1. What is Fundraising? David Trimner, Principal
(571)
Elaine Sommerville, Shareholder
Sommerville & Associates, P.C.
(817)
7:00 am – 7:50 am
Utilizing a series of real-world scenarios this session will examine fundraising activities conducted by nonprofit organizations. Topics will include reporting activity accurately for Form 990, Schedule G, Part II, differentiating between gaming and fundraising events, and substantiation requirements for donors. Through polling questions, the audience will have the opportunity to apply what they have learned to predict the outcome.

2. Learning Objectives Understand key IRS terms for fundraising events
Report fundraising event activity accurately for Form 990/990-EZ
Report fundraising event activity accurately on Schedule G, Part II
Differentiate between gaming and fundraising events
Understand substantiation requirements for donors

3. Key Terms Fundraising Event
Activities and endeavors with a primary purpose of raising funds for the organization by selling goods or services for more than their direct cost thereby having a contribution component
An event or activity that involves more than the simple solicitation of funds
Examples: auctions, carnivals, concerts, dinners, golf tournaments
I FELT THIS TOPIC WAS IMPORTANT SINCE I SEE SO MANY 990’S THAT ARE WEAK (underreporting/incorrectly reporting) IN THIS AREA

4. Key Terms Gross receipts Total funds received from all sources
Examples: Ticket sales, contributions, sponsorships, auction proceeds, sales of goods or services.
Contributions Portion of gross receipts that exceeds the fair market value of goods and services provided
Gross income Portion of gross receipts that represents the fair market value of goods and services provided (direct benefits)
Examples: value of auction items and other cash/non-cash prizes, food/beverage, entertainment, value of a round of golf
Direct expenses All expenses to provide the direct benefits and to host the event
Examples: COGS, golf course fee, catering, decorations, cleaning
GO to example- to be more clear
Langauge on Sch G, page 2

5. Reporting Income from Fundraising Events
Fundraising events are reported on page 9 of Form 990 in Part VIII - Statement of Revenue and on Schedule G - Supplemental Information Regarding Fundraising or Gaming Activities, Part II – Fundraising Events.
Income from a fundraising event or activity can generate both event revenue (exchange transactions) reported on line 8a of Form 990, Part VIII as well as contribution revenue (non-exchange transactions) reported on line 1c (at the top).
OTHER PLACES DATA FROM FUNDRAISING WILL SHOW UP IS SCHEDULE M- FOR NON-CASH DONATIONS AND SCHEDULE B IF DONORS GIVE MORE THAN $5K OR 2% OF REVENUE
It’s important to capture the contribution amount that exceeds the FMV of the benefit received and report it separately on line 1c of page 9, Part VIII of Form 990.
The IRS reporting requirements will often result in reporting a loss from fundraising events due to the classification of the two components of gross receipts and the total direct expenses (including direct benefit costs) which will exceed the exchange type revenue.
When is Schedule G, Part II Required? ANSWER: Organizations that report more than $15,000 from fundraising event contributions and gross income, Form 990, Part VIII, lines 1c and 8a combined (Part II of Schedule G) And…Answer Yes, to Part IV, line 18
Part II is looking for the two largest fundraising events with gross receipts greater than $5,000. The last column reports the number of the other events with gross receipts greater than $5,000 aggregated. If there are not any others- put “None”
Question: Will Schedule G, Part II tie to the Fundraising revenue amounts reported on Page 9? The answer is sometimes! This is a peeve of mine. I think most of the time they should or do! If a non-profit completes a TAL and tells me that they only had two fundraising events and that both were over $5000 in gross receipts, than Yes. But if the organization had 2 over $5000 and then three others with only $1000 each, than the numbers reported on Schedule G would be less that page, since page 9 would show ALL amounts.

6. Reporting Income from Fundraising Events
Save the Whales Foundation
Reporting Income from Fundraising Events
StWF holds an annual concert to raise funds for its charitable programs. It contracts with the local symphony to perform.
Tickets are $150 (typical concert performances are $50).
The Platinum Sponsor pays $5,000 and gets 10 tickets plus its logo on banners and the event program
How much is UBI?
The gross receipts for one ticket are $150
The contribution included in gross receipts is the amount that exceeds the FMV of a ticket to the local symphony. This amount is a deductible charitable contribution to the donee, in this case $100 (Rev. Rul ). United records this charitable gift of $100 on line 1c as a contribution from fundraising events.
The gross income (often equivalent to direct benefit) is $50. United records this on Line 8a as event revenue from fundraising events.
The sponsor has made a gift of $4500.
Practice Tip: On fundraising event invitations, organizations should give donors the option of checking a box to indicate that they will not attend the event so that the entire amount of the ticket (not just the excess over FMV) is tax deductible by the donor.
An annual fundraising event normally does not result in unrelated business income (UBI) because it is not regularly carried on [Reg (c)(2)(iii)].

