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Focus on Not-For-Profits: Membership Dues or Contributions?

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Does your organization have members? Are you sure? You may be surprised to find out you really have contributors. But how can you tell the difference? The Financial Accounting Standards Board (FASB) comes to your rescue in its Accounting Standards Codification (ASC) for not-for-profit entities. FASB ASC 958-605-55, covering revenue recognition, provides implementation guidance and illustrations.
September 8, 2015

Does your organization have members? Are you sure? You may be surprised to find out you really have contributors.

But how can you tell the difference?

The Financial Accounting Standards Board (FASB) comes to your rescue in its Accounting Standards Codification (ASC) for not-for-profit entities. FASB ASC 958-605-55, covering revenue recognition, provides implementation guidance and illustrations.

First, some definitions will be helpful. This FASB ASC topic defines a contribution as an unconditional transfer of cash or other assets to an entity in a voluntary nonreciprocal transfer by another entity. The value, if any, returned to the resource provider is incidental to potential public benefits.

In other words, your members are giving you cash and not receiving, or expecting to receive, something of equal value in return.

If a transaction is not a contribution, it might be an exchange transaction. An exchange transaction occurs with a reciprocal transfer in which each party receives and sacrifices approximately equal value. In an exchange transaction, the potential public benefits are secondary to the potential proprietary benefits to the resource provider.

In other words, your members are giving you cash (dues) and are receiving, and expecting to receive, something of equal value in return. Your members are receiving a defined set of membership benefits, such as discounts on seminars and resource materials, a monthly magazine or newsletter, marketing assistance, etc.

Just to make the situation more “interesting,” the transaction could be part contribution and part dues.

Again, how do you tell the difference? Again, FASB to the rescue.

This FASB topic presents a table of indicators that may be helpful in evaluating the characteristics of a transaction to distinguish between contribution and exchange transaction (dues). The table also helps evaluate if a transaction is part contribution and part dues. This table is presented below.

But beware: The existence of any one factor is not sufficient to determine the nature of the transaction, but a preponderance of factors in one column or the other is generally indicative. However, when using the indicators, you should use judgment because the relative importance of an individual indicator may be as significant in distinguishing the transaction as the total number of indicators pointing to a particular type of transaction.

INDICATORS FOR DISTINGUISHING MEMBERSHIP DUES THAT ARE CONTRIBUTIONS FROM EXCHANGE TRANSACTIONS


FASB also offers the following examples:

Example: Membership dues—value received – part contribution, part exchange transaction

The Wildlife Zoo has a $250 membership category. Members at that level receive five free zoo passes, a discount in the gift shop, a quarterly newsletter, and two invitations to the annual ball. The value of those benefits is $50.

Therefore, the Zoo would record $200 of each membership as a contribution when received. The remaining $50 portion of the membership dues, which represents payment for benefits received, should be initially recorded as deferred revenue and recognized as revenue as the Zoo provides the services.

Example: Membership dues—no value received – all contribution

The Friends of the Library offers memberships for $250. The dues are used to complete construction of a new library branch. The members are acknowledged in an ad in the local paper. No additional benefits are given to the members.

Because the members and nonmembers enjoy the same library privileges, and no value is provided for the dues, the authors believe that the dues are a contribution.

As the rules for revenue recognition differ for contributions vs. exchange transactions, it is critical that the distinction be made and that the dues be recorded properly.

If we can provide additional information or assistance on this topic, please contact us.

 

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

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