By Rhonda G. Williams, CPA
Barraclough & Associates, P.C.
Certified Public Accountants & Consultants
FUNDRAISING: KEEPING IT SIMPLE
Now is a good time to revisit the rules regarding fundraising events, since we are in the season of year-end donor pitches and holiday parties. The IRS depends on organizations to know when an event is considered to be a fundraising event and how that income and expense are to be reported. If the income from a fundraising event, excluding sponsorships and other donations, does not meet or exceed an event’s costs, the shortfall must be covered with donor funds that were intended for charitable purposes.
Fundraising income and expenses are reported on Form 990 as follows: Page 9, Part VIII, Lines 1c, 8a, 8b, and 8c; and Page 10, Part IX, Column D. If total fundraising event contributions and income exceed $15,000, they must also be reported on Schedule G, Page 2, Part II. Not every event that people consider to be a fundraising event is reportable as such on the Form 990. Fundraising events do not include events or activities that substantially further the organization’s exempt purpose, even if they also raise funds.
Fundraising events include: Fundraising events do not include:
dinners, dances, concerts sales or gifts of goods or services of only nominal value
door-to-door sales of merchandise raffles or lotteries in which prizes have only nominal value
carnivals, sports events solicitation campaigns that generate only contributions
auctions, casino nights
A fundraising event is one in which the participants receive goods and services in exchange for their payment. If the payment exceeds the value of those goods and services, the excess is deductible by the payer as a charitable contribution. Fundraising event expenses are the direct costs and allocated costs of an event, i.e. those goods and services that are made available to or for use by the event’s attendees. On the other hand, fundraising expenses are those expenses whose sole purpose is to raise funds for the organization.
The primary purpose of a fundraising event is to raise funds for the organization by offering goods or services that have more than a nominal value (compared to the price charged) for a payment that is more than the direct cost of those goods or services. The contribution portion of this payment is reported on Page 9, Part VIII, Line 1c and the dotted line by Line 8a. The income from the event (the noncontribution portion) is reported on Page 9, Part VIII, Line 8a. Event expenses reported on Line 8b are the costs of the goods and services provided: food, facility rent, entertainment, auction items, etc. Whether those goods or services were purchased by the organization or donated to it is irrelevant. Anything provided to an attendee is a cost of the event, regardless of how it was obtained. However, only purchased goods and services and donated goods are reported as costs on Line 8b. Donated services are not reportable by either the donor or the receiving organization for tax purposes, so are not included in the cost calculation.
To determine the price of the ticket for a fundraising event, the organization must calculate the fair value (not the cost) of the goods and services it will be providing to the buyers/sponsors. This is the nondeductible portion of the payment. The difference between the ticket price and the fair value is the deductible portion of the payment. The organization is required by law to provide this information to the buyers. The IRS will assess penalties on the organization if it determines that the deductible amount is too high.
Fundraising expenses are reported on Page 10, Part IX, Column D. Some examples are payments to professional fundraisers and grant writers, printing and postage for donor solicitations, and allocated wages for employees who spend part of their time working on fundraising. Fundraising is not an exempt activity, therefore fundraising expenses should never be reported in Columns B and C.
Isolating the income and expense of a fundraising event on Page 9 of the 990 makes it simple for anyone to determine whether or not an event made or lost money. An event that loses money reduces the pool of funds an organization has available for charitable purposes. If event income does not at least cover costs, ticket prices should be modified or the event discontinued.