7. Fundraising vs. Program Service
If an event substantially furthers the organization's exempt purpose is it a fundraising event or program service?
Trick question:
I used to sit on the board of a non-profit family theatre and we host special events around our productions “fundraising event” – Well we call them fundraising events. Since our program service- they aren’t fundraising event and amounts should not be reported on line 8, page 9, they should be reported on Ln 2 as program service revenue. However, any amount paid over the FMV of the ticket and food is considered a contribution and would be reported on line 1f and not 1c (Fundraising events).

8. Reporting Expenses from Fundraising Events
Direct Expenses reported on Part VIII
Cost of goods sold
Prizes
Rent/facility costs
Food and beverages
Entertainment
Indirect Expenses reported on Part IX
Advertising and promotion
Maintaining donor mailing lists
Professional fundraisers
Soliciting sponsors
Direct expenses are those that would not have been incurred if you hadn’t thrown the party/event.
Indirect expenses are the costs of getting people to attend the event and make donations

9. Gaming
Organization conducts a sweepstakes, raffle, or lottery where participants purchase chances to win.
Organization operates a ‘casino night,’ bingo, instant bingo, slot machines, or video games with a gambling theme.
Reporting and withholding requirements?
State regulations?
Unrelated business income?
Do not include any gaming activities in Part II even if the gaming activity (e.g. a raffle) is held at a fundraising event. If required to be reported, the gaming activity will be reported in Part III, of Schedule G
UBI? YES!! Try to use non-employee volunteers.
In North Dakota all games of chance avoid classification as an unrelated trade or business, even if paid workers are used. [See the non-Code provision in Sec. 311(a), P.L. 98-369, as amended by Sec. 1834, P.L ] The following describes when a W-2G normally needs to be issued: Bingo   $ 1,200 (Not reduced by wager amount.)
Instants/Pulltabs   $ 600 (Proceeds are at least 300 times the amount of the wager.)
Slot Machines   $ 1,200 (Not reduced by wager amount.)
Keno   $ 1,500 (Reduced by wager amount.)
Raffles   $ 600(Proceeds are at least 300 times the amount of the wager.)
Poker Tournaments   $ 5,001 (Reduced by wager or buy-in amount.)
All others   Any other gambling winnings subject to federal income tax withholding.

10. Gaming
A 501(c)(3) organization offers a monthly casino night, using paid volunteers.
A 501(c)(3) organization offers a monthly casino night, using non-employee volunteers.
A 501(c)(3) organization offers a monthly casino night, using unpaid volunteers who can receive tips.
A social club or fraternal association offers a monthly casino night, which is open to nonmembers.
The only game is bingo.
The only game is “instant bingo” scratch-off cards.
There is no exemption for games of chance, so you must rely on one of the other exceptions.
UBI, since gambling does not promote the general welfare of the community.
To avoid having the conduct of such games classified as an unrelated trade or business, an organization typically operates the games with unpaid volunteers to use the volunteer exception, beware of state law compliance.
IRS asserts that tipping by patrons makes the volunteer labor exception inapplicable IRS Pub Therefore, tipping must be prohibited for income to be excluded from UBI under the volunteer labor exception.
Providing social and recreational activities to members is one of the traditional functions of Section 501(c)(7), 501(c)(8), 501(c)(10), and 501(c)(19) organizations. Thus, to the extent of member participation, operation of a game of chance is substantially related to the exempt social and recreational purposes.
To be bingo, it must be of a type in which wagers normally are made, winners generally determined, and prizes typically disbursed in the presence of all players; conducted where no commercial competition exists ; and legal under state and local law.
The Tax Court stated that instant bingo does not come under the general bingo exception because not all persons in the game are present when wagers are placed, winners determined, and prizes distributed ( Julius M. Israel Lodge of B’nai B’rith No ).

11. Side Trip to Texas What is gaming? Gaming traditionally occurs when
Someone pays to play or enter a game
The winners are decided by a game of chance and
Prizes of value are awarded
Texas regulates all gaming
Bingo is allowed within specific regulations including strict registration requirements
Raffles are allowed under the charitable raffle rules
Casino nights/poker nights are not allowed

12. Texas Raffles Rules
Overriding rule: Gaming is illegal in Texas unless specifically provided for in the statute
Charitable Raffle Rules
Must be a qualifying organization
Must have prizes in the possession of the organization and cannot be cash
Tickets must contain specific information
Name – address – price of ticket – date of award – description of prize
May not be advertised statewide or through paid advertisements
Reverse raffles are allowed

