C.–based Howe, Anderson & Smith, and has specialized in representing trade associations and nonprofit groups in corporate, nonprofit tax, employment, and antitrust matters for more than 30 years. RELATED: To find out more about the key issues and considerations for organizers, watch UBIT: How US Tax Rules Impact Virtual Exhibits and Sponsorships. UBIT “should be on your radar,” said another attorney, Paula Cozzi Goedert, with Chicago-based Barnes & Thornburg LLP. The firm serves as general or lead counsel for a number of U.S.-based associations, including PCMA. “The IRS interpretation of UBIT as it relates to virtual trade shows,” she added, “is complicated.” In this white paper, PCMA offers insight into the current tax guidelines for UBIT for nonprofits and an explanation of IRS Revenue Ruling 2004-112. As 2020 comes to a close, PCMA provides timely and relevant insight for nonprofit executives who are looking for answers on how to classify income generated from virtual exhibits. Staff members from the University of California San Francisco and the offices of House Speaker Nancy Pelosi and U.S. Representative Barbara Lee meet during the 2019 International AIDS Conference in Mexico to start planning for the 2020 event, which went virtual. (Marcus Rose/International AIDS Society) Case in Point: International AIDS Conference The 23rd International AIDS Conference, produced by the International AIDS Society (IAS) and its U.S. entity, was set make a history — not only in terms of attendance but also because

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AIDS 2020 Virtual

Society for Human Resource Management 2019 con

The Society for Human Resource Management’s (SHRM) 2019 Annual Conference & Exposition at the Las Vegas Convention Center attracted more than 18,000 participants. Like many events in 2020, this year’s conference was canceled due to the pandemic.

How will U.S. tax rules impact virtual exhibits and sponsorships? The short answer: It’s unclear given the 16-year-old IRS guidance that suggests that income received from virtual-only trade shows may be taxable. What is clear: It’s an issue that nonprofit leaders and show organizers will need to address if their association’s digital events generate revenue from virtual exhibits — and potentially registration and sponsorships — without an in-person component.

As COVID-19 has forced many groups to take their in-person events online in 2020 and early 2021, associations that want to lessen their exposure to unrelated business income tax (UBIT) need to plan with care when moving events to a completely virtual format. Two attorneys who specialize in working with nonprofits offer their opinions on whether this income will be considered as taxable, given the current environment and technology innovations since 2004, when IRS Revenue Ruling 2004-112 was issued.

“A case could be made for the safe harbor [protection of tax liability] of virtual booth revenue if the virtual trade show is held in conjunction with virtual member or committee meetings, education, and networking — not as standalone trade show,” said Jim Anderson. Anderson is an attorney with Washington, D.C.–based Howe, Anderson & Smith, and has specialized in representing trade associations and nonprofit groups in corporate, nonprofit tax, employment, and antitrust matters for more than 30 years.


RELATED: To find out more about the key issues and considerations for organizers, watch UBIT: How US Tax Rules Impact Virtual Exhibits and Sponsorships.


UBIT “should be on your radar,” said another attorney, Paula Cozzi Goedert, with Chicago-based Barnes & Thornburg LLP. The firm serves as general or lead counsel for a number of U.S.-based associations, including PCMA. “The IRS interpretation of UBIT as it relates to virtual trade shows,” she added, “is complicated.”

In this white paper, PCMA offers insight into the current tax guidelines for UBIT for nonprofits and an explanation of IRS Revenue Ruling 2004-112. As 2020 comes to a close, PCMA provides timely and relevant insight for nonprofit executives who are looking for answers on how to classify income generated from virtual exhibits.

planning for 2020 AIDS conference

Staff members from the University of California San Francisco and the offices of House Speaker Nancy Pelosi and U.S. Representative Barbara Lee meet during the 2019 International AIDS Conference in Mexico to start planning for the 2020 event, which went virtual. (Marcus Rose/International AIDS Society)

Case in Point: International AIDS Conference

The 23rd International AIDS Conference, produced by the International AIDS Society (IAS) and its U.S. entity, was set make a history — not only in terms of attendance but also because the event was scheduled for July 6-10, 2020, concurrently in San Francisco and Oakland, 30 years after it was held in the San Francisco at the height of the AIDS epidemic in the U.S.

Based in Geneva, Switzerland, IAS was established in 1988 for HIV professionals, and today the association has members in more than 170 countries. The International AIDS Conference is truly global — the last time the biennial event was held in the U.S. was in Washington, D.C. in 2012.

