                         T.C. Memo. 1997-397



                      UNITED STATES TAX COURT



           MISSISSIPPI STATE UNIVERSITY ALUMNI, INC.,
   Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9043-95.                       Filed August 28, 1997.



     James K. Hasson, Jr., John W. Bonds, Jr., and Amanda B.

Scott, for petitioner.

     Lourdes Gonzalez De Mendoza and Charles P. Hanfman, for

respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:   Respondent determined deficiencies in

petitioner's Federal income tax of $13,374 for the tax year
                                 - 2 -

ending June 30, 1989, $20,059 for the tax year ending June 30,

1990, and $26,143 for the tax year ending June 30, 1991.

     The issue for decision is whether petitioner's income from

an affinity credit card program is a royalty excluded by section

512(b)(2) from the tax on unrelated business taxable income.    We

hold that it is.

     Section references are to the Internal Revenue Code in

effect for the years in issue.    Rule references are to the Tax

Court Rules of Practice and Procedure.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

A.   Petitioner and Mississippi State University

     1.   Petitioner

     The State of Mississippi operates Mississippi State

University (MSU) in the town of Mississippi State, Mississippi.

     Petitioner's principal office was in Mississippi State,

Mississippi, when it filed the petition in this case.    Petitioner

is MSU's alumni organization.

     Petitioner informs alumni about MSU, solicits gifts from

alumni and supporters, and organizes alumni chapters.    Petitioner

uses direct mail and telemarketing to raise funds for MSU.

Petitioner requests contributions from MSU alumni and sends them

Mississippi State Alumnus magazine (Alumnus) and information

about homecoming, class reunions, and chapter events.    Petitioner

has about 100 chapters.
                                 - 3 -

     Petitioner keeps a mailing list of MSU alumni so MSU and

petitioner can communicate with them.     Petitioner has kept these

records on its computer since 1981.      During the years in issue,

petitioner updated its alumni mailing list daily.

     Petitioner reports to MSU's Office of University Relations,

which is headed by MSU's vice president for advancement.

Petitioner is exempt from Federal income tax under section

501(c)(3).

     2.      Petitioner's Employees

     Petitioner had about 12 to 14 full-time employees from 1988

to 1991.     Petitioner also employed students part time.   MSU

generally paid petitioner's employees.

     Steve C. Grafton (Grafton) was petitioner's executive

director from September 1987 to July 1994.     He reported to MSU's

vice president for advancement and to petitioner's board of

directors.     He usually worked 50 to 60 hours a week during the

years in issue.

     Frances Carr (Carr) has worked for petitioner since around

1979.     She processed annual fund gifts, made address changes on

the data base, and produced lists, labels, and diskettes during

the years in issue.     Student employees assisted her during the

years in issue.

     Petitioner hired a marketing coordinator in 1990.      See

paragraph F, below.
                                - 4 -

B.   Peoples Bank & Trust

     Peoples Bank & Trust (PB&T), a bank the principal office of

which is in Tupelo, Mississippi, was engaged in the credit card

business, including issuing affinity credit cards.   An affinity

credit card is a card designed for and marketed to members of a

group or organization.   PB&T received finance charges, merchant

fees, and interchange income from affinity credit cards it had

issued.

     In 1987, PB&T told petitioner it would like to issue

affinity credit cards for petitioner.   Later in 1987, petitioner

sent letters to several financial institutions, including PB&T,

seeking proposals for an affinity credit card program.1   The

letter detailed the major features petitioner wanted in any

proposal.

     Edwin Brown (Brown), a vice president of PB&T, answered

petitioner's letter and represented PB&T in affinity credit card

negotiations with petitioner.   PB&T wanted permission to use

petitioner's mailing list, marks, and logos.




     1
      Respondent contends that petitioner initiated the first
contact with PB&T. We have found otherwise on the basis of
Grafton’s and Edwin Brown's testimony. Respondent adduced no
evidence to the contrary.
                                 - 5 -

C.   The 1987 Affinity Credit Card Agreement

     On November 20, 1987, petitioner and PB&T agreed (1987

agreement) that PB&T would administer an affinity card program

targeted to petitioner's members.

     1.   Terms of the 1987 Agreement

     The 1987 agreement was to be effective for 3 years.

Thereafter, it would be automatically renewed for terms of 1

year, unless either party notified the other in writing at least

90 days before the end of the initial or current renewal term

that it would not renew the agreement.

     PB&T agreed to apply its customary credit policies to credit

card applications from petitioner's members.    Cardholder

agreements between PB&T and the cardholders were to govern cards

that PB&T issued.

     PB&T offered the VISA Classic and MasterCard Red and Ochre

under the 1987 agreement.    PB&T agreed to charge each cardholder

an annual fee of $9, to use an interest rate of 15.96 percent,

and to consult with petitioner before raising the rate.

     PB&T agreed to provide the following services at no cost to

the cardholders:    $200,000 air/common carrier insurance,

collision damage waiver on automobile rental, emergency cash

service, and a travel service.    PB&T agreed to offer credit life

insurance, credit disability insurance, and unemployment

insurance to cardholders at the cardholder's expense.
                               - 6 -

     PB&T agreed to pay petitioner 45 cents for each cardholder

transaction and $3 for each card membership and annual fee paid

to PB&T.   The 1987 agreement did not say whether the payments

were intended to be royalties or business income.

     PB&T agreed not to assess merchant discount charges or

processing fees on purchases from petitioner by alumni and on

gifts made to the MSU Annual Fund by cardholders if the

transaction was charged to the affinity credit card.   Petitioner

received thousands of dollars of contributions through this

arrangement.

     PB&T agreed to give petitioner space for four lines with 60

characters up to six times a year on PB&T's monthly statements to

cardholders without cost to petitioner or cardholders to promote

alumni activities.

