Part 4- Best Practices in Nonprofit Special Events Reporting: Guidelines to Increase Clarity and Consistency
Part 4: Planning Ahead for Nonprofits with Special Events
Nonprofits that hold annual special events should be thinking ahead to ensure they maintain adequate records for their annual financial statement filing and Form 990 information returns. All nonprofits with special events should make sure they close their books properly and ensure that any cash received or disbursements paid before year-end relating to subsequent year special events are properly reflected in the financial statements. Charities who receive sponsorships to events held in the following year should verify what portion of the sponsorship is payment on a quid pro quo/exchange transaction versus a contribution.
In addition, for financial statement purposes, charities with special events should do the following:
- Track cost of direct benefits to donors by event;
- Track ticket price and number of tickets sold by event;
- Track cost of direct donor benefits and report fair value of same in donor acknowledgment letters
The cost of direct donor benefits should be tracked by event, including any costs of entertainment, food & beverages, and cash/non-cash prizes to facilitate year-end audit/review work as well as the information return filing process. Tracking the ticket sales portion of special events revenue will not only expedite reconciliation of special events revenue, it will also provide valuable detail for external auditors testing special events revenue. IRS regulations require charities to report the fair value of benefits received by donors in exchange for their donation in acknowledgment letters issued to donors when donor payments exceed $75. Compliance with this requirement will simplify the tax reporting process for preparers of the 990 information return since this information is required on Schedule G.
For Form 990 information return reporting, additional records should be maintained in order to ensure that all information required for the return is available. The preparation process should include:
- Tracking value and proceeds of auction items donated for each event;
- Scheduling out each special event with revenues and expenses;
- Breaking out special event expenses between direct benefits to donors and other direct expenses.
It is important that charities holding special events track the value of all donated auction items along with the proceeds from each item sold. This is important because donor acknowledgment letters must report the fair value of donated items so that the donor is informed of the portion of its payment that is tax deductible. Preparing a schedule that reports all special events revenue and expenses by event is helpful to facilitate the preparation of Schedule G. This can also be accomplished by creating a separate chart of accounts for the revenues and expenses of each special event. Lastly, it is important for charities to break out their special events expenses between direct benefits to donors and other direct expenses as these expenses are reported separately on Schedule G of the 990.
Nonprofit special events reporting can be both cumbersome and misconstrued. Distinguishing quid pro quo transactions from contributions, sponsorship revenues from liabilities, and direct benefits to donors from other direct expenses requires an in-depth understanding of FASB ASC 958 as well as IRC regulations and Form 990 instructional guidelines. The paradox with nonprofit special events reporting, however, is that following technical reporting requirements is only half the battle. Both practitioners and nonprofit organizations alike must still be able to explain to prospective funders what the numbers mean, clarify misconceptions, and even articulate the dichotomy that exists between reporting requirements and reality.