“It was in San Francisco that a mysterious disease, later identified as AIDS, first emerged onto wide public awareness as a major issue in the early 1980s,” according to an IAS release. “When the city hosted the 6th International AIDS Conference in 1990, AIDS was well on its way to becoming the main cause of death of Americans aged 25 to 44.”

When San Francisco and Oakland won the bid to host the event, Democratic Leader Nancy Pelosi said: “San Francisco is an inseparable part of the story of HIV/AIDS. It is fitting and deeply inspiring that advocates, researchers and survivors will return to the Bay Area for the 2020 International AIDS Conference.”

Emily T. Blitz

Emily T. Blitz

Five months out from the event, IAS was expecting 20,000 attendees, and MCI Group, its housing partner, had booked 10,300 hotel-room nights on its peak night with a total of 67,000 rooms, said Emily T. Blitz, director, conferences for IAS. On March 27, IAS made the decision to cancel the in-person conference, due to the COVID-19 pandemic.

Instead, IAS launched its first online event with exhibits. With more than 14,000 delegates from 181 countries, the AIDS 2020: Virtual experience featured 12 prime sessions, 27 workshops, 50 symposia, 62 abstract sessions, 10 pre-conferences and 100-plus satellite sessions. In addition, a virtual exhibition featured HIV-related products and services on display in interactive 3D booths, with chat functions enabling real-time dialogue with exhibitors. Accessible 24/7, the virtual exhibition offered delegates the opportunity to engage with key organizations and industry leaders in the HIV sector.

Previously, the flagship event attracted about 100 exhibitors. This year’s virtual event featured only 42 paid booths purchased by commercial and non-commercial organizations as well as 40 open-access free booths for small non-governmental organizations and HIV-related associations. “When we switched to virtual in April, a number of exhibitors canceled, so we didn’t make a profit on this facet of the conference,” Blitz said. When asked about UBIT, she said, “This tax consideration was not even on our radar before.”

We asked Goedert: If profits are generated from virtual exhibits, would they be subject to UBIT? “It’s a gray area,” she said. “But I’d rather be in the gray area than black and white.” In other words, Goedert suggested that having this situation be open to interpretation is preferable to a ruling on the books that is definitively not favorable to nonprofits.

AIDS 2020 Virtual

U.S. Representative Barbara Lee (left) and House Speaker Nancy Pelosi speak during the AIDS 2020 Virtual event opening series, “On the Red Sofa.”

Current IRS Guidance

IRS Revenue Ruling 2004-112 suggests that profit generated from a virtual exhibit may be taxable to the nonprofit organizations that produce them. The ruling outlines the circumstances when internet activities conducted by trade associations fall within the specific exception for qualified convention and trade-show activity under 501(c)(6) of the Internal Revenue Code.

“In a nutshell, if a trade association has a companion virtual program with an in-person meeting, like a regular annual meeting where industry issues are talked about, you meet the safe harbor requirements and the income generated by that virtual event is not subject to the unrelated business income tax,” Anderson said. “However, if you have a virtual event that is not connected with the in-person event, then it is subject to the unrelated business income tax. That’s the 2004 decision.”

“Sixteen years ago,” Goedert said, “the IRS was not thinking about a situation where nonprofits would be forced to take their entire convention online.”

What does that mean for associations that have pivoted to virtual events and trade shows in lieu of an in-person meeting due to COVID-19? “Right now, there’s no safe harbor for a virtual event,” Anderson said. “However, you could make a strong argument that your virtual event is a substitute for your in-person event because of coronavirus — although there’s no law yet. I would argue that virtual events fit into the 2004 revenue ruling, even though it’s not specific.”

The IRS could put out a new ruling given the current environment, but that might not be the best for nonprofits at this stage of the game. “I don’t like to encourage the IRS to put out guidance because it may be negative,” Goedert said. “I prefer to live in the gray area and make my arguments to an IRS auditor.”

Timing Is Everything

IRS Revenue Ruling 2004-112 states that a trade association is exempt from federal income tax when: “The supplementary section of the website typically is available on-line during the ten-day period in which the semi-annual trade show occurs, and during a three-day period prior to the beginning of the show and a three-day period subsequent to the end of the show. At the end of the final three-day period, the supplementary section is removed from the website.”

