Special events, such as galas, conventions and sports tournaments, require an enormous amount of planning. So you’d be forgiven if you pushed “tax compliance” to the bottom of your to-do list. However, tax reporting for nonprofit events may differ from and be more complex than what you’re accustomed to with other activities. So the sooner you start thinking about it, the better.
Reporting requirements
If your organization adheres to Generally Accepted Accounting Principles (GAAP), you typically report revenue and expenses related to special events on your financial statements as net special event revenue. For tax purposes, though, your organization may need to report some of the event ticket revenue as contributions on your IRS Form 990. For example, if attendees pay more for a ticket to a dinner than the dinner’s fair market value (FMV), the excess would be a contribution.
You also must report other special event data on Form 990 if you have more than $15,000 in fundraising event gross income and contributions. Complete Schedule G, “Supplemental Information Regarding Fundraising or Gaming Activities.” It requires your organization to report amounts for individual events that grossed over $5,000. Besides revenue amounts, you’ll need to report these expenses:
- Cash prizes,
- Noncash prizes,
- Facilities rental,
- Food and beverages,
- Entertainment, and
- All other direct costs.
If your event includes gaming, you’ll need to answer a series of multipart questions. You’ll also need to allocate income and expenses between the gaming and fundraising events.
Goods and in-kind donations
Nonprofits often rely on donated services or facilities, as well as the work of volunteers. Although GAAP generally requires nonprofits to record these types of in-kind contributions and, in some cases, the value of volunteer time, the IRS doesn’t include them in contributions or expenses.
Say a local hayride vendor donates $2,000 of his time and use of his truck to your autumn harvest festival. You must report a donation of $2,000 in services on your financial statement, with a corresponding in-kind expense. But you won’t report the amount in contributions or expenditures for tax purposes.
Goods donated for an event, on the other hand, receive similar treatment on financial statements and tax returns. They’re reported as contribution revenue and, when the donations are used, as expenses. For example, if a vendor donates balls and gloves for a softball tournament, the donation is a contribution. When the items are used at the event, they’re an expense.
Role of FMV
Donors may not be aware of tax rules for participating in a special event, particularly if they’re accustomed to deducting the full amount of cash donations. Help them understand that deductible contributions are reduced by the FMV of the benefit they receive (for example, the meal, entertainment, round of golf or souvenir t-shirt).
You should provide donors with a written statement listing their payment amount and the FMV of goods and services received. If their payments are more than $75, tell them to deduct only the excess of their payment over the FMV. Note that it’s the initial payment amount that triggers the obligation, not the amount of the deductible portion. Also recognize that failure to make this disclosure can result in a penalty of $10 per contribution, up to a maximum of $5,000 per fundraising event.
Careful recordkeeping
As with other kinds of financial reporting, good recordkeeping is essential to accurately reporting special events. Track revenues, expenses and related documentation throughout the planning stage, and ensure that data is easily accessible in one place after your big event. Contact us about special circumstances, such as the additional reporting implications of gaming activities or if you think your event has potentially produced taxable unrelated business income.