I think the IRS considers the ads more sponsorship than advertising. We had the same question about banners at our baseball field. Technically they are advertisements, but the IRS consider them recognition of sponsorship and therefore not UBI.
Did the IRS expert say why directory ads are not UBI? Perhaps a directory is not "regularly carried on" the same way a newsletter or magazine is? Is there anyone out there in PTO land who reports their ads as UBI and fills out a 990-T?
Looking at the IRS instructions, and especially the very specific examples they give, I too would expect this is UBI. That being the case, we always just kept our directory advertising below the threshhold amount just avoid hassling with it.
However, I asked this specific question to the IRS panelist at the PTO Today conference two years ago, and he said "no, it's not UBI".
Although I love his more favorable response, it was hard to believe, so I spoke to him more one-on-one after the session. He told me point blank not to worry about it and not to claim it as UBI.
The guy was the tax exempt specialist from the IRS. I'm still not sure I agree with his assesment (compared to what the instructions say), but hey - he's the expert. So we don't separate it out any more on our 990EZ.
Our PTO publishes a directory with student names, addresses and phone numbers. It sold to PTO families as a fundraiser. We also solicit advertising from local businesses, who buy between 1/8th and a whole page to list their business and the services they provide. Our ad revenue is over $4,000. Is this unrelated business income (UBI)? I know the IRS says advertising in an exempt organization's periodical is UBI, but what about an annual directory?
