If your tax-exempt nonprofit organization utilizes annual fundraising events to raise money, you’re not alone. Many nonprofits host dinner galas, golf tournaments, runs/walks, carnivals, concerts, etc. to raise awareness and funds for their cause. And for many small to mid-size nonprofits, these special events are major sources of revenue that support internal operations which deploy the organization’s mission. However, with these events comes additional recordkeeping and IRS reporting responsibilities that many organizations overlook. Here are a few ways to ensure your fundraising event is in compliance with the IRS:
Event Contributions vs. Ordinary Contributions
Contributions received from fundraising events are different from ordinary charitable contributions received throughout the year. Ordinary contributions are made without any expected benefit in return and they are fully deductible on a donor’s income tax return.
On the other hand, event contributions are only partially deductible because attendees typically receive something in return for their donation (i.e. meal, golf greens fee, show attendance, etc.). Because of this “quid pro quo” contribution, only the portion over and above the benefit received is considered a charitable donation.
Here’s an example: Your nonprofit is hosting a gala. Tickets cost $150 per person and each attendee will receive dinner and live music. The fair market value of the dinner and music is deemed to be $50. Therefore, the attendee is purchasing a $50 meal (purchased good) and contributing $100 to your organization (charitable contribution).
Segregating Special Events
Due to the infrequent nature and fundraising aspects of special events, the IRS requires them to be reported separately on the Form 990 tax return. The isolation of special events preserves the integrity of the financial information related to the organization’s program activities. This allows readers of the Form 990 to get a clear financial understanding of how the organization utilizes funds for their mission activities.
In order to facilitate this requirement, the organization needs to segregate and track all revenue and direct expenses associated with each fundraising event. In addition to segregating activities, the charitable portion of each attendee’s purchase must be determined. These contributions are then stripped from the fundraising event and shown elsewhere on the Form 990 return. Many times, this leads to the fundraising event reporting a loss on the face of their tax return.
Although uncomfortable to the organization, showing a loss from a fundraising event is a very common occurrence. When the contributions are combined with the net income from the fundraising event, it becomes clear that the events are normally very successful and raise thousands of dollars. But with that success comes added IRS compliance!
Additional IRS Compliance
If an organization raises over $15,000 from fundraising events, there is an added responsibility of preparing Schedule G with Form 990. This schedule details the revenues and costs associated with each fundraising event.
However, tax return reporting isn’t the only compliance requirement for fundraising events. If the purchase price of a ticket for any fundraising event is greater than $75, the organization must include a statement with or on the face of the ticket stating the fair market value of the benefit received. In the case of our example, the ticket would read:
“Thank you for your cash contribution! You received goods and/or services valued at $50 with your contribution.”
This ensures the donor is aware that his or her deductible contribution is only $100 and ensures that your organization is complying with IRS rules.
If done correctly, fundraising events can be a powerful and exciting way to celebrate your nonprofit’s accomplishments or introduce your mission to new contributors. Fundraising events can also be seen as great networking opportunities or chances to give the casual donor an additional reason to support your cause.
If you would like to learn more about fundraising events or have any questions, please contact the nonprofit team at Cray, Kaiser. We can ensure your organization has the right resources in place to make your next fundraising event a success!