This Insights article was contributed by Sandy Crumrine, CPA.
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 the ticket is the charitable donation for the donor. The non-profit organization reports this to the donor, usually on the ticket for the event or in 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.
Chad Wouters, CPA joined Earney & Company in December 2006 and became the tax partner in November 2013. With an emphasis on strategy and planning, Chad works with his clients all year to ensure the most efficient tax strategies are put into place. Earney & Company, L.L.P. is a CPA firm that handles tax compliance, consulting and planning as well as audit and other assurance services. For more information please visit www.earneynet.com or call (910) 256-9995. Chad can also be reached at [email protected].
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