Quid Pro Quo Contribution – What Your Nonprofit Should Know

Posted by Christina Bell, CPA

Quid Pro Quo Contribution - Delaware Single AuditThe IRS refers to transactions in which the donor makes a payment partly in return for some type of goods or services (a benefit received) and partly as a contribution as quid pro quo contributions. Examples of quid pro quo contributions include fundraising dinners, benefit concerts, and sports events, where the price charged is substantially greater than the cost of the items. For all quid pro quo contributions over $75, the IRS requires that organizations provide donors with the estimated fair market value of the goods or services received by the donor in return for the contribution. This estimated value is important because charitable contributions are only deductible by the donor to the extent the donation value exceeds the value of goods or services received.

From an accounting perspective, nonprofit organizations should recognize the revenue earned from quid pro quo contributions in accordance with FASB ASC 958-225, as such organizations should report net amounts for its special events only if they result from peripheral or incidental transactions. Costs netted against receipts from peripheral or incidental special events are limited to direct costs. However, special events often are ongoing and major activities and therefore, revenues and expenses should be recorded gross on the statement of activities. Events are considered ongoing and major if they are normally part of an organization’s strategy and are normally carried on, or if gross revenues or expenses are significant in relation to the organization’s annual budget. FASB ASC 958-225 provides 3 separate options in displaying special event revenue from ongoing and major activities on the statement of activities. These 3 options are described below for the following scenario:

Scenario –

Nonprofit A sells 300 tickets at $100 per ticket for their annual fundraising dinner that is ongoing and a major activity. The fair value of each ticket is $75. In addition, Nonprofit A incurs $5,000 of other direct costs in connection with promoting and conducting the event.

Option 1:

Revenue:
  Special Event Revenue (Ticket Sales) $      30,000
Expenses:
  Fundraising Expense $        7,500

 

Option 2:

Revenue:
  Special Event Revenue (Ticket Sales) $       30,000
  Less: Costs of Direct Benefits to Donors          (2,500)
  Net Revenues from Special Events $       27,500
Expenses:
  Fundraising Expense $        5,000

 

Option 3:

Revenue:
  Contributions $      22,500
  Annual Dinner Sales           7,500
  Less: Costs of Direct Benefits to Donors          (2,500)
  Contributions and Net Revenue from Special Events $       27,500
Expenses:
  Fundraising Expense $        5,000

 

By being aware of both IRS and accounting reporting requirements nonprofit organizations can help ensure their compliance with each.

Photo by thomas chauvin (License)

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