     The 1987 agreement said that petitioner was not a partner of

or joint venturer with PB&T and that petitioner did not agree to

bear any loss PB&T might suffer in the affinity credit card

program.

     2.    Endorsement and Promotional Materials

     Petitioner agreed to state in a letter or other message that

PB&T wrote and sent, and bearing petitioner's executive

director's name or a facsimile of his signature, that PB&T was

the exclusive provider of the affinity credit cards.   PB&T agreed

to prepare and pay for all endorsement and marketing material and
                                - 7 -

activities.   PB&T agreed to submit to petitioner for advance

approval each endorsement and related marketing material.

     The 1987 agreement did not require petitioner to keep copies

of credit card applications or provide them to alumni.

     3.   License To Use Intangible Property

     The 1987 agreement gave PB&T the exclusive right to use

petitioner's name on the affinity credit cards and in related

marketing materials.

     MSU gave PB&T permission to use MSU's registered trademark,

the "walking bulldog", on the affinity credit cards and related

marketing material.    MSU did not charge petitioner or PB&T for

PB&T's use of the MSU trademark because MSU wanted petitioner to

receive all of the payments from PB&T for the affinity credit

card program.   Petitioner agreed to use its best efforts to keep

MSU's permission to use the trademark.

     4.   Membership Lists and Updates

     PB&T agreed that all membership lists petitioner provided

were to remain petitioner's property and confidential.    PB&T

agreed to use petitioner's mailing lists only for the affinity

credit card unless PB&T had petitioner's written consent to use

them for other purposes.    PB&T agreed to give address changes it

received from cardholders to petitioner monthly at no charge.
                                - 8 -

D.   Performance Under the 1987 Agreement

     1.     Establishing Affinity Credit Card Accounts

     PB&T processed applications, established and loaded accounts

on its computer system, produced credit cards, accepted and

posted transactions, generated statements, and processed

payments.    Petitioner did none of this work.

     2.     Endorsements, Solicitations, and Promotions

     PB&T drafted and sent letters to promote the affinity credit

cards to petitioner's members in March or April 1988.     In April

1989, PB&T drafted and sent letters endorsing the affinity credit

card to parents of MSU students.    That letter stated that

petitioner offered the credit cards in cooperation with PB&T and

urged parents to apply for cards for their students.      Each letter

was printed on petitioner's letterhead and had a facsimile of

Grafton's signature.

     PB&T developed solicitation materials during the years in

issue.    Grafton reviewed these materials for accuracy, quality,

style, and consistency with petitioner's position.    It took him 3

to 5 minutes to review an endorsement letter prepared by PB&T.

He did not make changes to those letters.

     At petitioner's suggestion, PB&T mailed promotional material

to MSU's faculty and staff.    On June 2, 1988, petitioner billed

PB&T $226.28 for 4,000 envelopes, $78.12 for 4,000 sheets of

stationery, and $93.72 for 3,124 address labels for faculty and

staff of MSU that petitioner provided to PB&T for this mailing.
                                  - 9 -

     3.     Mailing Lists and Updates

     Petitioner gave PB&T copies of petitioner's list of the

names and addresses of its members twice during the years in

issue on 8½-inch computer diskettes.      The lists had about 55,000

names.    PB&T could not operate the diskettes and paid an outside

company to convert them to a format it could use.

     Carr made these copies of the mailing list diskettes for

PB&T in less than 30 minutes.     To generate the two lists for

PB&T, Carr used the computer program and the procedure that she

used to generate similar lists for petitioner.

     PB&T sent address changes for cardholders to petitioner

about once a month.    Petitioner added the new addresses to its

data base.

     4.     Advertising by PB&T

     Petitioner asked PB&T to advertise the credit cards in

Alumnus and Affairs of State, a newsletter (not further described

in the record).    Petitioner began to actively sell advertising

for Alumnus in 1990.

     PB&T prepared and paid for advertisements for the credit

card program in Alumnus for the fall of 1988, fall of 1990, and

spring and fall of 1991.

     PB&T advertised the card in the student newspaper and sports

programs.    During 1988 and 1989, PB&T bought advertising for the

affinity credit card in MSU’s football programs.     Once in

conjunction with a football game during the years in issue, and
                              - 10 -

without petitioner's help, MSU let PB&T set up a table on MSU's

campus to distribute credit card applications.

     In the fall of 1988, PB&T paid a well-known MSU football

sports announcer to endorse the affinity credit card.     He was not

an employee or agent of petitioner.    PB&T used his photograph and

signature in print advertisements it prepared.

     PB&T produced radio advertisements and posters.     PB&T hired

students to insert affinity credit card applications in bags at

the MSU bookstore.

     5.   Payments by PB&T

     PB&T paid for data processing, marketing, and royalties

related to the affinity credit card and paid mailing companies

for services needed to market the credit card by direct mail.

PB&T paid petitioner according to the terms of the agreement.

     6.   Petitioner's Activities

     Petitioner did not mass mail any credit card applications or

marketing materials.   Petitioner did not ask PB&T to expedite any

affinity credit card applications or to increase any person's

credit limit.   Petitioner did not process credit card

applications or decide to whom to issue a card.   Petitioner did

not make any payments to PB&T.

     PB&T gave credit card application forms to petitioner, which

petitioner kept in its office to give to alumni on request.

Petitioner mailed application forms to one or two alumni who
                               - 11 -

requested them.    Petitioner also put application forms in the

lobby of the MSU Alumni Center.

     Petitioner's representatives took some application forms to

local alumni chapter meetings and put a few of them on tables

with notices, copies of Alumnus, fund solicitation information,

and other materials about MSU and petitioner.    If alumni

requested information from petitioner, petitioner mailed

materials to the alumni which probably included a credit card

application.

     Petitioner did not let PB&T representatives speak at alumni

meetings about the affinity credit card program.

