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.
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.
- 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.