[Federal Register Volume 65, Number 29 (Friday, February 11, 2000)]
[Rules and Regulations]
[Pages 6903-6905]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-3157]
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POSTAL SERVICE
39 CFR Part 111
Substantially Related Eligibility Requirements for Nonprofit
Standard Mail Rate Matter
AGENCY: Postal Service.
ACTION: Final rule.
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SUMMARY: This final rule amends the Domestic Mail Manual (DMM) to
clarify ``substantially related'' eligibility requirements for mail
matter entered by authorized nonprofit customers.
EFFECTIVE DATE: February 10, 2000.
FOR FURTHER INFORMATION CONTACT: Jerome M. Lease, (202)268-5188.
SUPPLEMENTARY 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,
[[Page 6904]]
describes, 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).
List of Subjects in 39 CFR Part 111
Postal Service.
PART 111--[AMENDED]
1. The authority citation for 39 CFR part 111 continues to read as
follows:
Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 3001-
3011, 3201-3219, 3403-3406, 3621, 3626, 5001.
2. Revise part E670 of the Domestic Mail Manual to include
additional section 5.6(f) and to read as follows:
E Eligibility
* * * * *
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
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provision 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.
Stanley F. Mires,
Chief Counsel, Legislative.
[FR Doc. 00-3157 Filed 2-10-00; 8:45 am]
BILLING CODE 7710-12-P