Tag Archives: Donation Transactions

IRS Info and Some Questions and Answers

Posted on June 25, 2009 | 4 comments

Questions and AnswersIRS, Governance and the Form 990

I’ll lead off with some exiting news.  Well, it’s exiting to me at least.   Last week I learned that the Urban Institute’s efile.form.990 site should start being able to process the latest version of the form 990 by the end of July (not June).  Their system allows you to electronically prepare and file your organization form 990, 990 EZ and extensions to file.  There is a small fee, but I encourage anyone who prepares your organizations forms by hand to look into their system.

Sarah Hall Ingram, the IRS Commissioner for Tax Exempt and Government Entities, made a presentation at Georgetown Law Center this week on nonprofit governance issues and what the IRS sees as its role relating to that.

While both state regulation and sector self-regulation are important, and I welcome and respect them, they do not get the IRS off the hook. Congress gave us a job to do, and we cannot delegate to others our obligation to enforce the conditions of federal tax exemption.

If you would like to read her remarks they are available as a PDF here.

Collaboration Resources

Need some tips on online collaboration tools? Gayle C. Thorsen at IMPACTMAX has a good rundown on some resources that should help you.

Questions and Answers: Revenue Recognition

Each year we have several matching gifts that come in after the fiscal year end of June 30.  Should these receipts be counted toward the past fiscal year or the current year?  For donor recognition purposes we count these gifts in the year they were pledged.  For accounting purposes, how should we be dealing with this?

You should count them the same way you do for recognition. Nonprofit accounting rules for donations take into account the donors intent, and if the check was written in before the end of your fiscal year, or the pledge was made before then end of your fiscal year, it should be counted as that fiscal years money.

Questions and Answers: Employee or Independent Contractor?

I’m a bookkeeper trying to help a recently started, all volunteer nonprofit. The one concern I have is the administrative costs for the person who runs it. If the nonprofit were to reimburse that person for a missed day at work, would they be considered an employee of the nonprofit?

You can’t reimburse somebody for a missed day of work, that is not a “real” expense. That would be considered compensation. This could be a 1099 / independent contractor relationship OR an employee relationship. I would look carefully at the duties tests between the two and make your judgment. The IRS is pretty serious about making sure employers classify folks correctly.  You can check out their resource pages here.

Question and Answers: Hiring Costs

We are a small nonprofit that had a change in our Executive Director. The costs to recruit, interview and move a new Executive Director to our state was extremely expensive. These costs are a one-time charge that are impacting our net assets. Is there a way that I can capitalize them to spread out the impact?

Not in this case. Capitalizing an expense is done for physical assets that have a long useful life so that the expense of the item is spread out over its time of use.  Employees can’t get treated the same way.

Just make sure to clearly explain and footnote the situation on all of your reports and financials so people will not think there is something wrong with the organization and you should be OK.

Do you have a question?  Click here to ask it

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Conditional Contributions

Posted on January 6, 2009 | 1 comment

hurdlerA condition is effectively a barrier that must be overcome before a promised gift becomes a contribution. A part of the definition of a contribution is that it is an unconditional promise to transfer assets to a nonprofit.

I received a question about conditional contributions that went along the lines of “is a contribution conditional if the promised contribution is not paid until the end of the year and the work is completed?” What you could have here is an exchange transaction, and not technically a contribution.

But assuming it is a contribution you can recognize the revenue in two ways depending on the donor/grantor’s instructions. The first would be piecemeal. As you do a portion of the work a portion of the condition of the contribution is met and therefore you can count it as revenue and a receivable. So as you do the work, you recognize a bit of the grant at a time. The second would be to recognize it all at once after the work is done. Once the work is done (the condition is met) then you have a contribution and book the receivable (assuming you do not have the funds yet).

When you get the actual cash does not factor into the discussion in any case, just when you get conformation from the donor that at some point you will be getting the cash.

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Donation Transactions

Posted on December 1, 2008 | 5 comments

There have been questions at my trainings on the specific journal entries for donations to be auctioned off or re-sold. From the great PPC Guides, I recommend them to any nonprofit finance professional, an excerpt:

“Organizations may receive contributions of gifts-in-kind to be used for fund-raising purposes. A common example is where an organization receives tickets, gift certificates, or merchandise from donors to be sold to others during an auction. An organization should recognize the donated item to be used for fund-raising purposes as a contribution and record it at its estimated fair value. When the item is subsequently sold (such as at auction), any difference between the item’s initially estimated fair value and the amount ultimately received should be recognized as an adjustment to the original contribution amount.

For all practical purposes, the initial estimation may not be that important – the eventual contribution amount that is recognized will be what someone was willing to pay for the donated item. Organizations should use their best estimates when initially valuing the donated items and adjust the amounts later when the actual auction takes place. As a practical matter, the time period between the donation of items for an auction and the actual auction may be short. Accordingly, some organizations may wait to record the items until they are actually sold. That would not be appropriate, however, if the items were received before year-end and the auction was held after year-end.

Example: An organization is given a piece of jewelry valued at $3,000 to be auctioned off to the highest bidder at the organization’s annual fund-raiser. The journal entry to record the initial gift-in-kind contribution is as follows:

Debit – Asset $ 3,000

Credit – Contribution revenue $ 3,000

At the fund-raiser, an individual purchases the jewelry for $5,000. The journal entry to adjust for the sale is as follows:

Debit – Cash $ 5,000

Credit – Asset $ 3,000
Credit – Contribution revenue $2,000

If the jewelry sold at auction for only $1,000, the journal entry to record the sale would then be as follows:

Debit – Cash $ 1,000
Debit – Contribution revenue $2,000

Credit – Asset $ 3,000

Hope that helps! And you should check out PPC’s guide to Expenses as well.

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Posted in Nonprofit Accounting

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