Nonprofit Accounting - Don't Get Tripped Up by Form 990 Requirements

Nonprofit Accounting - Don't Get Tripped Up by Form 990 Requirements

By Wiss (546 words)
Posted in Not For Profit on September 06, 2017

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By Linda Curro

What’s in the price of a ticket? 

For nonprofit organizations that hold fundraising events and for the people who attend them, the answer is more complicated than it might appear. It’s important to get special event reporting correct because Form 990 has specific lines on the Revenue Statement to report fundraising events.

The ticket price of every event carries two components within it – the donation amount and the entertainment benefit. Whether it’s a dinner, a cocktail hour or a round of golf, participants derive some amount of entertainment from the event – the same entertainment they would get if they went out for a night on the town, or hit the links with friends.

It’s up to the nonprofit to determine what percentage of the ticket price constitutes entertainment value, and what percentage is a donation. This breakdown must be determined ahead of time, so attendees are aware of the percentage of the ticket price that they can claim as a tax-deductible donation.

Here are some tips to ensure your nonprofit is properly calculating and communicating the entertainment value within the price of an event ticket. 

  • Determine fair market value. Simply put, if attendees purchased a comparable experience in a for-profit setting, what would they pay? If they went to a restaurant and bought the exact same meal that you are serving at your event, what would they spend? If they paid to play 18 holes at this same course apart from the event, what would the cost be? Subtracting that amount (the fair market value) from the cost of the ticket is an acceptable way to separate entertainment value from donation value.
  • Be reasonable and realistic. There is some amount of subjectivity when deciding how to assess fair market value. Donors want the largest tax-deductible amount possible – and nonprofits want to report the largest contributions possible. The temptation might be to err on the lesser side of a fair market value estimate, but that word “fair” is still in there. Lobster dinners don’t generally sell for $20. Cocktails aren’t usually $2 drinks. Follow your conscience, and be ethical and honest in your estimates.
  • Put it in writing. If the ticket cost is more than $75, the IRS requires that nonprofits provide a statement to their donors breaking down the donation portion and entertainment value portion of the ticket. But it’s prudent to put it in print. If you furnish paper programs for the event, that is a good place to state the amount of the ticket that can be considered a donation.

Ultimately, assessing entertainment value and donation value in a meal or event ticket comes down to common sense. If you know the average price of a meal, a cocktail, a concert ticket or a round of country club golf, and you follow that as a basic guideline, you’ll ensure that your organization – and your donors – are on the level come tax time.

Linda Curro is a Tax Manager with over 17 years of public accounting experience. Linda specializes in the non-profit sector and works with many non-profit organizations to obtain their tax-exempt status, as well as filing Federal 990 returns and multiple state registrations with an emphasis in the tri-state area. If you'd like to contact Linda, you may reach her at lcurro@wiss.com or at 973.994.9400.

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