Paula Cozzi Goedert

Paula Cozzi Goedert

What does that mean for nonprofit virtual event organizers? “If you want your best argument for the income to be non-taxable, you should have the virtual trade show extend no more than three days before or after the business and educational events,” Goedert said. “Second, you can’t post the virtual educational events and trade show for a long period of time, like three months. This has got to be a time-limited event. Revenue Ruling 2004-112 discusses virtual events extending over 16 days, so I wouldn’t go beyond 16 days.”

Furthermore, Goedert advised: “All of the marketing for the virtual trade show should be tied to the other virtual education and business events. It shouldn’t be marketed as a standalone event. It should be marketed as ‘our trade show in conjunction with our annual meeting and educational event.’ That will give the trade-show sponsor the best argument that the profit on the virtual trade show is non-taxable.”

Therefore, a 365-day online marketplace sponsored by a trade association could be subject to taxable income.

“Some accountants are suggesting to their association clients to give it a shot and see what the IRS says,” Anderson said. “Get the IRS to look at it and make some kind of a ruling.”

Registration Fees for Virtual Events

Registration fees for educational or business/governance virtual events appear to be exempt from taxable income. What if the fee includes a virtual exhibition?

“It’s possible the IRS would take the position that if you’re registering for an educational and business virtual event, as well as registering for a virtual trade show, some part of that registration has to be allocated to a taxable activity because the virtual trade show is a taxable activity,” Goedert said. “We don’t know if they will take that position or not.”

Her advice: “Associations can minimize the risk of taxation by refraining from charging a separate fee for the trade-show event. Or, if they do charge a separate fee, charge a minimal but supportable fee.”

In many cases, virtual association events have replaced in-person annual meetings. “One of the tests for unrelated business income is it has to be something that is regularly carried on, like an annual meeting,” Anderson said. “It would meet that test. I’m also recommending that our association clients consider doing some certification during the virtual event, so they can at least make the argument.” 

Virtual Exhibits vs. Sponsors

How does the IRS view sponsorship revenue in the virtual space? “An association can give prominence to a commercial company as a sponsor while maintaining the non-taxability of a revenue stream,” Goedert said. “There’s clear guidance from the IRS that if a commercial company sponsors an event, and as part of that sponsorship the nonprofit thanks them and recognizes them as a sponsor, the revenue they get from the sponsor is non-taxable.”

But it could become taxable, depending on what benefits the association is giving the sponsor. For example, “if you give your sponsor advertising space, make qualitative judgments about their products and services, or ask members to buy their products or services, that will be taxable revenue. Sponsorship revenue might be divided up for accounting purposes between taxable and non-taxable,” Goedert said. “The fact that it’s virtual event doesn’t mean that it’s automatically taxable.”

James E. Anderson

James E. Anderson

Per IRS rules, nonprofits can acknowledge sponsors by mentioning or displaying company name, logo, product lines and contact information. Nonprofits are permitted to mention slogans and value-neutral descriptions of a sponsor’s goods or services in acknowledging their support. Nonprofits can also display or distribute a sponsor’s products to the general public at the sponsored activity or event.

Worst-Case Scenario

What’s the worst that could happen if you don’t classify virtual exhibit revenue as unrelated business income (UBI) and pay the tax? “The IRS will claim and that, per Revenue Ruling 2004-112, the virtual exhibit revenue is UBI and assess the tax on the UBI at the highest corporate rate plus interest and possible penalties,” Anderson said. “If you disagree, you can appeal the IRS ruling in accordance with appeal procedures. If you lose the IRS appeal and want to go further, you have to pay the tax, penalties, and fines, as well as file a claim for a refund in U.S. District Court or the Federal Court of claims and make your argument about why the virtual exhibit revenue is not UBI. But this takes a long time. During the process, you can always try to reduce the tax by negotiating with the IRS, but that will not end the obligation to pay tax on future similar events.”

What’s Next

“Most industries have recovered pretty well,” Anderson said. “Many associations are getting their dues revenues, and they’re selling products and services, like marketing reports. The ones that are really hurting are the organizations that weren’t able to have their big annual meetings or trade shows. They have lost millions.” Some of those association could face two years of not being able to produce their annual trade shows in person because of COVID-19.

The longer-term question is: Will non-profits continue to hold virtual exhibits that are not connected with in-person trade shows or meetings when the virus subsides? Most likely, non-profits will as they look for ways to enhance community engagement through virtual events and offset the decline in income from their in-person events, at least in the near-term.

