YOUR BUSINESS AUTHORITY
Fundraising is an important revenue-generating activity for nonprofits that can be accomplished a variety of ways, one of which is holding a special event. When your organization holds an event, it requires detailed financial reporting to maintain tax compliance for items such as donor acknowledgment letters and federal form 990 filings.
Accounting for a special event includes managing contributions, such as cash, and in-kind items and services, as well as expenses and ticket sales.
Gross revenue for a special event comes from ticket sales, and cash and in-kind contributions. However, due to the way special events are required to be presented on Schedule G of form 990, contribution revenue is removed to show net special event revenue. While you might be tempted to believe contributions are easily determined, remember that ticket sales will typically have a goods/services received component and a quid pro quo component to separate out.
Cash contributions are monetary donations to the event with no expectation of goods or services in return.
In-kind contributions could be in the form of goods or services. For example, a local florist donates flower arrangements for each table at a dinner gala or a local radio station agrees to provide free advertising.
Quid pro quo contributions come from a donation wherein the donor receives some form of goods or services for their contribution. Keeping with the dinner gala example, assume each attendee paid $100 for their ticket. If the fair market value of the catered meal is $20 per plate, the attendee is actually paying $20 for their meal and then donating the remaining $80 of their ticket purchase to the organization.
With quid pro quo contributions, keeping track of the number of attendees and ticket sales can help simplify determining net revenue of the event.
While special events are held to bring in donations for the organization, expenditures are still necessary for a successful event.
When the event’s gross revenue is $15,000 or more, it is necessary to provide detailed reporting of it on the form 990, Schedule G. The form requires expenses to be split into six categories: cash and noncash prizes, facility costs, food, entertainment and other direct expenses. Note: Not every event will have all these expenses.
Prizes (cash and noncash) are given out to attendees in relation to the event. Examples are medals for a race, swag bags, T-shirts, golf balls, etc. However, prizes related to games of chance are not considered part of the event net expenses – or part of the net revenue; games of chance should be reported separately.
As a reminder, in-kind contributions are included as an expense as well, meaning the effect is net zero for financial presentation. The idea is that the expense would have been incurred by the organization if not for the in-kind donation.
After hosting a successful event, you are likely to send thank-you notes to the attendees who made it successful and helped raise money.
At this point, it is important to revisit the quid pro quo contributions concept. Those in excess of $75 require that an acknowledgment letter outlining the breakout of donation and goods/services be sent to the donor.
In the dinner gala scenario, the ticket price of $100 is the quid pro quo contribution. Since the ticket price exceeds the $75 limit, you are required to inform the donor of the amount considered a contribution to the organization: “Thank you for purchasing a ticket in the amount of $100 to the dinner gala. The amount of your ticket purchase that is deductible for federal income tax purposes is $80.”
Hopefully, this summary of special event reporting alleviates the administrative burden you might face with IRS compliance to keep the spotlight on your successful fundraising endeavor.
Kayla Bell is a senior manager for FORVIS LLP. She can be reached at email@example.com.
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