     Grafton met with PB&T representatives at least once but

fewer than four times during the years in issue to discuss the

affinity credit card program and to hear PB&T's ideas for

expanding the program.

     From November 1987 to June 1991, petitioner gave messages to

PB&T to print on the monthly credit card statements.    The

messages announced campus events such as homecoming and Super

Bulldog Weekend.

     MSU's Office of University Relations wrote an article about

the affinity credit card in the fall 1988 edition of Alumnus.

E.   Petitioner's Sale of Merchandise With the MSU Seal

     Generally, petitioner did not let anyone use its mailing

list.   However, petitioner contracted with Wayneco, a commercial

company, for Wayneco to sell items bearing MSU's seal, such as
                              - 12 -

rings, watches, lamps, crystal clocks, grandfather clocks, and

chairs, to MSU's alumni.2   Petitioner contracted with Wayneco for

Wayneco to sell Seiko watches in 1988, lamps in 1989, and

Waterford crystal clocks in 1991.   Petitioner had the right to

review promotional materials that Wayneco prepared.    Petitioner

agreed to:   (a) Sponsor Wayneco's offering of the items; (b) get

MSU's approval to use MSU's seal on the items and related

promotional material; (c) allow Wayneco to use facsimile

signatures of an official of petitioner to promote the items; and

(d) give Wayneco (i) mailing labels with names and addresses of

all living alumni and parents of MSU undergraduates, (ii) samples

of its letterhead and envelope for Wayneco to reproduce, (iii)

copies of MSU's official seal, and (iv) a letter from an official

of petitioner's on its letterhead stating that petitioner had

chosen Wayneco to supply the items.    Wayneco agreed to pay

petitioner $25 for each watch, $20 for each lamp, and $25 for

each clock that Wayneco sold under the agreement with petitioner.

The agreement states that the payments are royalties.    Petitioner

compiled and sent mailing list labels to Wayneco.    Wayneco paid

all other costs.

     Political candidates and other vendors asked for permission

to use petitioner's mailing list.   Petitioner denied all requests

except Wayneco's and PB&T’s during the years in issue.

     2
      Income that petitioner received from the sale of this
merchandise is not at issue in this case.
                               - 13 -

F.   Marketing Coordinator

     1.   Creation of the Position

     On June 8, 1990 (the last month of the second of 3 years at

issue), Grafton asked Dr. Billy C. Ward (Ward), MSU's vice

president for advancement, for permission to hire a marketing

coordinator for petitioner.    Grafton estimated that this person's

work would produce enough funding to pay his or her own salary.

     Grafton told Ward the marketing coordinator would generally

assist petitioner's executive director and would develop an

advertising program for petitioner's magazine; manage a new MSU

art sale program; expand the affinity credit card program;

coordinate the marketing program for merchandise-for-resale, such

as watches, lamps, etc.; oversee petitioner's alumni travel

program with outside travel companies; generate revenue for

petitioner; and help to plan, coordinate, and especially to

market petitioner's other activities including, but not limited

to, homecoming, alumni trips, tent parties/open houses, the

annual leadership conference, annual business meetings, the MSU

staff summer party, class reunions, the annual alumni awards

banquet, Black Alumni Day, Government Appreciation Day, the

faculty awards program, the faculty/staff Christmas open house,

and other alumni activities.   Ward authorized Grafton to hire a

marketing coordinator.
                               - 14 -

     2.     Hiring of Elizabeth "Libba" Andrews

     Petitioner hired Elizabeth B. "Libba" Andrews (Andrews) as

marketing coordinator in August 1990 (the second month of the

final year in issue).    She spent most of her time from August

1990 to June 30, 1991, developing an advertising program for

Alumnus.    During that time she also developed new alumni

programs, participated in strategic planning, and helped manage

petitioner.

     Andrews spent a negligible amount of time as petitioner's

contact person for the affinity credit card program.    Brown met

with her once at petitioner's office and once at the bank.      They

spoke on the phone around four times about the affinity credit

card program and six times about the sale of advertising.

     Andrews sold advertising in Alumnus to PB&T for the affinity

credit card program on the same terms as applied to other

advertisers.    She sent advertising contracts to Brown in February

and June 1991.    Petitioner and PB&T signed the February 1991

contract.

     Andrews suggested that the 1987 contract be changed to allow

petitioner to include a larger message in the monthly billing

statements.

     Andrews answered some questions from alumni about the

affinity credit card.    In April 1991, an alumnus complained to

petitioner about the affinity credit card program.    Andrews
                                - 15 -

contacted Brown about the alumnus' complaint and wrote the

alumnus a letter to maintain good will with him.

     Andrews and some of the other supervisors shared several

assistants who worked for petitioner.     The record does not

suggest that the assistants worked on the credit card program.

     Grafton prepared budgets for petitioner with categories for

various expenses.     He had no budget category for the affinity

credit card program.     Petitioner paid Andrews $22,000 during her

first year.   She was petitioner's associate director at the time

of trial.

G.   1991 Agreement

     Petitioner and PB&T signed a replacement affinity credit

card agreement in February 1991 (1991 agreement).     It made two

changes to the 1987 agreement:     (1) It provided a procedure for

PB&T to transfer member accounts and receivables to another bank

if petitioner or PB&T did not want to renew the agreement, and

(2) it said the payments from PB&T to petitioner were royalties.

     Andrews contacted several universities to seek ideas and

suggestions relating to an addendum to the 1991 contract.

H.   Sale of Olympic Coins

     Universal Coins, a Canadian business, contacted PB&T to ask

if PB&T would like to participate in an Olympic coin program.

