A charitable golf tournament can be a welcoming event for donors. It is a low pressure way to raise additional money for the nonprofit while enjoying nice weather and good company. The organization putting on the tournament works hard to make sure the event is a success. But, they shouldn’t forget about planning for the financial and tax impact a golf tournament requires.
Reporting Special Events
The treatment of revenues and expenses for special events differs slightly for GAAP and tax purposes.
For GAAP purposes, items such as donated labor may be included in revenues. Revenue from the event are typically reported as a separate line item, and any direct donor benefits either reduce the revenue from the event or may be reported as a separate line item. Any other expenses associated with the event are included in expenses.
For tax purposes, donated labor is not included in revenue. Special events are reported in the Statement of Revenue (Part VIII) of the Form 990 with the charitable donation portion reported as contributions from fundraising events on line 1c. The charitable portion reflects the amount paid by the participants in excess of the value of the benefits received (greens fees, dinner, entertainment, etc.). The non-donative amount is reported on line 8a as income from special events. Any direct expenses associated with the fundraising events are reported on line 8c as an offset to income to show a net income (loss) from fundraising events in Part VIII of the Form 990. The result of this is that many fundraising events show a loss on the fundraising event net income line on Part VIII of the Form 990 as the donation portion is removed. Organizations concerned about the donor perception of this loss can explain this by indicating that the net income from fundraising events reported on the Form 990 in Part VIII does not include any donations that were received for the event.
In addition to reporting the fundraising events in Part VIII of the Form 990, a Schedule G should be completed if the gross receipts from all events exceed $25,000. The organization should separately provide detail for the two largest events with gross receipts of more than $5,000, and combine the remaining events with gross receipts of more than $5,000. Like the Form 990 Part VIII, the contributions are subtracted from gross receipts to arrive at gross income, and it is not uncommon for the events to report a net loss.
The charity should be aware of the "quid pro quo" reporting requirements and ensure they provide receipts to individuals and organizations when the ticket price is more than $75 and benefits are provided. Receipts for these payments must include the amount of the deductible contribution for federal income tax purposes and a good faith estimate of the value of the goods or services provided to the recipient. The IRS penalty for failing to comply with this requirement is $10 per payment with an allowable maximum penalty of $5,000 per event.
Charities should also consider if the golf tournament revenues will be subject to sales tax. Each state has differing rules related to the sales tax treatment of fundraising events, so it is best to verify the rules prior to selling tickets. Additional information regarding the sales tax considerations for nonprofits can be found in our April 27, 2018, article here.
Finally, the charity should be aware that tax reform implemented in 2018 changed the deductibility of meals and entertainment, and this may change participant's perspective of the tournament. Learn more about the impact here.
Please contact your Eide Bailly nonprofit tax advisor to discuss any of the above items.