Events such as annual galas, 5k run/walks, trips, and dinners are a great source of revenue for nonprofit organizations. They gather stakeholders and constituents together and give organizations an opportunity to showcase their charity or cause and invite others into investing in it. One thing to consider when hosting such events are the potential tax ramifications that go along with these types of events. With proper planning there is no need for alarm. Today we will look at some of these tax ramifications and ways you can ensure you’re covered.
A great place to begin is with an understanding of what exactly constitutes a fundraising event according to the IRS. According to their website, the IRS states that fundraising events are dinners, auctions, and other events conducted for the sole or primary purpose of raising funds.
Before you plan
Fundraising efforts are of course, an important part of any nonprofit organizations strategy. Particularly now, it is imperative to brush up on potential pitfalls from such events. Things like unrelated business income and its corresponding filings and taxes for such income. Additionally you will want to become well versed on Form 990, in particular Schedule G.
Oftentimes corporate sponsorships result in the most lucrative fundraising. However, when hosting an event where a corporate sponsorship receives promotion, that can be considered “advertising”, those dollars could be considered taxable. It is allowed at an event to display a sponsor’s logo, company name, provide an address, website and phone number, or list their product line. Should you advertise for them, (induce a product for purchase, offer discounts etc.), designate a sponsor as an exclusive provider, give a sponsor facilities, services, or other privileges, or grant exclusive or nonexclusive rights to the sponsor’s asset, then that could be considered advertising and is taxable.
Form 990 and Special Events
Another challenge when hosting special events is Form 990 and Schedule G. This is the supplemental information Regarding Fundraising or Gaming Activities. In the past, special events were reported on Form 990, Part 1, Line 9 in which a five-column reporting format was presented as an attached statement. However, the new Form 990, requires that any amount raised over $15,000 from a special event or gaming, or both, require reporting more information that was previously required. In some instances detailed reporting for the top two events specifically, as well as a collective report for all other fundraising events. Another change is they are asking for a breakout of amounts for cash prizes, non-cash prizes, facility rental costs, and other direct expenses for each event.
In addition, if you hold any sort of gaming event, think Bingo or Casino nights, the schedule G, Part III requires additional breakdowns for expenses and prizes. If this is the case and an event is categorized under the gaming definition, you will be asked to answer nine special, multi-part questions regarding the activity. These questions will include the name and compensation provided to the “gaming manager”.
Although these new rules and requirements are tricky and may seem overwhelming, it still remains true that this is a great time to host fundraising events. Don’t let these new regulations scare you from holding them. Rather, be prepared. Raising funds through these means can be fun, and the more creative and innovative you are the more funds you will likely raise. Ensure your safety by knowing the tax laws ahead of time or partner with someone who can help walk you through them.
At Beck & Company, Certified Public Accountants and Business Advisors, we are an accounting and consulting firm delivering specialized expertise, creative thinking, and unsurpassed service to ensure that our clients’ financial endeavors flourish.
Serving small and mid-sized organizations and individuals, we provide audit, tax, accounting, and consulting service that address all aspects of your business with one goal in mind – exceeding your expectations. We are able to do this by drawing on our combined business backgrounds and experience in public accounting to help you in virtually any area of your business. If you would like help walking through these new tax ramifications, contact us, today.