Universal Coins offered to pay PB&T to insert material promoting

the Olympic coin program in credit card statements.     On April 26,

1991, Brown wrote Andrews a letter in which he described the
                              - 16 -

Olympic coin program.   PB&T offered to split commissions with

petitioner for orders placed by petitioner's members.    Neither

PB&T nor petitioner received any money from Universal Coins under

the Olympic coin program.

I.   Direct Mail & Computer Services Letter

     In September 1991 (after the years in issue), Chuck Smith

(Smith), president of Direct Mail & Computer Services, sent the

following letter to petitioner:

     Gentlemen:

     I am in receipt of your request concerning name list
     rental rates during the period of 7/88-6-89. Rental
     rates for nonprofit institutions have remained static
     for several years, including the period in question, at
     $60.00/m names rented with a $5.00/m surcharge for
     sortation to the zip code level. This is essentially a
     universal price which is heavily documented throughout
     the list rental industry in such publications as
     Standard Rates and Data, etc.

J.   Petitioner's Federal Tax Returns

     Petitioner timely filed Forms 990, Return of Organization

Exempt from Income Tax, and Forms 990-T, Exempt Organization

Business Income Tax Return, for the years in issue.

     On its Forms 990 for the years in issue, petitioner reported

that PB&T had paid it the following amounts of royalties:

$74,703 for 1989, $105,797 for 1990, and $114,364 for 1991.

Petitioner did not report these amounts as unrelated business

taxable income on the Forms 990-T that it filed for those years.

Petitioner reported that it had received $2,500 of advertising

income for 1989, $2,500 for 1990, and none for 1991.    On its
                              - 17 -

Forms 990-T for 1989, 1990, and 1991, petitioner reported taxable

income from the sale of merchandise including rings and watches.

Petitioner reported commission income on insurance on Forms 990-T

for 1989 and 1990.

                              OPINION

A.   Taxation of Unrelated Business Income and Royalties

     Section 511(a)(1) imposes a tax on the unrelated business

taxable income (UBTI) of certain tax-exempt organizations.

Petitioner is subject to tax on its UBTI under section 511(a)(2)

because it is tax exempt under section 501(c).     As a general

rule, income is UBTI if:   (1) The income arises from a trade or

business, (2) the trade or business is regularly carried on, and

(3) the trade or business is not substantially related to the

organization's tax-exempt purpose.     Sec. 512(a)(1); Veterans of

Foreign Wars v. Commissioner, 89 T.C. 7, 19-20 (1987).

     Royalties are excluded from UBTI.     Sec. 512(b)(2).    Whether

income is a royalty is decided on the basis of all the facts and

circumstances.   Texas Farm Bureau v. United States, 53 F.3d 120,

123 (5th Cir. 1995); sec. 1.512(b)-1, Income Tax Regs.       The

taxpayer bears the burden of proof.     Rule 142(a).

     A royalty is a payment for the right to use valuable

intangible property rights; it is not a payment for services

rendered by the owner of the property.     Texas Farm Bureau v.

United States, 53 F.3d at 123-124; Sierra Club, Inc. v.

Commissioner, 86 F.3d 1526, 1531-1532 (9th Cir. 1996), affg. T.C.
                                - 18 -

Memo. 1993-199 and affg. in part and revg. in part on other

grounds and remanding 103 T.C. 307 (1994);3 Disabled Am. Veterans

v. Commissioner, 94 T.C. 60, 70 (1990), revd. on other grounds

942 F.2d 309 (6th Cir. 1991).

     The U.S. Court of Appeals for the Ninth Circuit discussed

the degree of activity the recipient of a royalty under section

512(b) may conduct as follows:

          Thus, to the extent the Commissioner claims that a
     tax-exempt organization can do nothing to acquire such
     fees (e.g., providing a rate sheet listing the fee
     charged for use of each copyrighted design or retaining
     the right to approve how the design is used and
     marketed), the Commissioner is incorrect. However, to
     the extent that Sierra Club appears to argue that a
     "royalty" is any payment for the use of a property
     right--such as a copyright--regardless of any
     additional services that are performed in addition to
     the owner simply permitting another to use the right at
     issue, we disagree. [Sierra Club, Inc. v. Commissioner,
     supra at 1535.]

     Thus, we must carefully review the actions by an

organization to ensure that fees are paid for the use of

intangible property and not for services.   See Alumni Association

of the Univ. of Or., Inc. v. Commissioner, T.C. Memo. 1996-63;




     3
      In that case, the U.S. Court of Appeals for the Ninth
Circuit reversed our grant of partial summary judgment and
remanded the case for trial on the issue of whether the income
generated by an affinity credit card program was a royalty
because the Tax Court did not view facts regarding the program in
the light most favorable to the Commissioner. Sierra Club, Inc.
v. Commissioner, 86 F.3d 1526, 1537 (9th Cir. 1996), affg. T.C.
Memo. 1993-199 and affg. in part and revg. in part on other
grounds and remanding 103 T.C. 307 (1994).
                              - 19 -

Oregon State Univ. Alumni Association, Inc. v. Commissioner, T.C.

Memo. 1996-34.

     Respondent contends that petitioner's income from the

affinity credit card program during the years in issue arises

from a trade or business which petitioner regularly carried on

and which is substantially unrelated to its tax-exempt purpose,

and that petitioner's affinity credit card income is not a

royalty under section 512(b)(2).4   For reasons discussed below,

we hold that the payments at issue are royalties.   In light of

this holding, we need not decide whether petitioner's affinity

credit card program is a trade or business.

