Can a church sell advertising space on its website to for-profit merchants as a way of raising funds?

Nonprofit and Church Legal Trends - Free Edition - January February 2009 (free edition)

Can a church sell advertising space on its website to for-profit merchants as a way of raising funds? If so, are there limits as to what sort of items/services that could be advertised (obviously not political or illegal items)?

A church or nonprofit may certainly sell advertising space on its Website, but the IRS is likely to consider it unrelated business activity and, therefore, unrelated business taxable income. The IRS does not distinguish among media when considering issues of advertising and generally considers all advertising revenue from any activity that is regularly carried on as unrelated business income. It would not view the Internet differently from a regular newsletter for for-profit advertising that is not directly related to the church/nonprofit’s mission (See NPCL publication entitled Unrelated business income tax (UBIT) worries for churches and nonprofits ) As long as this is not a substantial part of your activity, the church can pay the tax, keep the profit, and not jeopardize its exemption.