Atrox: Have I got this right, from your note?
(1) You are writing a sponsorship funding proposal on behalf of a non-profit organization (music festival).
(2) The request is being made to a corporation for its sponsorship funding.
(3) The corporate prospect’s grant application form is asking the non-profit organization to declare the portion of the request which would be tax-deductible for the corporation.
If so, let’s look at your question: “Wouldn't 100% of the sponsorship be tax-deductible if the funds go to the charity who is organizing the project?”
Generally, it would not.
In all of my experience with such sponsorships, I could never be in a position better than that of the corporate sponsors’ own accounting and tax experts to have them declare what is charitable, and what is business expense.
For example, if a quantity of tickets to the Festival is included in the sponsorship, then naturally, the fair market value of those tickets cannot be tax-deductible. The same goes for receptions, etc. Plus, what the event is worth to the sponsor in terms of advertising and promotion which the Festival will engender on behalf of the corporate sponsor, is something---again---I believe, must be determined internally by the sponsor’s own tax, legal, and accounting officials.
Therefore, other than being able to provide to the sponsor the cost of tickets, food and drink, signs, banners, etc., which the non-profit would provide, that was as far as we could go. We could not tell the sponsor that the balance of the contribution was any portion a tax-deductible contribution.
Factoring in what we could give as costs as described above, and when sponsors did their own in-house evaluations of tax-deductibility or business expense declarations---when we were given the funds in total---two checks were received. Always one, of course, from the sponsor’s charitable foundation, but the other was in the form of business transaction---be it from the corporate business coffers, or explicitly from its marketing, community affairs, or other department.
I suggest that you talk directly with the officials of the corporation---while at the same time reviewing the IRS regulations about sponsorships---and be sure to take care about declaring only the amount which you can only know to be the market value you are providing. You cannot know how, or what, the corporation will determine internally as they reconcile with the IRS regarding the scope of the sponsorship's business value to them.
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