13. Gaming
What amount, if any, may be deducted by the purchaser of a raffle or lottery ticket offered by a charitable organization?
Another Trick question:
No amount may be deducted by the purchaser of such a ticket. The purchaser of a raffle or lottery ticket acquires something of value as the result of his purchase— the opportunity to win a prize– he is therefore presumed to have received full value for his/her payment [see Goldman v. Commission-er, 46 T.C. 136 (1966(), aff’d, 388 F. 2d 476 (6th Cir. 1967); Re. Rul , C.C. 148]

14. Fundraising Dinner & Auction
Salamander
Foundation
Fundraising Dinner & Auction
The Salamander Foundation, a 501(c)(3) organization, sells 250 tickets for $300 each. The estimated FMV of the dinner is $75. Direct expenses of $31,000 were incurred.
Gross income
Contributions
Gross receipts
Direct expenses
The best way to grasp the reporting is to go through examples
Fundraising event income is reported on Part VIII, 8a, $75,000
Contributions are 225 x 250 tickets Part VIII, lc and line 8a, $56,250, while the gross receipts are $75 x 300 = $18,750
Part VIII, 8b – when the expenses far exceed the FMV of the goods and services, that implies that you either overestimated the charitable piece, or that you are using tax-exempt resources to throw a lavish party – PRIVATE BENEFIT?
Form 990 would look like 18,750-31,000=(12,250)

15. Fundraising Dinner & Auction
Salamander
Foundation
Fundraising Dinner & Auction
Prior to the auction, the Foundation recognized $16,000 of contribution revenue from noncash donations. The auction generated $20,000 of sales. Assuming the auction participants had a charitable intent for the excess paid over FMV:
Gross income
Contributions
Gross receipts
Direct expenses
Gross income of $20,000. $16,000 is the FMV of the items you have already recognized as noncash donations, plus an additional $4,000 of new donations.
Without charitable intent, the $4,000 would be a gain on sale of assets, and could offset the (12,250 loss from the dinner)
Direct expenses are the $16,000 COGS.
Note that Sch M would not be required unless there were other noncash donations that brought the total to more than $25,000.

16. Fundraising Dinner & Auction
Salamander
Foundation
Fundraising Dinner & Auction
One of the auction items was a home theater system with a FMV of $5,000. Before the auction, the foundation displayed the system and its FMV for the bidders. The system was purchased at the auction for $4,000 and the sale incurred $500 in expenses.
How should the original donation be recorded?
How should the sale be reported?
What if the system had sold for $6,000?
What other reporting requirements are there?
Foundation should report the original contribution of the system at its $5,000 FMV on line 1f (and on line 1g). The $4,000 proceeds from the sale at auction would be reported on line 8a. Line 8b would reflect $5,500 [$5,000 cost basis (FMV at donation date) of the system plus $500 selling expense]. A net loss of $1,500 would be reported on line 8c from the sale ($4,000 sales proceeds less $5,500 from line 8b). But this must be viewed together with the $5,000 of contribution revenue. Netted together, that shows $3500 in net income, which is exactly the amount of cash they have after paying the expenses.
As the result of disposing of the home theater system within three years of its receipt, the Foundation must file Form 8282 (Donee Information Return) unless the system was donated by a dealer from inventory acquired in the year of donation [Reg A-1(c)(4).

17. Form 990-EZ
Does a non-profit organization that files a Form 990-EZ, need to report fundraising events?
Yes, Form 990-EZ, Part 1, lines 6b and the 6b parenthetical on the front of page 1, Part 1. However, only Schedule G would be required if gross income and contributions exceeded $15,000.

18. Charitable Contributions – Substantiation Requirements (IRC 170(f))
Contemporaneous written acknowledgement
Description and good faith estimate of the value of goods and services provided, or
Statement that “No goods or services were provided in return for the contribution”
Penalty: Denial of donor’s charitable deduction
A donor seeking a tax deduction for making a charitable contribution must have a receipt. For small amounts, a credit card slip or a copy of the check are enough.
Contemporaneous” means the donor gets the receipt before they file their return (or the extended due date) In practice, you should endeavor to complete these prior to January 31.
Format: Name of organization, amount of gift, don’t need donor’s TIN. Multiple gifts can be summarized. Can use , letter, postcards, anything.

