Part II of this article will outline the historical development of this so-called unrelated business income tax on charities. Part III will show, in detail, how the Treasury's position in the proposed regulation represents a sharp departure from its pre-1993 interpretations regarding the status of sponsorship payments and posit possible reasons for the change. Part IV shows that the Treasury's “new” position on sponsorship payments, while an example of poor policy-making in light of the historical development of the unrelated business income tax, is legally defensible. Finally, part V suggests that the Treasury, in light of the policy concerns, should not finalize the proposed regulation. Instead, the Treasury should revert to its original position that sponsorship payments are unrelated business income if the payments amount to a “quid pro quo.”