Special events can be a minefield for non-profit organizations with various activities at each event in addition to contributions. For example, many non-profit organizations receive gifts-in-kind (such as tickets, gift certificates or merchandise) to be auctioned off as a fund raiser or offered as raffle prizes.
Did you know there are different Generally Accepted Accounting Principles (GAAP ) reporting requirements for recording these items depending on if they are auctioned or raffled off?
- Auction – When the organization originally receives the item it should be recognized as a contribution and measured at fair value but once auctioned off the difference between the fair value amount reported at the time of the contribution and the amount received for those items from the ultimate recipient (the purchaser at the auction) should be recognized as an adjustment to the original contribution amount. In most cases, as long as the receipt of the auction items and the date of the event doesn’t cross over the end of the fiscal year, the organization can just skip recording the original fair value of the item when donated, and instead record the auction proceeds as income when the event takes place.
- Raffle – When the organization originally receives the item it should be recorded at fair value as income and direct donor benefit expense. Unlike auctioned items, proceeds from a raffle do not measure the fair value of donated prizes so no adjustment is made to fair value based on raffle proceeds. Raffle proceeds should be reported separately from the raffled item as they are a function of how many tickets are sold. So income would include both the in-kind raffle item donated and the raffle proceeds income.
Be sure to see your Henry+Horne tax advisor for all your non-profit questions.
Jarrod White, CPA