B.   Whether PB&T Paid Petitioner To Use Valuable Intangible
     Property Rights

     PB&T obtained the right to use valuable intangible property

rights in the 1987 and 1991 agreements.   Under the agreements,

PB&T could use petitioner's name, its letterhead, the signature

of its executive director on promotional materials, a list of

names and addresses of petitioner's members, and MSU's "walking

bulldog" trademark.   Payments for the right to use these items

may be royalties.   See Sierra Club, Inc. v. Commissioner, supra;

Alumni Association of the Univ. of Or., Inc. v. Commissioner,



     4
      Respondent’s position is consistent with Tech. Adv. Mem.
97-24-006 (June 13, 1997), in which respondent took the position
that income from an affinity credit card arrangement received by
a sec. 501(c)(3) organization is unrelated business taxable
income under sec. 512(a).
                                  - 20 -

supra; Oregon State Univ. Alumni Association, Inc. v.

Commissioner, supra.

      Respondent points out that MSU gave PB&T permission to use

the "walking bulldog" trademark without charging PB&T or

petitioner and contends that this means PB&T did not pay to use

it.     Respondent's contention takes MSU's permission out of

context.      When viewed in context, it is clear that MSU handled it

this way so PB&T's payments to use the "walking bulldog"

trademark would go to petitioner, not to let PB&T use the

"walking bulldog" without cost.

      We conclude that PB&T paid petitioner for the right to use

valuable intangible property rights.

C.    Whether PB&T's Payments Were for Services

      Respondent contends that PB&T paid petitioner to perform

services relating to the affinity credit card program and

contends that petitioner performed a large number of services for

PB&T.      We disagree.   Petitioner's activities were minimal and

infrequent, were not conducted like a commercial business, and

were not services for which PB&T paid.

      1.      Petitioner's Use of the Program for Its Exempt Purposes

      Respondent mischaracterizes some of petitioner's activities

as services for PB&T or credit card promotional activities.       For

example, respondent refers to the messages petitioner included in

the credit card bills as promotional materials, even though they

were used only to promote petitioner's activities to its members;
                                - 21 -

the messages were not used to promote the card.    Respondent

characterizes petitioner's maintenance and updating of its

mailing list as a substantial service for PB&T and as

administration of its affinity credit card program.    We disagree;

these actions are more fairly viewed as part of petitioner's

communication to its members, which is central to its exempt

purpose.

     2.    PB&T's Access to Petitioner's Intangible Property

     Respondent contends that petitioner's providing its mailing

list to PB&T was a service.   We disagree; the mailing list was

valuable intangible property.    Alumni Association of the Univ. of

Or., Inc. v. Commissioner, supra; Oregon State Univ. Alumni

Association, Inc. v. Commissioner, supra; see also Sierra Club,

Inc. v. Commissioner, T.C. Memo. 1993-199.    Providing the list to

PB&T was essential to PB&T's use of that property.    Respondent

also contends that petitioner's agreement to use its best efforts

to maintain MSU's permission to use the "walking bulldog" was a

service.   We disagree.   MSU had already decided to let PB&T use

the MSU trademark for the credit card agreement.    No activity by

petitioner was required.   Even if petitioner had to act so that

PB&T could continue to use the "walking bulldog" trademark, that

effort would have been undertaken to provide intangible property

to PB&T, not to provide a service.

     Similarly, contrary to respondent's contention, the facts

that PB&T substantially agreed to the terms outlined by
                              - 22 -

petitioner's initial letter and the program generated increasing

income for petitioner each year do not speak to whether the

income was a royalty.

     3.   Activities of MSU and PB&T

     Respondent contends that the article in Alumnus written

about the credit card program is an activity by petitioner.     We

disagree; the article was written by the Office of University

Relations, not petitioner.   Respondent points out that the

article said:   "Additional information on the Bulldog Card can be

obtained by calling the MSU Alumni Association * * * or The

Peoples Bank", and contends that this shows petitioner was

marketing the credit card program.     We disagree.   It merely means

that the author was telling readers that petitioner had

information about the credit card program.

     Respondent contends that petitioner permitted PB&T to

distribute credit card applications at a football game.     We have

not so found because the record indicates that MSU, not

petitioner, permitted PB&T to conduct this activity.

     Respondent suggests that petitioner was involved in

employing MSU students to insert credit card applications in bags

at the MSU bookstore.   There is no basis in the record for

respondent's suggestion.

     4.   Petitioner's Marketing Coordinator

     Respondent contends that petitioner's hiring of a marketing

coordinator shows that the payments at issue were for services
                                  - 23 -

because Grafton projected that the person hired could generate

enough funds to pay his or her own salary.    We disagree.    It is

not surprising that the marketing coordinator for a fundraising

organization would raise more money than he or she was paid.

     Respondent contends that Andrews regularly devoted a

substantial amount of time to the credit card program.      We

disagree.   Andrews, Grafton, and Brown testified without

contradiction that Andrews worked only a negligible amount of

time on the credit card program.

     Andrews' effort to sell advertising for the credit card

program to PB&T was not a service to PB&T; it was an effort to

increase petitioner's advertising revenue.    Respondent implies

that the fact that Andrews suggested changes to the 1987

agreement so petitioner could get more use from the message

included in the monthly billing statement and contacted other

universities to seek ideas for the addendum for the 1991 contract

were services for PB&T.   We disagree; this was work she did to

assist petitioner in its dealings with PB&T.

     5.     Endorsement and Review of Marketing Materials

     Respondent points out that petitioner endorsed the program

and reviewed marketing materials prepared by PB&T.    Respondent

contends that these actions were services to PB&T for purposes of

section 512(b).    We disagree.

     PB&T or advertising firms hired by PB&T wrote endorsement

messages over a facsimile of Grafton's signature which were
                               - 24 -

printed on petitioner's letterhead.     Petitioner did not write or

pay for the letters.    Grafton spent only 3 to 5 minutes reviewing

each endorsement letter, and he did not change the letters.      An

organization's review of marketing materials which bear its name

is reasonably related to protecting the organization's name and

does not disqualify payments from being royalties.     Alumni

Association of the Univ. of Or., Inc. v. Commissioner, supra;

Oregon State Univ. Alumni Association, Inc. v. Commissioner,

supra; Sierra Club, Inc. v. Commissioner, T.C. Memo. 1993-199.

