March 23, 2018
Most non-profits host fundraising and special events in order to raise monies for their organization. Simple contributions, such as cash, are easy to track. The main focus of this article is to explain breaking out what is considered revenue from events and what should be considered contributions to your organization. Believe it or not, differentiating these two from the beginning will cause less stress when preparing your Form 990.
First, we look at why this is important when reporting on the Form 990. In order for non-profits to be a public organization they must receive one third of their support from public contributions, membership fees, etc. Most non-profits can meet this requirement without a problem. Then there are others who have trouble, and recording contributions from these events correctly can help.
To help differentiate revenue from contributions, the non-profit has to determine the fair value of ticket sales or donated goods from events. The non-profit has a responsibility to disclose the fair value of tickets or raffle items, for example, to the donor. This information helps the donor determine his donation to the non-profit, which also would be considered the contribution value to the organization.
If the donor received a ticket for a special event, such as a gala, their deduction will only include the difference between what they paid and the value of what they received in exchange. For example, normally a meal will be served at such events. The difference between what the meal price would have been and the price of what the ticket cost is the charitable donation for the donor. The non-profit organization reports this to the donor usually on the ticket for the event or a follow up thank you card.
Non-profits hold many different events, so determining the value of some donations would require more research and questions but the process is necessary. Anything over the fair market value of what you’ve received for the item should be considered a donation to your organization.
Reporting this information on your Form 990 can be simple if you have separated it correctly. The revenue and contributions will be entered in separately. The contribution portion will help boost your percentage for the public charity test and help you maintain your status as a public organization.
As 2019 came to an end, Congress passed two bills, which were then signed into law by the President. The “Consolidated Appropriations Act, 2020” and H.R. 1865, the “Further Consolidated Appropriations Act, 2020” are government funding bills that include numerous tax changes that directly affect taxpayers in past, current, and future tax years. The changes that are most likely to impact our clients are highlighted below.
The IRS and the FASB (Financial Accounting Standards Board) require non-profit corporations to present an analysis of their expenses – by function. That is, how is your organization using its resources? How much of your expenses are spent on “Management” versus “Program?” How much of your resources are used for “Fundraising” rather than “Program?” This type of analysis is required and useful for donors and lenders, but it is also a valuable tool for management.
Financial statements provide a picture, a snapshot, of the state of your organization at one point in time – generally your fiscal year end – and how well you managed your funds over that fiscal year.