Exempt Organizations Fundraising & Special Event Reporting Presented by Morris J. Peacock, CPA APPL Conference February 18, 2015
Overview of Discussion What are fundraising and gaming activities? How are fundraising and gaming activities treated for 990 core reporting? What are the differences between financial reporting and tax reporting treatments for these types of activities?
What are fundraising and gaming activities?
Definition of Fundraising Activities (per the 990 instructions) Activities undertaken to induce potential donors to contribute money, services, other assets or time to the organization. Includes fundraising campaigns, maintaining donor mailing lists, conducting fundraising events, professional fundraising services, and other activities conducted to solicit contributions.
Examples of Fundraising Events Fundraising Events Include: Dinners/Dances Door-to-door sales of merchandise Concerts Carnivals, sports events and auctions Fundraising Events Do Not Include Sales or gifts of goods or services at nominal value Raffles or lotteries in which prizes have only nominal value and Solicitation campaigns that generate only contributions Proceeds from these activities are considered contributions (Line 1f)
What is Not a Fundraising Event A trade or business regularly carried on Activities substantially related to the exempt purpose for example, art festival conducted by an art museum to promote awareness and education Solicitations/campaigns that generate only contributions (even if donors receive gifts of nominal value) Gaming Note: Casino nights which are not regularly carried on in which the only prizes or auction items provided to participants are noncash items that were donated to the organization are considered fundraising events, not gaming for IRS purposes (state rules may differ)
Definition of Gaming Activities (per 990 Instructions) Gaming, also called gambling is a chance at a prize for a price. Gambling includes bingo, pull tabs, poker, raffles, regularly carried on casino nights (unless all prizes are noncash donated items), coin-operated gambling devices, and other games of chance.
Treatment on Form 990 How are fundraising and gaming activities treated for Form 990 core form reporting?
990 Core Form Reporting Statement of Revenue Statement of Revenue Part VIII Fundraising event revenues are broken out separately from other revenue sources Event contributions are broken out from the exchange revenue portion of event revenues Gaming activity revenues are also broken out Both are netted against direct expenses Net income or (loss) from the activities are generally classified as either unrelated or excluded. Gaming may be part of exempt purpose income for a social club but are generally not related for 501(c)3 or other exempt organizations. Fundraising events are not related by definition
990 Core Form Reporting Presentation of Revenues For the 990, revenues must be classified as related, unrelated, or excluded Remember that just because the proceeds of an activity are used for the organization s exempt purpose does not mean that the activity itself is considered related The activity itself must be related to the organization s mission to produce related revenues
990 Core Form Reporting Fundraising Event Contributions The organization must calculate contributions associated with fundraising events Fundraising event contributions are reported on line 1c of Part VIII as part of total contributions Line 8a reads: Gross income from fundraising events (not including $ of contributions reported on line 1c) Contributions are considered to be the portion of the payment that exceeds the FMV of the goods or services received by the donor. To the IRS, cost to the organization is irrelevant in this determination
Determining Contributions for Fundraising Events Indicate on solicitations and substantiation/donor acknowledgement letters the portion of the payment that is considered a contribution, which is the total payment less the FMV of the goods or services received by the payor If sponsorships underwrite the full cost of an event such as a charity concert, there is still a FMV to the ticket purchased. That FMV is not considered to be a contribution to your organization. Specify the breakdown on the receipt.
Determining Contributions for Fundraising Events Remember to consider the FMV of all benefits available to donors, even if the donor later chooses not to take advantage of the benefits The IRS disallows a contribution for the FMV of the right to use the benefit (such as admission to the charity concert), even if the benefit is not used, unless the donor clearly indicates that he or she does not wish the benefit to the reserved for them
990 Core Reporting Noncash Contributions Remember: Donated Services or use of materials, equipment or facilities are not considered revenue for Form 990. Some noncash contributions will be reported as 990 revenue and expense (e.g. report donations of property and materials on Part VIII, line 1f and 1g) Other noncash contributions are excluded from the 990 and are reconciling items for the Schedule D reconciliations to the audited financial statements Reporting fundraising and gaming events often requires backing out donated services related to the events Noncash contributions greater than $25,000 triggers Schedule M filing
Common Examples of Donated Services/Use of Facilities Advertising Services Legal/accounting services Entertainment for a special event Airline tickets (when donated by an airline) Hotel packages (when donated by hotel) Donated office space from governmental unit
Example 1: Distinguishing Event Contributions from other Gross Receipts Metro Boys and Girls Club (a nonprofit organization) sells tickets to its fundraising dinner for $100 each. The benefits to the attendees are as follows:» Cost per attendee FMV Food $20 $50 Entertainment $ 0 $25 Table favors $ 5 $ 5 Total $25 $80 For the 990, what portion of each ticket sold is reported as: Fundraising Event contribution? Gross income from fundraising event (other than contributions)?
