Key Tax Considerations for Your Nonprofit’s Next Event

Monday, March 25, 2024

Planning a fundraising event is an exciting undertaking for your nonprofit. You get to work closely with your team to bring your fundraising dreams to life, but there are many boxes you need to check off to make sure you’re on track—including reserving a venue, booking catering, and preparing your marketing materials.

However, an equally important part of planning for your event is ensuring you are compliant with the IRS and adhere to all necessary tax provisions. This way, you can keep your nonprofit in good standing and retain your 501(c)(3) status.

To ensure your organization hosts a financially responsible and compliant event, we’ll go over the key tax considerations to keep on your radar. While it’s recommended that you consult a legal or financial professional to navigate any tax implications associated with your event, this guide is a great starting point. Let’s begin!

Understanding the Basics of Special Events

Special events are synonymous with fundraising events and, according to the IRS, include examples like “dinners/dances, door-to-door sales of merchandise, concerts, carnivals, sports events, and auctions.” Essentially, special events are considered fundraisers that do not substantially further the organization’s exempt purpose other than by raising funds.

For example, let’s say your nonprofit hosts a walkathon fundraiser. Although you are raising money to support your mission, the walkathon itself is not directly related to your overall purpose and therefore will require additional tax considerations.

Gross income generated by special events must be reported annually on the IRS Form 990, which is how the IRS gathers data about tax-exempt organizations. In line 8a of Form 990, the IRS explains that fundraising events exclude:

• Sales or gifts of goods or services of only nominal value
• Raffles or lotteries in which prizes have only nominal value
• Solicitation campaigns that generate only contributions

Keep in mind that events unrelated to your exempt purpose can, in certain circumstances, be considered taxable unrelated business income (UBI), which we will cover in a later section. However, your event may be exempt from UBI as long as it is hosted irregularly (such as once a year as opposed to every month), run by volunteers, and not hosted to make a profit.

Let’s take a closer look at how your nonprofit must file special events to remain in good standing with the IRS using Form 990.

Form 990 Special Event Considerations

If your nonprofit receives income from fundraising events during a given fiscal year, you’ll need to report it using Form 990. Your nonprofit will be required to submit the following details about your fundraising events:

• Name of the event
• Total revenue generated
• Total fair market value (FMV) of noncash contributions

If your nonprofit reports receiving gross event revenue totaling more than $15,000, then you will be additionally required to fill out Form 990 Schedule G, Part II. This schedule is used to report on professional fundraising services and special events, like galas or auctions, in greater detail. For example, you’ll need to record costs incurred with your fundraising events such as:

• Cash and noncash prizes
• Food and beverages
• Entertainment
• Rent/facility costs
• Other direct expenses

The IRS also requires that your nonprofit inform donors of tax deductibility for event tickets or purchases of $75 or more. Disclosing that you have complied with this rule is one of the questions on Form 990 and is essential to avoid unnecessary legal or financial penalties.

Between planning your fundraising events, leading donor stewardship activities, and everything in between, it’s easy to put filing Form 990 at the bottom of your priorities. However, correctly submitting your data by the filing deadline is critical to maintaining your nonprofit’s legal standing.

To ensure you have all the data you need to quickly and easily submit Form 990 by the deadline, OneCause, a leader in fundraising technology, recommends working with top fundraising software that integrates with your CRM. This will ensure that all incoming fundraising data from your events is automatically recorded and stored in your database for easy reporting.

Corporate Sponsorship and UBI Considerations

Corporate sponsorships can help your nonprofit in a variety of ways, from giving you access to more funding to host your event to in-kind donations like auction items. However, corporate sponsorships can fall under unrelated business income (UBI) in certain circumstances, meaning that this income would be taxable.

For example, a corporate sponsorship may be considered UBI if it crosses over into advertising. IRC Section 513(i) explains that a corporate sponsorship may be considered advertising if your nonprofit explicitly promotes the products or services of a person or company, including using “messages containing qualitative or comparative language, price information, or other indications of savings or value, an endorsement, or an inducement to purchase, sell, or use such products or services.”

For instance, let’s say your nonprofit is hosting an online fundraiser and partners with a company to match gifts during your campaign. To acknowledge their support and show appreciation, you share a social media post with their logo and write “Huge thank you to [Company Name] for matching gifts during this campaign!” This does not count as an advertisement and your nonprofit would not be taxed.

However, if you instead wrote something like “Thank you to [Company Name]! They are the leading provider in selling quality products, so purchase something from them today!”, you would likely be tax-liable.

Corporate sponsorships can also fall under UBI if any of the following situations apply:

• The sponsor is deemed to be the exclusive provider
• Your nonprofit provides privileges like facilities or services to the sponsor that are considered to be of substantial value
• The sponsorship payment is connected to a qualified convention or trade show activity

Keep in mind that corporate sponsorships aren’t the only source of revenue that could fall under UBI. Another common funding source of revenue that may be considered taxable is gaming. If you’re planning to host an event that involves raffles, bingo, lotteries, or other games of chance, you’ll want to reference both IRS provisions and state and local law to ensure you’re legally adherent.

If your nonprofit earns $1,000 or more in UBI, you will be required to fill out IRS Form 990-T. This form is due at the same time as Form 990. For more information on unrelated business income, reference [IRS Publication 598: Tax on Unrelated Business Income for Exempt Organizations.

Wrapping Up

Fundraising events are a key part of fueling your nonprofit’s mission. As you engage in event planning, take into account these key tax considerations to ensure compliance and save your nonprofit from spending any extra unnecessary funds. You can always work with a top accounting firm that specializes in nonprofit financial management to simplify filing your taxes.