The primary purpose of a fundraising event is to raise funds to support the mission of a social service agency or other not-for-profit organization by selling goods or services.
Fundraising events include dinners, concerts, carnivals, sporting events, auctions, door-to-door sales of merchandise and many other activities.
Fundraising events do not include events or activities that substantially further the organization’s exempt purpose even if they also raise funds. For example, an organization formed to promote and honor women in the work place holds an annual award luncheon for woman of the year. Because the luncheon directly furthers the organization’s exempt purpose, income from ticket sales would be classified as program service revenue, rather than fundraising revenue.
This article will focus on the Form 990 reporting for fundraising auctions.
If the organization has gross receipts of more than $15,000 from fundraising events, the following information is required to be reported on Form 990, Schedule G: total gross receipts, portion of gross receipts considered a charitable contribution (includes cash and noncash property contributions), and direct expenses associated with the event. This information is reported separately for the two events with the highest level of gross receipts. These amounts for all other events with gross receipts over $5,000 are reported together. Indirect expenses are reported on the functional expense schedule.
The auction component of a fundraising auction generally consists of two types of transactions. The first transaction is the donation of the auction items. The second is the purchase of the auction items by event participants.
If a donor contributes an auction item that is personal property (e.g. a stereo), contribution income equal to the fair market value (FMV) of the stereo should be reported. When the stereo is sold at the auction, sales income should be reported for the sale price, and a fundraising event expense recorded for the FMV of the stereo. If the sale price exceeds the FMV, the excess amount is considered a contribution.
Often, a donor will contribute the use of an asset (e.g., a seven-night stay at a resort condominium owned by the donor) or a service to be performed. In these cases, the value of the donation is not reported as a contribution. When these auction items are sold during the auction, sales income is reported at the amount paid, but there is no corresponding cost recorded. If the amount paid exceeds the value of this type of item, a charitable contribution is reported for the excess amount.
The following example shows the reporting for a contribution of a personal property item and a rental item that are sold for more than their fair market value at a fundraising auction:
Example 1 of noncash contributions and sale treatments
| || Fair Market Value|| Auction Proceeds||Contribution |
|Stereo ||$6,000||$7,500 ||$6,000 + $1,500 = $7,500 |
|Use of vacation promo||$2,500||$3,500 ||$1,000 |
Auction proceeds and the fair market value of donated goods are reported in Line 1 Gross Receipts of Schedule G ($17,000). This is comprised of the $6,000, the $7,500 and the $3,500. Charitable contributions are reported in Line 2 of Schedule G ($8,500). The $6,000 stereo fair market value is included in Line 9 Other Direct Expenses of Schedule G.
If the auction items are sold for less than fair market value, the reporting is somewhat different. The example below shows this difference:
Example 2 of noncash contributions and sale treatments
| || Fair Market Value|| Auction Proceeds|| Contribution |
| Stereo ||$6,000||$5,000||$6,000|
| Use of vacation promo||$2,500||$1,500||$0 |
Auction proceeds and the fair market value of donated goods are reported in Line 1 Gross Receipts of Schedule G ($12,500). This is comprised of the $6,000, the $5,000 and the $1,500. Charitable contributions are reported in Line 2 of Schedule G ($6,000). The $6,000 stereo fair market value is included in Line 9 Other Direct Expenses of Schedule G.
Charity auctions can be a good way for a charitable not-for-profit organization to obtain additional resources to support its mission. Internal Revenue Service reporting requirements for these events can be complex, so care should be taken to gather the appropriate information when auction items are received as well as sold.
Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.
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