During the past 18 months, many nonprofit organizations were forced to cancel or shift their annual fundraising events to virtual events. While these changes were operationally significant, they did not change the associated tax reporting requirements for contributions, revenues and expenditures.
As organizations consider how to conduct these types of events in the future, it is important to ensure proper reporting requirements are considered.
One key item to understand when tracking special event revenues and expenditures are the differences between GAAP (or “book”) and tax reporting. For GAAP purposes, all revenue and expense items related to a fundraising event are reported on the financial statements as special event revenue. For tax purposes, revenues are reported on Form 990, Part VIII either as contributions or as special event revenue.
In addition, Form 990 Schedule G may be completed to provide additional detail on fundraising events. Nonprofit organizations should ensure that tracking systems adequately report the details for the various components of fundraising events in order to facilitate both GAAP and tax reporting requirements.
Ticket sales are reported for both GAAP and tax purposes as special event revenue when the cost of the ticket is comparable with the benefit received (e.g. meals, entertainment, greens fees). However, if the price of the ticket includes a contribution portion (e.g. the amount paid is greater than the benefit received) the amount in excess will be treated as contribution revenue for tax purposes with the remaining amount reported as special event revenue.
Tax reporting specifically excludes from revenues and expenditures amounts for donated services or use of facilities.
Many organizations rely on volunteers to assist with planning and hosting events. While there is significant value to the time received, the IRS excludes these amounts from tax reporting. Consider this example: a graphic designer providing five hours of time valued at $800 to a nonprofit to design posters for an upcoming gala event. For GAAP purposes, the organization will report a donation of services for $800 and a corresponding in-kind expense. For tax purposes, the $800 of donated services is not reported in contributions or expenses on the Form 990.
The donation of the use of space is also excluded from income and expense for tax reporting purposes. For example, a nonprofit entity is hosting a gala event and the venue has donated the use of the space, with a value of $6,000 for the evening. For GAAP purposes, this $6,000 contribution of facilities is recognized as revenue and expense equal to fair market value at the time of receipt. For tax purposes, total contributions reported on the Form 990 return will exclude the donation of facilities use.
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Donations of goods used in an event are includable in both GAAP and tax revenues as contributions and as expenditures for the utilization of the items. For example, a donor donating golf gloves and balls to an organization as part of an annual golf tournament results in the organization reporting a contribution and in-kind expense. When goods are donated to an organization, the donor is responsible for establishing the fair market value (FMV) of the donation.
Many nonprofits include silent and live auctions during events to increase revenue and offer an interactive element for attendees. These activities result in two separate reporting transactions. First, there is the initial donation of the auction item to the organization; second, there is the additional payment received during the auction from the ‘winning bidder.’
Items donated to the organization to be auctioned off are reported as contribution income based on the estimated fair market value (FMV) of the item upon receipt with a corresponding in-kind expense recorded for both GAAP and tax purposes. When the auction items are sold, fundraising event revenue is recorded for the value of the item sold with additional contribution revenue reported for the amount paid in excess of fair market value.
If the amount paid is less than FMV, a reduction to contribution revenue is reported. While this is the proper book and GAAP reporting, many organizations may choose to not report the initial contribution and instead just record the auction transaction as a contribution. This does not impact total net income but can result in an underreporting of fundraising event revenue and expenses.
Raffles, paddle raises and fund-a-need activities are a fun way to increase revenues and capture the interest of attendees at a charitable event. For GAAP purposes, these revenues are reported as fundraising revenue. For tax purposes, raffle income is reported as gaming income on Part VIII of the Form 990 and on Schedule G. Paddle raises and fund-a-need are treated as contribution revenue on Schedule G.
The COVID-19 pandemic resulted in many non-profits having to cancel or limit a fundraiser or special event due to health and safety or other restrictions. Organizations should review accounting for sponsorship and ticket revenues for events in the case an event is cancelled and no longer will be held in person.
Many donors may allow the nonprofit to keep the ticket cost, which can be recorded as a contribution for both book and tax purposes. Refunds to sponsors or attendees should be offset against related book and tax revenues when refunded in the same year.
In the case where an organization has nonrefundable expenditures for an event, an organization may consider FASB ASC guidance for “Unusual or Infrequent Items” to classify these amounts as non-operating for financial statement purposes. Any expenditures that can be applied to next year’s event may be recorded as a prepaid expense.
Finally, an organization should ensure that for Form 990 purposes an event that is now ‘going virtual’ still meets the definition of a fundraising event for purposes of Schedule G reporting. Keep in mind that fundraising events are typically activities that are conducted for the primary purpose of raising funds that include some entertainment component such as:
Fundraising events held virtually in name only that don’t include a live component, or that don’t include significant entertainment, may not be fundraising events, and instead would just be shown as contributions.
Our experienced advisors can help you navigate the complexities of tax reporting requirements for nonprofit special events.
This article is provided for general informational purposes only. It is not legal, accounting or other professional advice, as it does not address any individual facts, circumstances or concerns. Before making personal or business related decisions, please consult with appropriate legal, accounting or other qualified professionals.