This final rule amends the Domestic Mail Manual (DMM) to clarify “substantially related” eligibility requirements for mail matter entered by authorized nonprofit customers.
February 10, 2000.Start Further Info
FOR FURTHER INFORMATION CONTACT:
Jerome M. Lease, (202)268-5188.End Further Info End Preamble Start Supplemental Information
On May 5, 1995, the Postal Service published a final rule in the Federal Register (60 FR 22270-22274) implementing provisions of Public Laws 103-123 and 103-329. Those laws restrict the eligibility of certain mailings for the Nonprofit Standard Mail rates to those containing advertisements for products and services that are substantially related to the nonprofit customer's qualifying purpose.
On two occasions in the early 1990s, Congress enacted laws that place limitations on the content of advertising matter eligible for the nonprofit rates. The first of these, codified to a large extent as 39 U.S.C. 3626(j)(1)(A-C), limited solicitations for credit cards and similar financial instruments, insurance, and travel. The second, codified as 39 U.S.C. 3626(j)(1)(D), limited solicitations for all other products and services. This notice concerns the second limitation, specifically the standards regarding substantially related advertisements.
The standards implementing 39 U.S.C. 3626(j)(1)(D) are contained in Domestic Mail Manual (DMM) section E670. Section E670.5.4d provides that the Nonprofit Standard Mail rates may not be used for the entry of material that advertises, promotes, offers, or, for a fee or consideration, recommends, Start Printed Page 6904describes, or announces the availability of any product or service (other than restricted advertisements for travel arrangements, insurance, and financial instruments such as credit cards) unless the sale of the product or the providing of such service is substantially related to the exercise or performance by the organization of one or more of the purposes used by the organization to qualify for mailing at the Nonprofit Standard Mail rates.
The statute directs the Postal Service to standards established by the Internal Revenue Service (IRS) and the courts with respect to 26 U.S.C. 513(a) and (c) of the Internal Revenue Code to determine whether the sale of an advertised product or service is substantially related to the qualifying purposes of an organization.
Based on the past several years of experience administering the standard, and considering requests from customers seeking guidance, and after further consultation with the IRS, the Postal Service believes it appropriate to refine and clarify its policy by way of revising the standards. The goal of these revisions is to promote certainty for customers and USPS personnel in making accurate determinations of an advertisement's eligibility for the preferred rates based on IRS standards in the tax code and its implementing regulations and court precedents.
The controlling tax law provides that if the products and services sold by a nonprofit organization are substantially related to the organization's exempt purposes, the income derived from their sale is exempt from the Unrelated Business Income Tax (UBIT). See 26 U.S.C. sections 511, 512, 513(a). Accordingly, the amendment at section E670.5.4.d.1 of the DMM explains that the Postal Service will accept mailings at the Nonprofit Standard Mail rate that contain advertisements for products or services so long as the authorized nonprofit organization certifies that the income derived from the sale of the products or services is exempt from UBIT and those products or services are substantially related to the organization's qualifying nonprofit purposes. See 39 U.S.C. section 3626(j)(1)(D)(i).
The certification, which is incorporated as part of the Nonprofit Standard Mail (A) postage statement, is shown here for emphasis. There is no substantive change. However, the mailer's certification of eligibility of substantially related advertisements is specifically emphasized. The Postal Service reserves the right to pursue appropriate remedies if the certification is untrue. The revised certification reads as follows:
The signature of a mailer certifies that: (1) the mailing does not violate DMM E670; (2) the income derived from the sale of any products or services advertised in the mailing is not subject to the Unrelated Business Income Tax (UBIT) and any products and services advertised is substantially related to the nonprofit organization's authorized purpose within the meaning of 39 U.S.C. section 3626(j)(1)(D)(ii)(I) and 26 U.S.C. section 513(a); (3) only the mailer's matter is being mailed; (4) this is not a cooperative mailing with other persons or organizations that are not authorized to mail at Nonprofit Standard Mail rates at this office; (5) this mailing has not been undertaken by the mailer on behalf of or produced for another person or organization not authorized to mail at Nonprofit Standard Mail rates at this office; (6) this mailing, if made by a voting registration official, is required or authorized by the National Voter Registration Act of 1993; and (7) it will be liable for and agrees to pay, subject to appeals prescribed by postal laws and regulations, any revenue deficiencies assessed on this mailing, whether due to a finding that the mailing is cooperative or for other reasons. (If this form is signed by an agent, the agent certifies that it is authorized to sign this statement, that the certification binds the agent and the nonprofit mailer, and that both the nonprofit mailer and the agent will be liable for and agree to pay any deficiencies.)
Mailers are encouraged, but not required, to begin using this certification statement immediately. The revised nonprofit postage statements will be published in the Postal Bulletin and are posted on USPS.com. Copies have been given to presort software vendors to incorporate into future software releases. Mailers will be required to use this new certification statement at some point in the future, probably when the USPS implements new rates and revises and distributes a whole new set of postage statements. These amendments to the DMM are being published without a notice and comment provision in accordance with 5 U.S.C. 553(b)(B), since no customers are burdened by the rule change. Editorial revisions have been made for clarity and references to related tax law provisions, and regulations are included for customers' convenience in consulting them.
