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Appendix A
Case Studies: Content-Based Restrictions

A-1 Case Study 1: Publication Containing Advertisements

A-1.1 Facts

An authorized medical educational association, "MEA," concentrates on diseases of the heart and circulatory system. MEA publishes a journal three times a year and circulates the journal to its members. According to the MEA's dues statement, $10 of the annual dues pays for the subscription to the journal. Additionally, each issue of the journal bears a cover price of $6; copies are sold at various retail outlets; and annual subscriptions are available to nonmembers of the association for $15 a year.

The primary contents of the journal include academic articles by researchers and physicians concerning developments in the heart and circulation system, as well as research and treatment of related diseases. The journal consists of about 25 percent advertisements, including advertisements by MEA for books that it produces, advertisements by other nonprofit organizations for their publications, advertisements by for-profit medical supply companies for pharmaceutical products, medical supplies and equipment, and a few advertisements for luxury automobiles.

MEA wants to mail the journal at the Nonprofit Standard Mail (nonprofit) rates.

A-1.2 Analysis

The analysis by each step follows:

Step 1 asks whether the mailing is a product or contains products.

Answer: The publication itself is a product because it has a price and is sold to readers.

Step 2 asks whether the product to be mailed meets one of the three statutory product provisions.

Answer: The publication was not donated to MEA, but, taking all expenses into account, MEA determines that its cost for each copy of the publication is $1.25. Therefore, the publication is a low-cost item.

Alternative answer: If the MEA journal was not low-cost, it would have been necessary to consider the periodical publication exemption. A periodical publication must have a title, be issued at regular intervals of at least four times a year, be formed of printed sheets, be issued from a known office of publication, be circulated to a legitimate list of subscribers or requesters, and meet other requirements applicable to a specific Periodicals qualification category. Because MEA's journal is issued only three times a year, it does not meet these requirements.

Step 3 asks whether there are advertisements.

Answer: There are advertisements, which were described in the statement of the facts - i.e., for MEA books, for publications of other nonprofit organizations, for the products of for-profit medical supply companies, and advertisements for luxury automobiles.

Step 4 asks whether there are prohibited or restricted advertisements.

Answer: There are no prohibited or restricted advertisements for financial instruments, travel arrangements, or insurance. Thus, the specific restrictions for these types of advertisements do not apply.

Step 5 asks whether the advertisements are in material meeting the content requirements for a periodical publication.

Answer: This publication has a title, consists of printed sheets, has an identification statement containing each of the elements listed in 6-3.5.2, and contains more than 25 percent nonadvertising matter. Accordingly, association H's mailing meets the content requirements for a periodical publication and is eligible for mailing at the nonprofit rates, despite the advertisements included in it.

For determining whether advertisements are part of material that meets the "content requirements for a periodical publication" (step 5), it is not necessary that the publication meet all requirements prescribed for periodical publications (see 6-3.5). The identification statement should describe the publication's frequency as three times a year and the approximate publication dates.

Step 6 asks whether all advertising in the mailpiece is substantially related to association H's purposes.

Answer: It is not necessary to consider this step in this case because the mailpiece complied with the requirements in step 5.

If the mailpiece had not met the content requirements for a periodical publication, it would have been necessary to consider whether each advertisement in the publication was substantially related to the purposes of the qualified organization. Unless the mailing is ineligible for the nonprofit rates for other reasons, mailings generally will be accepted at the nonprofit rates upon the mailer's certification that the 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.

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A-1.3 Conclusion

This publication is eligible for mailing at the nonprofit rates.

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