The Commissioner has ruled that endorsement of products through

the use of likenesses and signatures of professional athletes

does not prevent payments from being royalties.    Rev. Rul. 81-

178, 1981-2 C.B. 135.    That ruling discusses two situations.    The

first situation is substantially like this case, in which the

income from the endorsement of products, use of signatures and

trademarks, and review of licensed products is a royalty.       Id.

The second situation involves much more activity, such as

personal appearances.    The Commissioner ruled that income in that

situation is not a royalty.    Id.

     We conclude that petitioner's review of marketing material

and endorsement of the program were not services to PB&T.
                               - 25 -

     6.    Credit Card Application Forms

     Respondent contends that petitioner helped PB&T market the

affinity credit cards, that petitioner's employees "regularly"

took credit card applications to chapter meetings.    We have not

so found because the record does not indicate how often

petitioner's employees took applications to chapter meetings or

how often chapters met.    Petitioner had application forms

available for members, took an unspecified number of application

forms to some meetings with its other membership information, and

mailed some in response to specific requests from members.    We

disagree that petitioner's actions are fairly characterized as

marketing or services for PB&T, or that PB&T paid petitioner for

these minimal actions.    These actions are too insignificant to

preclude a finding that petitioner's income from the credit card

program is a royalty.

      7.   Advertising

     Respondent contends that Alumnus did not accept paid

advertising before 1990, on the basis of the fact that Andrews

and Deann Williams wrote letters which refer to the September

1990 issue of Alumnus as the first to accept paid advertising.

Grafton, who, unlike Andrews, worked for petitioner before 1990,

testified that Alumnus accepted paid advertising in 1988 and

possibly earlier.   PB&T bought a 3/4-page color advertisement

featuring the person who broadcasts MSU football games in the

fall 1988 issue of Alumnus and paid for artwork for the ad.
                                - 26 -

Respondent speculates that PB&T paid only petitioner's costs for

advertising in Alumnus, but the record does not so indicate.

     Respondent contends that petitioner and PB&T had an

understanding that petitioner would participate in advertising

the credit cards.    This contention is at odds with the contracts

between PB&T and petitioner and Grafton’s and Brown’s testimony

that there was no unwritten understanding.    Petitioner did not

participate in advertising the credit cards.

     8.   Mailing List With MSU Students and Faculty

     Respondent contends that petitioner gathered and gave to

PB&T the names and addresses of MSU faculty and the parents of

MSU students, that those names were not in petitioner's data

base, and that doing so was a service to PB&T.    Respondent's

contention is speculative and based in part on the fact that

petitioner billed PB&T for 4,000 envelopes and sheets of

petitioner's stationery and for 3,124 mailing labels for the MSU

faculty and staff.    There was no testimony about this bill.    A

handwritten note on it says that it was for stationery and

supplies; it does not say that it was for services.

     9.   Olympic Gold Coin Program

     Respondent contends that petitioner's participation in the

Olympic gold coin program shows that the payments from PB&T were

not royalties.   We disagree.   PB&T received a solicitation from a

vendor and offered to share with petitioner any commissions for

orders it received from petitioner's members.    There were no
                               - 27 -

orders.    There is no evidence that petitioner did anything except

receive a letter from PB&T offering to split the commissions from

the program.

     10.   Analysis and Conclusion

     PB&T paid petitioner for its endorsement and to use its

mailing list and MSU's "walking bulldog" trademark; PB&T did not

pay for services related to operating a credit card business.

Petitioner's activities were almost entirely limited to (a)

giving PB&T access to those intangibles, (b) achieving some

direct member-related benefits such as messages on cardholder

statements and indirect benefits such as increased advertising

revenues for Alumnus, and (c) protecting petitioner's good will

with its members such as by reviewing mailings and responding to

occasional inquiries.

     Respondent contends that petitioner's activities were as

extensive as those of organizations that received income which

was not a royalty, such as in Texas Farm Bureau v. United States,

53 F.3d at 125-126; Fraternal Order of Police v. Commissioner,

833 F.2d 717, 723-724 (7th Cir. 1987), affg. 87 T.C. 747 (1986),

and Louisiana Credit Union League v. United States, 693 F.2d 525,

533 (5th Cir. 1982).    We disagree.    Petitioner's activities to

support the affinity credit card program were far less

substantial than the activities performed by the taxpayers in

those cases.
                               - 28 -

       The organization in Texas Farm Bureau, in addition to

providing its logo, name, and mailing list, provided clerical and

administrative services, telephones, office supplies, and other

goods and services necessary to conduct an insurance business.

Texas Farm Bureau v. United States, supra at 123-124.    In

Fraternal Order of Police v. Commissioner, supra, the taxpayer

published a magazine for which the taxpayer could appoint the

executive editor, prepare editorials and feature articles,

control solicitations of business listings and the bank account,

and decide whether an article appearing in the magazine could be

reprinted elsewhere.    The U.S. Court of Appeals for the Seventh

Circuit held that the organization's income from business

listings was commercial advertising and was not a royalty because

the organization conducted it like a commercial venture.       Id. at

723.

