Going Once, Going Twice, Put it in the Books!
Many not-for-profit organizations hold fundraising events, such as dinners and galas, with the dual purpose of raising awareness of their programs and increasing donations. These organizations are required to report revenue and expenses from special events on their statement of activities as gross amounts if the events are part of the organization’s ongoing major or central activities. However, special event revenue and expenses may be reported either as gross or net amounts on the statement of activities, if the special events are only incidental to the organization’s central activities.
Silent auctions, live auctions and raffles can add to the success of the fundraiser, by increasing the fun, as well as the total event proceeds. Before the fundraiser, the organization may solicit donations of items to sell or raffle at the event, such as concert tickets, vacations, tickets to sporting events, sports memorabilia, gift certificates to restaurants, or other merchandise to be sold or raffled. An organization should recognize a donated item as a contribution and measure it at fair value, which should be provided by the donor. Any difference between the item’s fair value and the ultimate amount received for the item should be recognized as an adjustment to the original contribution amount.
For example, an organization is given an autographed basketball with a fair value of $1,500 to be auctioned off to the highest bidder at the organization’s annual fund-raiser. At the fund-raiser, an individual buys the basketball for $1,800. The journal entries to record the initial contribution and subsequent sale are as follows:
To record the receipt of the donated basketball.
To record the sale of the basketball at auction for $1,800.
Assume instead that the basketball sold at auction for only $1,000. The journal entry to record the sale would then be as follows:
To record the sale of the basketball at auction for $1,000.
Organizations may also include raffles in addition to or instead of auctions at their fundraising events. However, holding a raffle might mean a little more “red-tape” in the form of additional filing requirements. For example, certain municipalities require a license to hold a raffle. In addition, if the organization reported more than $15,000 from gaming on its Form 990 or Form 990EZ, the organization is also required to complete schedule G Part III, which is used by an organization that files Form 990 or Form 990-EZ to report professional fundraising services, fundraising events, and gaming. Some examples of revenue from gaming include: raffles, bingo, pull tabs, scratch-offs, and Las Vegas nights.
The organization is also required to file a Form W-2G for each person who wins $600 or more if the amount won is at least 300 times the amount of the ticket, and the organization may be required to withhold income taxes, if a Form W-2G is required. Finally, buying a raffle ticket is considered to be a purchase of a chance to win; therefore, it is not tax deductible by the purchaser.