Form 990 Series: Schedule G – Why Does the IRS Want Us to Look Like We Lost Money? (Part 3 of 3)
June 18, 2014
For the strong who survived the core Form 990, Schedule A, Schedule B and Schedule D, you may now have arrived on Schedule G. If you were “lucky” you might have skipped ahead to this schedule when you looked at the statement of revenues (Part VIII Page 9) and saw that the Special Event looked like it lost money? How is that possible? Special Events are specifically designed and laboriously planned to PRODUCE REVENUE for the organization. The IRS strikes again! The details of the 2 largest special events and the total of other special events (grossing more than $5,000) are detailed in Part II of Schedule G. Here is a quick explanation of each line:
Line 1 – Gross receipts – This is kind of self-explanatory. All receipts collected at/for the event are included in this line. We are going to be using an example throughout this article so let’s start now. (Full disclosure – this is a very simple example) A not-for-profit organization is holding a golf outing. The attendance is great – 100 people! Each person paid $175 for their ticket, therefore gross receipts would be $17,500
Line 2 – Less contributions – Here is the fun part. This is where the IRS “ties” the 1040 contribution deductions to the amounts included on a not-for-profit’s Form 990. The contribution amount included in the gross receipts needs to be removed. For the sake of our example, George attends the golf outing as discussed above. The golf outing includes a round of golf, a golf cart and dinner. This package would normally cost $90 at the golf course. The remaining portion of George’s ticket price ($85) is the contribution he has given to the organization. If 100 people attended the golf outing, each having paid $175 for their tickets, then the amount of contributions listed on line would be $8,500. The organization should be sending George an acknowledgement which will let him know that the deductible portion of his ticket price was $85 and if you were to look at George’s 1040, he should deduct $85 as a contribution to the not-for-profit organization.
Line 3 – Gross income – this is simply gross receipts less contributions. In our example line 3 would be $9,000.
Lines 4 through 9 – Direct expenses – The items included on these lines should only represent those expenses incurred on the day of the event. If an organization advertises for the event to sell tickets, these costs should NOT be included as direct expenses on the Schedule G. If the expense was not “used” on the day of the actual event, then do not include it on this schedule. To continue our example, we had the following costs associated with the event: golf course fees & dinner $7,500, band for dinner music $1,000, signage $200 and logo items to give away to each participant $1,000.
Gross Receipts $17,500
Less Contributions ($8,500)
Gross income $9,000
Direct Expenses ($9,700)
Net income summary ($700)
To an unknowing reader, this might look like the organization lost money on the event. That is not really the case. The IRS requires that contributions be shown separately and not included in the net income calculation of the special event. (As I said earlier, the IRS strikes again!) It is important for the accounting staff to be involved in the reporting of the special events and the development staff should be careful with the “deductible portion” being reported to the attendees of the events. It is important not to overstate the amount contributed by each individual. It is just as important for the management of the organization to understand how this particular schedule works so that they can explain to their governing body and others how they should be reading the schedule.