       The taxpayer in Louisiana Credit Union League dealt with

commercial insurance vendors, debt collectors, and electronic

data processing services for its members.    The U.S. Court of

Appeals for the Fifth Circuit said that the taxpayer--

       did everything short of actually selling the insurance
       and collecting the debts itself: it selected the
       companies whose products and services would be
       endorsed, actively marketed and promoted those products
       and services to member credit unions, and performed the
       day-to-day administrative tasks essential to the
       insurance and debt collection operations. [Louisiana
       Credit Union League v. United States, supra at 533.]
                              - 29 -

The U.S. Court of Appeals said that "More comprehensive

involvement would be difficult to imagine." Id.    Unlike the

organizations in Texas Farm Bureau v. United States, supra,

Fraternal Order of Police v. Commissioner, supra, and Louisiana

Credit Union League v. United States, supra, petitioner did not

perform business services.   Petitioner's activities relating to

the affinity credit card program were minimal.    PB&T paid

petitioner to use intangible property, not to obtain business

services.   As the U.S. Court of Appeals for the Ninth Circuit

said:

     To hold otherwise would require us to hold that any
     activity on the part of the owner of intangible
     property to obtain a royalty, renders the payment for
     the use of that right UBTI and not a royalty. [Sierra
     Club, Inc. v. Commissioner, 86 F.3d at 1536.]

     We conclude that PB&T's payments to petitioner under the

affinity credit card contracts were for the use of valuable

intangible property rights, not for services.

D.   Petitioner's Use of Its Mailing List

     Respondent contends that, like the taxpayer in Disabled Am.

Veterans v. Commissioner, 942 F.2d 309 (6th Cir. 1991), and

Disabled Am. Veterans v. United States, 227 Ct. Cl. 474, 650 F.2d

1178 (1981), petitioner regularly rented its mailing list.

Respondent argues that, under those cases, income from

petitioner's mailing lists is not a royalty.    We disagree.

     In Disabled Am. Veterans v. United States, 650 F.2d at 1184,

the Court of Claims held that the Disabled American Veterans
                                - 30 -

(DAV) conducted a trade or business of renting its mailing list

and that it was not royalty.    From 1974 to 1979, DAV rented

parts of its donor list 451 times.       Disabled Am. Veterans v.

Commissioner, 942 F.2d at 311.    In doing so, DAV followed the

usual practices of the direct mail industry.       Id.   DAV prepared

rate cards showing the rates it charged to customers.        Id.    DAV

employed two staff personnel full time to administer its list

rentals.    Id.   Petitioner did not use list brokers, employ anyone

to administer its mailing list rental, or otherwise try to rent

its mailing lists like the taxpayer in Disabled Am. Veterans v.

United States, supra.

     Respondent points out that the 1987 agreement ran for 3

years, and petitioner regularly received income from the program.

We disagree that this fact shows that PB&T's payments to

petitioner were not royalties because royalties are often paid

regularly over several years.    See, e.g., Kramer v. Commissioner,

80 T.C. 768 (1983); Cloward Instrument Corp. v. Commissioner,

T.C. Memo. 1986-345, affd. 842 F.2d 1294 (9th Cir. 1988).

     Petitioner had agreements with Wayneco in 1988, 1989, and

1991 for Wayneco to use petitioner's mailing list to sell

affinity items to petitioner's members.      Petitioner’s agreements

with Wayneco and PB&T are not remotely like DAV’s list rental

activity.

     Respondent contends that the September 1991 letter Chuck

Smith sent to petitioner shows that petitioner actively rented
                                 - 31 -

its mailing lists during the years in issue.       We disagree.   In

that letter, petitioner requested list rental rates for July 1988

to June 1989.   It does not show that petitioner was renting its

lists during the years in issue.

     The taxpayer in Sierra Club, Inc. v. Commissioner, 86 F.3d

1526 (9th Cir. 1996), set the rental rates, rented its mailing

lists, and had the right to review requests to rent the lists and

to approve the proposed mailing material and schedule for each

mailing, but took no other action.        The U.S. Court of Appeals for

the Ninth Circuit held that payments for rental of mailing lists

were royalties because the taxpayer did not provide any services

with the mailing lists.    Id.

     Petitioner's conduct was more like that of the taxpayer in

Sierra Club than that in Disabled Am. Veterans.        Like the

taxpayer in Sierra Club, petitioner maintained its mailing lists

to further its tax-exempt function.        Sierra Club, Inc. v.

Commissioner, 86 F.3d at 1535.     Petitioner employed Carr to

maintain the lists on a computer data base.       Like the taxpayer in

Sierra Club, petitioner set rental rates and had the right to

approve mailing material, but unlike the taxpayer in both

Disabled Am. Veterans cases, it did very little else to support

the credit card program.   PB&T prepared and mailed all of the

promotional materials.

     Respondent points out that petitioner reported the Wayneco

payments from the sale of merchandise, such as watches and rings,
                               - 32 -

as taxable income but not its income from the affinity credit

card program.   Petitioner reported its income from the sale of

merchandise as UBTI but treated its income from the credit cards

as a royalty.   The record does not show why petitioner treated

the Wayneco payments and the payments at issue differently.

However, the fact that petitioner did not treat the Wayneco

payments and the affinity credit card program payments

consistently does not deprive the payments at issue of status as

a royalty.

     Respondent speculates that the credit card fosters less

affinity towards MSU by its members than the items for sale with

the "walking bulldog" trademark because those are likely to be

viewed by members more often than a credit card that is kept in a

wallet.   We disagree.   Ward and Grafton testified without

contradiction that the credit cards and the items bearing the MSU

"walking bulldog" trademark encourage good will between

petitioner's members and MSU; nothing in the record supports

respondent's view.

E.   Failure To Refer to PB&T's Payments to Petitioner as
     Royalties in the 1987 Agreement

     Respondent contends that the payments at issue are not

royalties because the 1987 agreement did not call them royalties.

Respondent contends that under Commissioner v. Danielson, 378

F.2d 771 (3d Cir. 1967), vacating and remanding 44 T.C. 549
                                     - 33 -

(1965), petitioner may not assert that payments under the 1987

agreement were royalties.

          When the Danielson rule applies, a taxpayer may not disavow

unambiguous terms of an agreement to achieve different tax

results unless mistake, undue influence, fraud, duress, or other

ground exists to set aside the agreement.            Id. at 775.   Danielson

does not apply here because petitioner is not disavowing any

terms of its agreements with PB&T.            The 1987 agreement does not

characterize the payments; it does not say the payments were (or

were not) royalties or income from a trade or business.

