Nonprofit special event IRS reporting requirements
Fundraising events are vital for the sustainability and impact of most nonprofit organizations, as they not only generate essential donations, but also increase awareness of the organization’s mission. Whether your organization is planning an auction or charity run, you need to plan it carefully with three main goals in mind: to create a memorable experience for your attendees, meet fundraising goals, and to comply with the accounting and reporting standards for your organization.
Our not-for-profit team receives many questions from our clients regarding tax reporting requirements for fundraising events. To help your organization meet IRS tax-exempt fundraising compliance, we are sharing our insights on some of our frequently asked questions. Please note that GAAP financial reporting requirements might be different.
Fair Market Value Considerations
Question 1: Item Donation Acknowledgement
Can a nonprofit organization include the Fair Market Value (FMV) amount in the acknowledgement letter to donors for non-cash contributions?
A: No, nonprofit organizations should not assign the FMV value for purposes of the donation receipt. Deductions for non-cash contributions are limited to the donor’s tax basis (not FMV) so that would be misleading.
Question 2: Fair Market Value Calculation
In determining FMV of items for our accounting and receipting for the purchaser purposes, can a nonprofit organization allow the donor of the item to indicate the FMV?
A: You can ask the person that donated the item to your event to give you context of the value and estimated FMV. Keep in mind that sometimes donors may overestimate the value if they have an emotional attachment to it or are particularly proud of the donation.
Question 3: What if the value provided by the donor contradicts the FMV determined by the nonprofit organization’s own research policy?
A: Donors often think the item they donate is worth more than what the general public would be willing to pay. You should use the standard retail price, if available.
For items that are more difficult to assess, we recommend using an online reselling website, such as Ebay. You can find almost any item for sale on these sites. You can also look at other auctions/fundraising events that are like the one your organization is planning and evaluate how they priced their items. The prices may not be exactly the same, but you should see some overlap that makes sense as a basis.
Question 4: Item Purchase at an Auction
A: Nonprofit organizations are not required, but can elect, to post FMV on items at an auction.
Your organization should determine the FMV of each item being used before the auction and provide a receipt so the donor can calculate their deduction (if applicable).
Question 5: Ticket Purchases
Would you confirm that when calculating the tax-deductible portion of a fundraising event’s ticket price, it should be calculated based on the per-head cost of a “similar experience” elsewhere, which includes just the food, beverage, and entertainment and excludes other event costs such as an auctioneer, décor, etc.?
A: The full experience should be included; however, you may find that the individual value of those ancillary items is negligible. It is best to find a comparable event where there are established charges for admission (that are not for charity). A large majority of our clients take the stance that auction tickets (with food, drinks, music, networking, etc.) are not priced materially above fair market value and thus parsing out a contribution piece (i.e. deduction) is not required.
If your event includes a raffle, a nonprofit will likely need to report raffle prizes if (a) the amount paid reduced, at the nonprofit organization’s option, by the wager (the amount a person paid for the chance to win a prize), is $600 or more: and (b) the payout is at least 300 times the amount of the wager. Your organization will need use Form W-2G for this reporting. Read more about the IRS requirements for event prizes.
Questions on nonprofit fundraising accounting specific to your organization? Contact your Keiter Opportunity Advisor.
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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.