By: Jeff Quigley, CPA, Partner
You are probably well aware of the accounting for payments made at fundraising events in which the contributor receives something of value in connection with the contribution made (quid pro quo contributions). In the case of a standard fundraising dinner, the fair value of the meal received is subtracted from the ticket price to arrive at the value of the contribution. This makes sense when you consider the differences between contributions and exchange transactions, and the IRS’s desire, when dealing with tax deductible contributions, to not give you credit for a charitable contribution when a portion of your payment is made for non-charitable purposes.
As with any exchange transaction, the revenue associated with the fundraising event should not be recognized until the event occurs. Consequently any payments received for value received prior to the fiscal year in which the event occurs should be recorded as deferred revenue.
The recording of the contribution portion of the payment gets tricky when the contribution is made in advance of the fiscal year in which the fundraising event will occur. Paragraph 5.119-120 of the Not-for-profit Audit and Accounting Guide suggests that when the event takes place in the subsequent fiscal year the contribution portion of a payment is conditional on the event taking place and therefore should be recorded as a refundable advance. In order to disregard such a condition it must be deemed to be so remote that is it negligible, and therefore unconditional; or the contributor must expressly waive the condition. To document the contributor’s intent to make an unconditional contribution, the related solicitation should provide the contributor the opportunity to indicate whether or not the payment should be returned if the special event does not take place. This can easily be done through a check off box on the solicitation.
As you can see it is important for the accounting department to be aware of the timing of the organization’s special events and maintain an open dialogue with the development staff. Maintaining a close relationship will assure that accounting concerns can be adequately addressed prior to the mailing of solicitations.
The IRS substantiation and disclosure requirements, and other tax considerations, for quid pro quo contributions are outside the scope of this article. However, there is a great article regarding those matters here.
Jeff Quigley is a partner in Tate & Tryon’s Audit & Assurance Services department and can be reached at [email protected].