Petitioner's position that the payments are royalties is

consistent with the 1987 agreement.

F.        Whether Section 513(h) Applies

          Section 513(h) exempts from tax amounts earned by certain

tax-exempt organizations from the trade or business of exchanging

or renting mailing lists to other tax-exempt organizations.5

     5
         Sec. 513(h) provides:

                  (1) In general.--In the case of an
             organization which is described in section 501
             and contributions to which are deductible under
             paragraph (2) or (3) of section 170(c), the term
             "unrelated trade or business" does not include--

                        *   *    *    *    *     *   *

                    (B) any trade or business which
                  consists of--

                       (i) exchanging with another such
                  organization, names and addresses of
                                                             (continued...)
                                - 34 -

Section 513(h) is effective for exchanges and rentals of member

lists after October 22, 1986.     Respondent contends that the

enactment of section 513(h) implies that renting mailing lists is

generally a trade or business.     Respondent asks us to infer from

the enactment of section 513(h) that Congress generally views

gross income from the licensing of mailing lists as UBTI, unless

excepted by section 513(h).     We do not draw that inference.

        The inference asserted by respondent is rejected in the

legislative history of section 513(h).     A colloquy between

Congressmen Daniel Rostenkowski (D-Ill.), Chairman of the Ways

and Means Committee, and John Duncan (R-Tenn.), Ranking

Republican Member of the Ways and Means Committee, occurred in

the House of Representatives on the day of the adoption of the

conference report accompanying the bill which included section

513(h).     Chairman Rostenkowski's comments were as follows:

             I also have discussed with Congressman Duncan the
        issue of whether the provision of the bill which
        excludes certain income from unrelated trade or
        business income creates any inference under present
        law. We have reached a common understanding regarding
        the following specific issue:



5
    (...continued)
                donors to (or members of) such
                organization, or

                     (ii) renting such names and
                addresses to another such organization.

      Tax Reform Act of 1986, Pub. L. 99-514, sec. 1601(a), 100
      Stat. 2085, 2766.
                                 - 35 -

          The question relates to section 1601 of the bill
     which excludes from unrelated trade or business income
     revenues from the use of a tax-exempt organization's
     mailing list by another such organization. Section
     1601 of the bill, which specifically exempts certain
     such revenues from the tax on unrelated business income
     in the future, carries no inference whatever that
     mailing list revenues beyond its scope or prior to its
     effective date should be considered taxable to an
     exempt organization.

132 Cong. Rec. 26208 (Sept. 25, 1986).        It is at best hazardous

to infer the intent of an earlier Congress from a later one.          See

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 114 (1989);

United States v. Price, 361 U.S. 304, 313 (1960).        See Sierra

Club, Inc. v. Commissioner, 86 F.3d at 1534 n.17, where the U.S.

Court of Appeals for the Ninth Circuit said it would not rely on

enactment of section 513(h) to infer legislative intent of

Congress in originally enacting section 512(b).

     Respondent relies on a concurring opinion in Disabled Am.

Veterans v. Commissioner, 942 F.2d at 317 (Martin, J.,

concurring), which states:

     Congress, in enacting * * * [section 513(h)], obviously
     felt that the court of claims decision in DAV1 was the
     proper interpretation of "royalties" for purposes of §
     512(b)(2) with respect to the payments received by an
     exempt organization from a commercial organization.

                 *    *      *     *      *     *    *

          The acceptance of DAV's position that the monies
     it receives from list rental are royalties under §
     512(b)(2) would totally eviscerate section 513(h).
                                   - 36 -

We draw no inference from the enactment of section 513(h) as to

whether the affinity program at issue is a trade or business.6

G.     Whether Royalty Treatment Is Consistent With the Purpose of
       the Tax on Unrelated Business Income

       Respondent contends that the affinity credit card program at

issue here leads to unfair competition between tax-exempt

organizations and taxable businesses and that Congress intended

to subject that income to the tax on unrelated business income.

We disagree.

       The tax on unrelated business income was enacted to prevent

tax-exempt organizations from unfairly using their tax-exempt

status to compete with commercial businesses.        United States v.

American College of Physicians, 475 U.S. 834, 837-838 (1986).

       Respondent contends that petitioner's activities relating to

the affinity credit card were like the insurance activities at

issue in United States v. American Bar Endowment, 477 U.S. 105

(1986).       In that case, the Supreme Court held that the American

Bar Endowment (ABE) conducted a trade or business, creating the

kind of unfair competition that led to the enactment of section

512.       Id. at 114.   We disagree that the facts are similar.   ABE

provided group insurance policies to its members.        Id. at 107.

ABE actively administered the insurance program.        Id.   ABE chose

insurers, negotiated premium rates with insurers, compiled lists


       6
        See Sierra Club, Inc. v. Commissioner, 86 F.3d at 1534
n.17.
                                - 37 -

of its members, solicited and collected premiums from its

members, sent premiums to the insurer, kept files on each

policyholder, answered members' questions about insurance

policies, and screened claims for benefits.    Id.   The Supreme

Court found that this arrangement created unfair competition

because ABE's members could deduct part of their premium payment

as a charitable contribution.    Unlike ABE, petitioner did not

compete with any taxable entity; PB&T, not petitioner, competed

with other credit card issuers.

     We conclude that petitioner did not engage in any activity

which Congress intended to subject to the tax on unrelated

business income.

H.   Conclusion

     Petitioner’s income from the affinity credit card program in

the years in issue is a royalty excluded by section 512(b)(2)

from the unrelated business income tax.

     To reflect the foregoing,


                                                Decision will be

                                          entered under Rule 155.
