[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

[[Page 6905]]

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