3 Critical “How-To’s” for Not-for-Profits Filing Their 990s– February 26, 2019

Posted by Ashley Zoeller, CPA

Each year, every not-for-profit organization is required to file either a 990, 990-EZ or 990-N tax form with the IRS. Regardless of which form your organization files, the various questions and required schedules often generate confusion in three primary areas: 

  1. Recording noncash donation items as contributions
  2. Completing Form 990 Part V Line 6a vs. Part V Line 7a
  3. Determining the contribution portion of quid pro quo contributions 

Below is a brief look at what the IRS requires and some tips on how to comply. 

1. How to Record Noncash Donation Items as Contributions

Most not-for-profit organizations have received at least one noncash donation during their existence. However, those noncash items often are not reported on the 990, as not-for-profits often use generally accepted accounting principles (GAAP) guidelines to record noncash donations when preparing the 990.
Under GAAP, organizations are required to record noncash donations if they are material to the financial statements. Since the majority of individual noncash items are not considered material, and the net effect on the statements is zero, these contributions are often excluded from the accounting records. However, the IRS requires organizations to record and report all noncash donations — despite dollar amount — at the item’s fair value on the day it was donated. These donations are reported on the Statement of Revenue and potentially may be reported on Schedule B and Schedule M, depending on the dollar amount of the individual donation and in the aggregate. 

2. How to Complete Line 6a and Line 7a in Part V

Part V line 6a and line 7a on Form 990 ask two often confusing questions.
Line 6a: Has the organization solicited any contributions that were not deductible as charitable contributions?
Line 6a is trying to determine whether or not the organization solicits any contributions that are not tax deductible. Many not-for-profits often mistakenly consider quid pro quo contributions in their response. However, the question actually excludes quid pro quo contributions, as a portion of these contributions is considered tax deductible.
For a contribution to be truly nondeductible, and therefore applicable to line 6a, the contribution or gift must be used for/given to any organization other than: 

  • A political subdivision of the government or state, made exclusively for public purposes;
  • Domestic organizations described in IRC 501(c)(3), excluding organizations that test for public safety; or
  • An organization that meets the requirements under IRC Section 170(c). 

Therefore, all organizations that qualify by the IRS to receive only deductible, charitable contributions for federal income tax purposes would answer "no" in line 6a.
Line 7a: Has the organization received any quid pro quo contributions in excess of $75?
Part V line 7a only applies to organizations that qualify for deductible contributions under IRC 170(c). Thus, this question applies mainly to 501(c)(1), 501(c)(3) and 501(c)(4) organizations.
What the question is really asking is whether or not the organization has received contributions comprised of both a deductible portion and a portion used as a payment of benefits received. A good example of this is when a donor buys a ticket for greater than $75 to attend the not-for-profit’s fundraising event, such as a ball, luncheon, golf outing, etc. In this scenario, the not-for-profit would answer "yes" in line 7a. 

3. How to Determine the Contribution Portion of Quid Pro Quo Contributions

Quid pro quo contributions have a significant impact on how Schedule G Part II, fundraising events, and Statement of Revenue (Part VIII) are reported. As discussed above, these types of contributions are made up of both contributions and fundraising revenue, with the contribution portion being reported separately on both schedules. Not-for-profits often get confused when determining which portion of the fundraiser ticket price falls under which category.
While it’s a common belief that the entire ticket price should be considered as fundraising revenue, that’s not the case in the eyes of the IRS. The IRS states the fair market value of the benefit (food, drinks, etc.) received by the donor is considered to be fundraising revenue, which is reported as gross income on line 3 of Schedule G Part II and line 8a on the Statement of Revenue. The ticket price less the value of the benefit received results in the contribution amount, which is reported on line 2 on Schedule G Part II and line 1c on the Statement of Revenue. So, an $85 ticket including benefits with a fair market value of $50 results in $50 of fundraising revenue, with the remaining $35 being recorded as a contribution.
While Form 990 may not seem like the largest area of your organization’s financial reporting obligations, it’s important to understand the nuances of each question to help ensure your not-for-profit retains its tax-exempt status with the IRS.
>> Visit the IRS website to learn more about organizations that can have tax deductible contributions, quid pro quo contributions and disclosure requirements.
Please contact a member of your service team, or contact Ashley Zoeller at azoeller@cohencpa.com or Marie Brilmyer at mbrilmyer@cohencpa.com for further discussion. 
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.