Treatment for 990 Example 1: Answers and Comments Treatment for the 990: Fundraising event contributions= $20 ($100-$80) Report on line 1c Gross income (exchange revenue)= $80 ($50+$25+$5) Report on line 8a Costs of $25 are reported as direct event expenses Report on line 8b Note: Entertainment would be a donated service no value would be assigned for 990 revenues However, if the table favors were donated, the donation revenues would be report for the 990, since it is a donation of property, not services.
Example #2: Distinguishing Event Contributions from other Gross Receipts Soccer for Girls, Inc. holds a fundraising bazaar and solicits donated goods for the sale. They research the value of items received and attempt to set the bazaar prices at FMV Mary Jones purchases an unopened DVD for $15 What portion of the purchase price is reports as: Fundraising event contribution? Gross income from fundraising event (other than contributions)?
Example #2: Answers and Comments The entire purchase price of $15 is considered to be a payment for the DVD at FMV. No portion is considered to be a contribution. The entire payment would be reported on Part VIII, Line 8a If the DVD sold at the bazaar was donated to the organization, there would be a separate general noncash contribution recognized on line 1f and 1g for the value of the donated item. This noncash donation is not reported as part of the fundraising activity on the 990.
990 Core Form Reporting Fundraising Expenses Direct expenses are netted against revenues in Part VIII Statement of Revenues Examples of direct costs: food costs associated with a fundraising event, value of donated item sold at a charity event auction, wages for event personnel Indirect expenses are reported as fundraising expenses in column D of Part IX Statement of Functional Expenses Examples of indirect costs: advertising costs for a fundraising event, salaries not specially related to the event
Unrelated Business Income Tax (UBIT) Fundraising and gaming activities, if regularly carried on, may result in UBIT. Are fundraising/gaming activities conducted by your exempt organization subject to UBIT? Are the activities: A trade or business? Regularly carried on? Unrelated to exempt purpose? An activity that does not meet all three criteria above is automatically exempted from UBIT
Exception to UBIT Activities Conducted by Volunteers Revenue from events for which substantially all work is conducted by uncompensated volunteers is specifically excluded from UBIT, even when regularly carried on. Substantially all is not defined, but 85% is a common rule of thumb. Must document the hours from both compensated and uncompensated employees/volunteers Be aware that tips, free food, drinks, discounts or other benefits could be considered compensation
UBIT Exceptions--Bingo Traditional Bingo is specifically exempt from UBIT. See the instructions and details if this applies to your organization
Other 990 Reporting Examples Auction Sale Makes Money Teen Aid, Inc. receives a donation of a deluxe personal gym with a FMV of $5,000 (at the time of donation), puts the personal gym up for auction with a sign available to all bidders indicating that the FMV is $5,000 (at the time of the auction), incurs $500 in costs relating to selling the personal gym and receives $7,500 at the auction How should the various components of the transactions be recorded?
Auction #1 Sale Answers Contribution from fundraising event, Part VIII, line 1c & line 8a parenthetical for $2,500 Other non-cash contribution (receipt of gym), Part VIII, line 1f & 1g for $5,000 Gross income from fundraising events, Part VIII, line 8a for $5,000 Direct expenses (value of personal gym sold) and selling costs, Part VIII, line 8b for $5,500 Net loss from fundraising event, Part VIII, line 8c showing a loss of $500
Example 2: Auction Sale, losing money Same facts as Auction Sale #1, except that the auction only nets $2,500
Auction Example #2 Answers Contribution from fundraising event, Part VIII, line 1c & line 8a parenthetical for $0 Other non-cash contribution (receipt of gym), Part VIII, line 1f & 1g for $5,000 Gross income from fundraising events, Part VIII, line 8a for $2,500 Direct expenses (value of personal gym sold) and selling costs, Part VIII, line 8b for $5,500 Net loss from fundraising event, Part VIII, line 8c showing a loss of $3,000
What are the key differences between financial reporting under generally accepted accounting principles and tax reporting treatments for fundraising and gaming activities?
GAAP Reporting of Special Events Revenue can be presented on one line as special event revenue or naturally (i.e. as contributions and ticket sales ) GAAP requires recording the fair market value of donated services as revenue if (and only if) those services: Create or enhance a nonfinancial asset Require specialized skills, are provided by persons or entities possessing those skills and would need to be purchased if they were not donated
GAAP Reporting of Special Events (Continued) Expenses are allocated to standard functional categories (program, general and administrative, fundraising) applying the joint activity rules, where applicable Exception: Costs of direct benefit to donors are separately presented Examples: meals, facility costs, decorations, entertainment, raffle prizes
GAAP Reporting of Auctions Noncash items are recognized as a contribution at FMV Under GAAP, auction proceeds are presumed to equal their fair market value of the donated items sold at the auction The organization adjusts the originally recorded contribution amount to equal the auction proceeds Under GAAP, there is no COGS for donated auction items
Questions? Morris J. Peacock, CPA morris@hintonburdick.com (435) 628-3663 ext 216