For the reasons discussed above, the Postal Service hereby adopts the following amendments to the Domestic Mail Manual, which is incorporated by reference in the Code of Federal Regulations (see 39 CFR part 111).Start List of Subjects
List of Subjects in 39 CFR Part 111
- Postal Service
PART 111—[AMENDED]End Part Start Amendment Part
1. The authority citation for 39 CFR part 111 continues to read as follows:End Amendment Part
2. Revise part E670 of the Domestic Mail Manual to include additional section 5.6(f) and to read as follows:
E600 Standard Mail
E670 Nonprofit Standard Mail
5.0 ELIGIBLE AND INELIGIBLE MATTER
5.4 Prohibitions and Restrictions
Nonprofit Standard Mail rates may not be used for the entry of material that advertises, promotes, offers, or, for a fee or consideration, recommends, describes, or announces the availability of:
d. Any other product or service unless one of these exceptions is met:
(1) The sale of the product or the provision of such service is substantially related to the exercise or performance by the organization of one or more of the purposes used by the organization to qualify for mailing at Nonprofit Standard Mail rates. The criteria in IRS regulations at 26 CFR section 1.513-1(d), supplemented by the definitions in 5.6, are used to determine whether an advertisement, promotion, or offer for a product or service is for a substantially related product or service and, therefore, eligible for Nonprofit Standard Mail rates.
(2) The product or service is advertised in Standard Mail (A) material meeting the prescribed content requirements for a periodical publication. The criteria in 5.8 are used to determine whether the Standard Mail (A) material meets the content requirements for a periodical publication.
5.6 Definitions, Substantially Related Advertising Products
For the standard in 5.4d:
a. Standards established by the Internal Revenue Service (IRS) and the courts with respect to 26 USC 513(a) and (c) of the Internal Revenue Code are used to determine whether the sale or Start Printed Page 6905provision of an advertised product or service, whether sold or offered by the organization or by another party, is substantially related to the qualifying purposes of an organization. (Advertisements in Standard Mail (A) material that meet the content requirements for a periodical publication need not meet the substantially related standard to be mailable at the Nonprofit Standard Mail rates. See 5.4d(2) and 5.8.)
b. To be substantially related, the sale of the product or the provision of the service must contribute importantly to the accomplishment of one or more of the qualifying purposes of the organization. This means that the sale of the product or providing of the service must be directly related to accomplishing one or more of the purposes on which the organization's authorization to mail at the Nonprofit Standard Mail rates is based. The sale of the product or providing of the service must have a causal relationship to the achievement of the exempt purposes (other than the production of income) of the authorized organization. (Income produced from selling an advertised product or providing a service does not make such action a substantially related activity, even if the income will be used to accomplish the purpose or purposes of the authorized organization.) See 26 CFR section 1.513-1(d).
(1) If an organization pays Unrelated Business Income Tax (UBIT) on the income from the sale of a product or the provision of a service, that activity is by IRS definition not substantially related. See 26 U.S.C. section 512. The fact that an organization does not pay such tax, however, does not establish that the activity is substantially related because other criteria may exempt the organization from payment. See 26 CFR section 1.513-1(e).
(2) Third-party paid advertisements may be included in material mailed at the Nonprofit Standard Mail rates if the products or services advertised are substantially related to one or more of the purposes for which the organization is authorized to mail at the Nonprofit Standard Mail rates. However, if the material contains one or more advertisements that are not substantially related, the material is not eligible for the Nonprofit Standard Mail rates, unless it is part of material that meets the content requirements described in 5.8 and is not disqualified from using the Nonprofit Standard Mail rates under another provision.
c. Announcements of activities (e.g., bake sale, car wash, charity auction, oratorical contest) are considered substantially related if substantially all the work is conducted by the members or supporters of an authorized organization without compensation. See 26 U.S.C. section 513(a)(1); 26 CFR section 1.513-1(e)(1).
d. Advertisements for products and services, including products and services offered as prizes or premiums, are considered substantially related if the products and services are received by an authorized organization as gifts or contribution. See 26 U.S.C. section 513(a)(3); 26 CFR section 1.513-1(e)(3).
e. An advertisement, promotion, offer, or subscription order form for a periodical publication meeting the eligibility criteria in E211 and published by one of the types of nonprofit organizations listed in 2.0 is mailable at the Nonprofit Standard Mail rates.
f. Unless the mailing is ineligible for the Nonprofit Standard Mail rates for other reasons, mailings will be accepted at the Nonprofit Standard Mail rates upon certification that income derived from the sale of products or services advertised in the mailing is not subject to the Unrelated Business Income Tax (UBIT) described at 26 U.S.C. section 512, and that each of the products or services is substantially related to the nonprofit organization's qualifying purpose.
A transmittal letter making these changes in the pages of the Domestic Mail Manual will be published and will be transmitted to subscribers automatically. Notice of issuance will be published in the Federal Register as provided by 39 CFR 111.3.Start Signature
Stanley F. Mires,
Chief Counsel, Legislative.
[FR Doc. 00-3157 Filed 2-10-00; 8:45 am]
BILLING CODE 7710-12-P