19. Charitable Contributions – Substantiation Requirements (IRC 6115(a))
Written disclosure
Description and good faith estimate of the value of goods and services provided, and
Statement that the deductible portion of the contribution is limited to the excess portion
Penalty: $10 per contribution, maximum of $5,000 per event
Up until now we have been talking about a receipt that the donor needs in order to claim a deduction.
Now we are talking about a required disclosure that the donee must provide when a donor makes a payment partially as a contribution and partially as a purchase of goods and services. (Donor gives $150, gets a concert ticket worth $50)
Token Exception: insubstantial goods and services can be ignored.
FMV of the benefits is 2% or less of the payment (in 2012 not to exceed $99)
Low-cost articles with the donee’s logo that cost less than $9.90 in the aggregate, IFF the payment is at least $49.50.
Low cost articles include bookmarks, calendars, key chains, mugs, posters, tee shirts etc,
Intangible religious benefits include admission to ceremonies, wine and bread, etc, BUT NOT education leading to a degree, travel, consumer goods.
Membership benefits, which is an entire topic unto itself.

20. Charitable Contributions – Substantiation Requirements (IRC 6115(a))
The Kids Hockey Foundation has a mission of mentoring troubled youths and giving them the opportunity to learn challenging skills through a structured athletic program.
The Foundation holds a celebrity golf event and reception dinner.
Platinum Sponsorship Package - $25,000
Sponsorship recognition
4 rounds of golf with a pro hockey player
Brunch, dinner with all attendees
Swag
The sponsorship package had a lot of sponsorship acknowledgements. They came to me and said “confirm none of this is advertising,” which I did, but then I said
What kind of acknowledgement is being sent to this sponsor? Does it put a value on the goods and services?

21. Charitable Contributions – Substantiation Requirements (IRC 6115(a))
Thank you for your Platinum Sponsorship of our Celebrity Golf Event.  We received your contribution for $25,000, and we are most grateful for your support!  A large portion of your sponsorship is tax deductible.  As part of your sponsorship, you received goods/services associated with the event with an estimated fair market value of $144; therefore, the deductible portion is $24,856.
Your generous support of the Kids Hockey Foundation will help us continue to advance our mission to improve the lives of disadvantaged children in the region.
On behalf of the Foundation’s Board of Directors,
thanks again for your generous support.
“Yes,” they replied, “we found that the average value of a round of golf is $36, so we told them that wasn’t deductible. Here is a copy of the receipt.”
$36? I exclaimed. “Where did they play, Baltimore?” Just kidding.
$36 seemed really low, and obviously they weren’t putting a value on the dinner. I was also curious about the FMV of the swag.

22. Charitable Contributions – Substantiation Requirements (IRC 6115(a))
$184 Green fees per golfer
$146 Brunch, cocktails, dinner
$16 Photo plaque
$59 Golf Trophy
$85 Autographed hockey jersey
$50 Polo shirt and hat
$15 Golf balls
$50 Gift certificate to golf pro shop
$300 Gift certificate for team fan gear
$905 Total

23. Charitable Contributions – Substantiation Requirements (IRC 6115(a))
Thank you for your $25,000 payment for the Platinum Sponsorship of our Celebrity Golf Event.  You received goods/services associated with the event with an estimated fair market value of $3,620.
Your generous support of the Kids Hockey Foundation will help us continue to advance our mission to improve the lives of disadvantaged children in the region.
On behalf of the Foundation’s Board of
Directors, thanks again for your generous
support.
First notice that we told them the FMV of the goods and services, but didn’t say anything about it being deductible.
But, the real reason this is so important:
Charity can get hit with $10/donor penalty for failing to estimate the quid pro quo if the donation is over $75.
But the donor can have the whole thing disallowed. This isn’t important for the sake of the charity, it is important for the sake of the donor.
Do they were grateful that we took the time to get it right, right?
Actually we got a very nice thank-you note.

24. Charitable Contributions – Substantiation Requirements
Ted, The notion that anyone received goods and services worth dollars per golfer is ridiculous. Your accountant’s position is nonsense. The entire cost of the outing should not be shifted to the sponsors as goods and services. You continue to try and punish those that are trying to help you. I suggest you revisit this position. By the way , no one else does this. Sincerely, Dan
Note that this is NOT an attempt to shift expenses to the sponsors.
The sponsor was still paying for everything…the golf and the meals for the celebrities, the programs, decorations, signage, promotional efforts.
All this is an attempt to notify the donations of what they received in return, in line with IRS regulations. If you want to deduct the whole thing, that is none of my business.

25. David Trimner, Principal david.trimner@CLAconnect.com (571) 227.9676
Elaine L Sommerville, CPA
Sommerville & Associates, P.C.
(817)
Keep good records & documentation for Fundraising events
That the 990 tax reporting can be tricky, but possible
Keep donors happy by supplying proper written statements/acknowledgements from the organization
All of the materials contained in this course have been created by and belong solely to CliftonLarsonAllen LLP. Tax advice contained herein is not intended to be used and cannot be used for the purpose of avoiding tax-related penalties that may be imposed on the taxpayer. This content does not constitute legal advice and no liability is assumed whatsoever in connection with its use.