Part 3- Best Practices in Nonprofit Special Events Reporting: Guidelines to Increase Clarity and Consistency
Part 3: Common Pitfalls in Tax Return Reporting
Excluding Non-cash contributions
One common omission from Form 990 is non-cash contributions, particularly donated auction items. Since items donated to be auctioned off at special events typically come in and go out at the time of the fundraiser, one might assume that these items do not have to be reported to the IRS. Donated auction items and other non-cash contributions actually must be reported on Form 990 and, potentially, on Schedules G and M, if the charity meets the reporting requirements of these schedules.
To illustrate, assume that ABC Organization receives items donated from 20 Board members for its silent and live auctions valued at $30,000. Total ticket sale proceeds from the event are $120,000, $70,000 of which represent contributions. The fair value of direct donor benefits is $50,000 and direct expenses equal $60,000, consisting of: $5,000 venue cost, $15,000 food and beverage costs, $7,500 in entertainment costs, and $32,500 in other direct expenses. Auction items valued at and sold for $30,000 are reported as non-cash contribution revenue from special events on Part VIII of 990 (lines 1c and 1g). The $30,000 value of these non-cash contributions is also added to contribution revenue on Schedule G (line 2) and direct expenses (line 9). In addition, because total non-cash contributions exceed $25,000, Schedule M must be filed. Illustrated below is the required reporting for ABC Organization on Part VIII of Form 990, as well as Schedules G and M.
Part VIII Form 990 Reporting
Schedule G Reporting
Schedule M Reporting
Coming back to an earlier point, in this example, ABC reports a $40,000 loss on Schedule G. This may mislead the reader into believing that ABC lost money at the event. To the contrary, ABC netted $60,000 from the event, which consisted of the $100,000 in contributions from the event offset by the apparent $40,000 “loss” on Schedule G.
Improper breakout of contributions versus special events
Another common error on Schedule G and Form 990 is the failure to break out contributions and special events revenue correctly. The split between special events revenue and contributions is based entirely on the fair value of direct donor benefits (i.e. food/beverages/entertainment), not the ticket price charged to each event attendee. Assume that the event has 200 attendees and the ticket price is $600 while the value of direct benefits received is $250 per attendee. This results in $50,000 in direct benefits to donors, which is reported on line 3 of Schedule G, part II, as well as line 8a of Part VIII of Form 990 (illustrated below):
Form 990, Line 8a of Part VIII of Form Reporting
Inconsistencies between 990 Part VIII and Schedule G Reporting
One more common error made is not reporting Part VIII of Form 990 and Schedule G consistently. The components of line 8 of Form 990, Part VIII should always match the related lines on Schedule G, Part II.