June 27, 2022

Fundraising Event Reporting for Tax-Exempt Organizations

By Christopher Granucci, CPA, Manager, Tax & Business Services

Fundraising Event Reporting for Tax-Exempt Organizations Nonprofit Tax Services

If your tax-exempt organization is holding a fundraising event, remember that some events involve additional reporting requirements. While funds from an event can be used to further an organization’s exempt purpose, the IRS does not consider the act of fundraising itself to be related to that exempt purpose.

Although excluded from unrelated business taxable income (UBTI), activities that aren’t related to the charitable purpose can draw additional scrutiny from the IRS, potential donors, and the media. As a result, organizations that generate more than $15,000 in gross receipts from fundraising events are required to provide more transparency by filing Schedule G, Part II, and attaching it to their Form 990 filing. This schedule can be confusing: there are lines for gross receipts, contributions, gross income, and a variety of expenses. What does it all mean?

Gross receipts is simply total cash generated by the event. For example, say an organization holds a charity dinner. The entry price per attendee is $100, and there are 100 attendees. The organization would report gross receipts of $10,000 (100 attendees at $100 each).

Gross income sounds similar to gross receipts, which tends to create some confusion. But gross income is actually the fair market value (FMV) of goods or services that event attendees receive. In the charity dinner example, say an attendee ate at a restaurant and ordered the same dinner, it would cost them $30. The organization would report gross income of $3,000 (dinner for 100 attendees at $30 each).

A common misconception related to determining gross income is that the organization’s cost of providing the meal (continuing with our example) is equal to the FMV of the meal. This is rarely the case. Consider a for-profit restauranteur’s point of view: the price they charge for a meal must be more than their cost to prepare the meal, or they would never make a profit. Since the FMV of a meal at a fundraising event is being compared to the retail price of the same meal at a for-profit restaurant, the FMV is almost certainly higher than the cost to the organization. This same concept also applies to benefits participants receive in other types of events.

Contributions are the portion of gross receipts that exceed gross income. Thus, in the example, the organization would report contributions of $7,000 ($100 paid less $30 retail value received equals $70 contributed, multiplied by 100 total attendees). The organization would provide a charitable acknowledgment letter to each attendee thanking them for their $100 donation, indicating that they received $30 worth of goods or services (in this case, a meal) in exchange for their donation, and concluding that only $70 is tax-deductible as a charitable contribution.

Gross income is reduced by any direct expenses the organization incurred to host the event. This includes money spent on food, facilities, entertainment, prizes, and other expenses directly connected to the event. It does not include advertising to spread the word about the event ahead of time, nor does it include other overhead costs related to the organization’s fundraising activities. These are indirect costs, which are not recorded on Schedule G. Events often appear to have generated a loss, since net income from the event equals gross income less direct expenses.

If your organization is conducting a fundraising event, contact your Marcum team for assistance.