“If the IRS continues to take the position that the income from these events is UBI, organizations with substantial income may want to seek a Private Letter Ruling to get a personal exemption,” Anderson said. “The industry — through its trade associations — may want to lobby the IRS to seek a changes in Revenue Rule 2004-112 that recognizes that e-commerce events serve a tax-exempt organization’s tax-exempt purpose in the same way as do in-person events.”


SHRM Inclusion2020

Panelists Jocelyn Lincoln (clockwise from left), Karen S. Carter, Danette Howard, Chok Ooi, and Peter W. Quigley present at the all-digital Inclusion2020 event.

Case in Point: Society for Human Resource Management

In 2019, the Society for Human Resource Management (SHRM) attracted 18,000-plus HR professionals and business leaders from more than 90 countries for the SHRM 2019 Annual Conference & Exposition, held June 23-26 at the Las Vegas Convention Center. The 2020 event was expected to attract an even larger audience.

On May 11, SHRM canceled its 2020 Annual Conference & Expo when the San Diego Convention Center informed the society that the city would not be able to host the event due to restrictions on gatherings because of COVID-19. At the time, SHRM opted for a distributed model of content rather than a virtual conference and trade show, due in part to insurance claims. SHRM is offering members online incremental learning opportunities with new content debuting every second Tuesday of each month leading up to SHRM21.

Nick Schacht

Nick Schacht

“We converted an event from face-to-face to virtual in the spring, but we canceled the exhibit hall part of it,” said Nick Schacht, chief global development officer, SHRM. “Then we canceled our annual conference in June and rolled over most of the exhibitors to the 2021 show. For 2020, we only have one event where there is a virtual expo … driving revenue.”

INCLUSION2020, originally scheduled to be held in Philadelphia, was the first virtual-only event and trade show produced by SHRM. Held Oct. 19-21, the event featured 40 educational sessions and a marketplace with 12 exhibitors, Schacht said.

“Normally we would have an expo hall with 50 to 75 exhibitors,” he said. “We’re down to about a dozen, so the revenue that we’re talking about here is relatively small. It’s less than $30,000 in revenue.”

How will SHRM proceed from a taxation standpoint? “It’s the kind of thing where we are hearing about it early enough from a tax filing perspective that we will have our in-house counsel review and determine how to classify the income from our virtual-only event. From our perspective, clear guidance is important,” Schacht said. “We want to ensure we are complying with tax laws. We have a for-profit subsidiary for our robust advertising business, but historically we haven’t paid any taxes on anything associated with our events.”

While the revenue in question in 2020 is relatively small, the same would not be true if the 2021 SHRM Annual Conference and Expo, scheduled for June 20-23 in Chicago, goes all virtual.

“As we go forward, we have no idea what 2021 will bring,” Schacht said. “For our 2021 annual conference, we rolled over between 300 to 400 exhibitors from the 2020 event. They already paid and selected their booths for the 2021 event, and we’re planning a face-to-face and a virtual experience. But there’s a very real possibility that the pandemic still doesn’t pass by that point in time, that we still don’t have a vaccine [widely distributed], or that the City of Chicago won’t allow a mass events at McCormick Place.”

That could represent millions of dollars in potentially taxable revenue that wasn’t taxable previously. “If we’re forced to cancel the face-to-face event, then the revenue from the expo hall becomes not trivial,” Schacht said. “We’re talking about millions of dollars of revenue for an event of that size. Then the consequences of not appropriately reporting and recording that for tax purposes becomes very significant.”

Inclusion 2020

Philonise and Rodney Floyd, brothers of George Floyd, were part of the opening general session at INCLUSION2020.


3 Key Considerations for Virtual Events & UBIT

  1. If your association hosts a digital event that generates revenue from virtual exhibits — and potentially registration and sponsorships — without an in-person component, the income could be subject to UBIT under the current IRS code.
  2. If your trade association has a companion virtual program in conjunction with an in-person meeting, that meets the safe harbor requirements, and the income generated by that virtual event is not subject to UBIT.
  3. If your association wants the best argument for the digital-only event income to be non-taxable, the virtual trade show should:
  • not be longer than 16 days.
  • not be marketed as a standalone event.
  • not charge a separate fee for the virtual trade show.
  • hold regularly scheduled events, like annual, quarterly or regional meetings, in conjunction with it.
  • offer education, training or certification in conjunction with it.
  • follow IRS rules for acknowledging sponsors.

Danica Tormohlen was editor at large at Trade Show Executive magazine and is the former editor in chief of EXPO Magazine, and is based in the Kansas City, Missouri metro area.

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