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Special Events: What You Need to Know Part 2

 What is a Special Event? 

  • Primary purpose is to raise funds other than contributions to finance an organization’s activities.
  • Attendee / participant typically receives a direct benefit.
  • Examples include dinners, dances, races, bingo, gaming activities, tournaments, and other events.
  • Can be ongoing, major activities or peripheral / incidental to the organization’s central activities.

Why is the Accounting Important? 

  • There are different reporting requirements for financial statement and tax purposes.

Special Event Income 

  • Income from special events can be part “exchange transaction” and part contribution.
  • Maintain detail of total gross income by event.
  • Different requirements for Form 990 presentation.

Special Event Expenses 

  • Costs that are directly attributable to the benefit received by the event attendee or participant (i.e. food and drink, gift items).
  • Costs associated with promoting and conducting the event.
  • Separately detailing these costs may be important for functional expense reporting (program vs. fund-raising).

Financial Statement Requirements 

  • GAAP has different required presentations.
  • The presentation depends on whether the special event is part of the organization’s central activities or not.
  • If yes – then revenue and expenses must be reported at gross amounts on the Statement of Activities.
  • If no – you have options.

Financial Statement Presentation 

  • Option 1:
    • Gross revenue of special events and other fund-raising activities with cost of direct benefits to donors displayed as a line item deducted from the special event revenues.
     
  • Option 2:
    • Can consider revenue from special events and other fund-raising activities as part exchange and part contribution and report the two parts separately.
     
  • Option 3:
    • Gross revenues of special events and other fund-raising activities with the cost of direct benefits to donors displayed in the same section of the Statement of Activities as are other programs, management and general, or fund-raising expenses.
     

How Does Form 990 Differ? 

  • Income is calculated based on the retail value of the benefit received by the event attendee or participant - different than gross proceeds.
  • Any amounts received in excess of the income (gross proceeds less income calculated) are considered contributions and should not be included in special events income.
  • If the benefit received has a nominal or insubstantial value, then the entire amount received is considered a contribution.

2008 Form 990 

  • Only need to complete detail if gross revenue exceeds $15,000 from all events in that fiscal year.
  • Direct expenses broken out:
    • Cash prizes
    • Non-cash prizes
    • Rent / facility costs
    • Other direct expenses
     

Bonus Material – AUCTIONS! 

  • The nonprofit organization is responsible for making a good faith estimate of the fair market value of goods or services (value that is within a typical range is acceptable).
  • A deduction is available to the DONOR of an item, but it is limited to the donor’s tax basis in the property.
  • Deduction is available only for the portion of the bid that exceeds the fair market value of goods or services received (PURCHASER).
  • Form 990 reporting becomes complex when sales price is greater than fair market value.

Government Grants 

Recording on Form 990

Contribution vs. Program Service Revenue 

  • Contribution: primary purpose is to allow the organization to provide a direct benefit or service to the public.
  • Program service revenue: income earned by providing a government with a service, facility, or product that directly benefits that government entity rather than the public as a whole.

Form 990 

  • Line 1e – Government contributions: primary purpose is to allow the organization to provide a direct benefit or service to the public.
  • Line 2 – Program service revenue including government fees and contracts - income earned by providing a government with a service, facility, or product that directly benefits that government entity.
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