David Trimner, Principal david.trimner@CLAconnect (571) 227.9676

1. What is Fundraising? David Trimner, Principal david.trimner@CLAconnect.com (571) 227.9676 Elaine Sommerville, Shareholder Sommerville & Associates, P.C. elaine@nonprofit-tax.com (817) 795-5046

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

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

5. Reporting Income from Fundraising Events

6. Reporting Income from Fundraising Events Save the Whales Foundation • 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?

7. Fundraising vs. Program Service If an event substantially furthers the organization's exempt purpose is it a fundraising event or program service?

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

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?

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.

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?

14. Fundraising Dinner & Auction Salamander Foundation 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

15. Fundraising Dinner & Auction Salamander Foundation 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

16. Fundraising Dinner & Auction Salamander Foundation 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?

17. Form 990-EZ Does a non-profit organization that files a Form 990-EZ, need to report fundraising events?

18. Charitable Contributions – Substantiation Requirements (IRC 170(f)) • $250 Charitable contribution • 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

19. Charitable Contributions – Substantiation Requirements (IRC 6115(a)) • $75 Charitable contribution • 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

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

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.

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.

24. Charitable Contributions – Substantiation Requirements Ted, The notion that anyone received goods and services worth 900.00 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

25. David Trimner, Principal david.trimner@CLAconnect.com (571) 227.9676 Elaine L Sommerville, CPA Sommerville & Associates, P.C. elaine@nonprofit-tax.com (817) 795-5046 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.