Nonprofit Accounting Basics

Special Events—Tax Considerations and Reporting

Special events, in this context, are synonymous with fundraising events such as galas (most typical), luncheons, golf tournaments, shows and auctions.  They are unrelated to the exempt purposes of the organization.   Thus, primarily educational programs or membership meetings are typically not considered special events as they are related to the exempt purpose of the organization.

Ticket cost for special events has to be broken out into two parts.  First, the fair market value of goods and services provided to the ticket buyer must be determined.  Secondly, the amount of the donation that is considered a donation is calculated.

Tickets costing more than $75 more must disclose the amount of ticket that is considered a payment for goods and services and the amount considered a donation.  Since this has to be done prior to the event (usually a month or more), the organization has to make a good faith estimate of the fair market value of the goods and services included in the ticket price.  Note that fair market value is not the estimated cost of the goods and services to the organization, but rather the price a person would pay for the goods and services if purchased on the local market.  For example, a gala meal with wait-staff should be valued at what a similar meal in a local restaurant would cost.  The same gala might also have entertainment and other extras which should also be factored into the goods/services estimate on the ticket.  Once the fair market value of the goods/services is determined, the value of the deductible donation is the remainder of the ticket price.  See IRS Publication 1771 for language to use on the tickets.

Although special event activity is unrelated to the organization’s exempt purpose, it will generally be excluded from taxable unrelated business income because it is (1) not regularly carried on (once a year is not regular per the IRS); (2) conducted primarily by volunteers; or (3) not carried on to make a profit. 

On Form 990, Part VIII, the donation part of the special event revenue is reported on Line 1c donations and the special event portion is reported on line 8a fundraising events.  Generally, these amounts can be broken out by multiplying the number of tickets sold by the amounts designated as payments of goods/services or amounts designated a donation.  Payments purely for sponsorship of the event(s) is added to the amount calculated for line 1c donations.  The actual costs of the event are reported on line 8b and netted and line 8c and reported as excluded in column (D).  Often the net is a loss because the majority of income from a fundraiser is considered donations and not payment for goods or services.

If the special event(s) revenue total is more $15,000, Then 990 Schedule G, Part II must be completed breaking out certain details of the special event(s).

Donor reporting:  In addition to the notice of deductibility printed on tickets greater than $75, if tickets cost $250 or more, then the organization must provide contemporaneous acknowledgements to donors showing amounts of donation and payment for services.  Consult IRS Publication 1771 for specific language requirements.

Charitable auctions, either as a standalone special or as part of one, have several additional considerations which should be addressed.  See Do’s and Don’ts’s for Charity Auctions article elsewhere on this website. 

Raffles are often conducted at special events and various organization meetings.  The IRS considers raffles to be gambling with no charitable deduction allowed for raffle tickets.  Gambling is also considered to be taxable unrelated business income.  Additionally, many states require a gambling license even for a one-time event by non-profits.