So what can churches do to weather this environment? Here’s a few suggestions:

1. Don’t abandon your mission, and certainly don’t abandon your message. Despite this economy, I believe (and have seen) that people still want to give generously to causes they are passionate about. The problem caused by the economy is that more nonprofit organizations are providing more services to more people in need with less available funding. That’s why it’s so important to trumpet a compelling vision to your contributors. There are simply more options for donors to consider, and with limited resources, they give to causes they are the most passionate about.
2. Communicate, communicate, communicate. Churches (and lots of other organizations) make the mistake of not wanting to communicate negative financial trends and results. But if you don’t communicate, how will your contributors know there’s a need? Many churches also make the mistake of talking about money only when the numbers are down. Generosity is ultimately a spiritual issue not a financial one, and that message is lost if you only talk about money in a bad economy.
3. Rethink budgets. Churches are generally very slow to make difficult decisions about (i.e. cutting) budgets, minstries, and staff. The line between faith and stewardship is often very faint, but in a giving environment like we’re experiencing now, churches must consider the efficiency of their ministries. When giving is up year after year after year, churches often add a little more “flair” to ministries than is really needed and let certain ministries linger on a little longer than they should. Spend some time thinking strategically about your ministries in light of your mission and your investment in those ministries, and you might be surprised what you find.

The economy we’ve been dealt presents its share of challenges for churches and ministries, but there are opportunities to impact the quality and direction of your ministries. And who knows – you might even find youself in the 9% next year.

If we can be of any help or answer any questions as you wrestle through these issues, please don’t hesitate to call me.

Based on a survey of more than ten thousand households and funded by the Community Counseling Service, the report, Understanding Donors’ Motivations, found that 18 percent of respondents said the most important reason for giving to charity was to help meet basic needs for other people such as food, shelter, clothing, and heat, while 17 percent said the most important reason was to make the world a better place.

Although there were differences within each region of the country in the percentage of people who chose different motivations, the report found that such variations could be explained by regional differences in income and education rather than underlying values specific to a particular region. For example, lower-income donors (those with incomes below $50,000) most often said their motivation for giving was to help meet basic needs or help the poor help themselves, while higher-income donors (those with incomes of $100,000 or more) most often said that they were motivated by the phrase “those with more should help those with less” and a desire to improve their communities. Donors with incomes between $50,000 and $100,000 were more likely than donors in other income groups to say they gave to make the world a better place.

According to Center on Philanthropy executive director Patrick M. Rooney, “Research repeatedly shows that higher income and higher education levels are associated with a greater likelihood of giving to charity and with higher average gift amounts. With this study, we find that the ways donors describe their giving motivations also vary with income and education. This has implications for fundraising messages in all their forms.”

For more information on donor giving see Donor Motivations for Giving Vary With Income and Education, Center on Philanthropy at Indiana University Press Release 10/20/09.

In this difficult economy, with cutbacks and retrenchments, it can be difficult for any nonprofit to survive, let alone flourish.

Despite the temptation to think in terms of mere survival as crisis management, Patrick M. Rooney, executive director of the Center on Philanthropy at Indiana University, argues that nonprofits should try to think positively, trying to act now rather than wait for good times that might be a long time coming.
Rooney offers several suggestions.

• Rather than simply look to shed every possible cost as a means of just staying afloat right now, organizations should evaluate costs strategically. It’s better to spend smart rather than just be as frugal as possible.
• It is important to look carefully at how a fundraising program is managed and evaluated. Difficult times might actually be a good time to reassess.
• Odd as it sounds, it might be better to spend more on certain aspects of an operation and infrastructure. For example, it is critical to continue to invest in fundraising as a long-term support issue.
• Adding or maintaining a business development specialist might be even more important in challenging times to grow existing sources of revenue and identify and develop new ones.

If budget cuts have to be made, it is important to evaluate what effect cuts will have on long-term goals and mission.

One thing to know is if you have any professionals donate services that you would normally have to pay for you should be recording that time as an “in-kind” contribution. FASB states that if the services donated (a) create or enhance nonfinancial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation.

Examples to watch for are ….

Accountants, lawyers, electricians, plumbers, teachers, carpenters, doctors, even nurses. One important key to remember is that these are services that you would normally pay for or incur the cost for operations or a non-financial asset.

How do you record these services, like most donated items, you would record them at their fair market value; a.k.a. the price you would have paid had you had actually contracted the services. So how do you record the “donation” of service?

Account Name                 Debit     Credit

In-Kind Service Expense      $1,000
In-Kind Service Revenue                 $1,000

As you can see this entry hits both your expense as well as your income in equal amounts, so there isn’t a “equity or net-asset” affect.

However, if you received donated construction management services (capitalized as a component of construction costs), this is the following entry:

Account Name                      Debit     Credit

Construction in progress       $1,000
In-Kind Service Revenue                   $1,000

This type of donation affects “non-financial assets” and is capitalized/recorded on the statement of financial position – ultimately increasing net assets.

Another point…don’t forget to track these non-cash donations. If they exceed $25,000 you must report them on Schedule M of the Form 990.

1. Unconditional promises to give are statements by a donor of their intent to make a contribution of some kind at a future period. (For example, the ABC Foundation informs you that they have voted at their last Board meeting to give your organization $10,000 in January.)
2. Conditional promises to give are pledges by a donor that are “conditioned” upon some other event (other than the passage of time) occurring. (Some examples are: 1). A donor states that he will give you $5,000 for your capital campaign if a contract with a builder has been signed. 2). A foundation will contribute $100,000 if a new program is implemented. 3). A corporation will donate $1,000 if other corporations in your community do the same.)

Remember: Conditional pledges require some other action to occur.

So what is the different accounting treatment?

1. Unconditional pledges are recorded as revenue (which is temporarily restricted – see blog on this topic) when the not-for-profit organization receives the pledge (written or verbal).
2. Conditional pledges are recorded as revenue when the condition has been met. Until that time, the conditional pledge would be disclosed in the notes to the financial statements (if significant), but not reflected in the accounting records. [For example, you learn on December 1, 2008 that a donor is going to contribute $1 million for your organization to begin an endowment if you are able to establish a location in another town by December 1, 2009. In the financial statements ending December 31, 2008, this information would be disclosed in the footnotes. On March 31, 2009 the location is opened, and at that time you would recognize the pledge and the associated revenue of $1 million even if payment has not actually occurred.]

Pledge information can be conveyed to you verbally or in writing. However, we suggest that all significant pledges be obtained from the donor in writing stipulating any restrictions, date payment is to be expected, any conditional information, etc. This practice helps to reduce any confusion or errors.

If the donor does not send this written information, then we suggest that you write the donor an acknowledgement of their pledge and outline the verbal specifications. Ask the donor to sign a copy of the letter and return it to you.

Sometimes it can be unclear when the condition of the pledge has been met and should be recorded in your accounting records. If you have questions regarding this recognition, give us a call.

So what if an opportunity presents itself to increase your bottom line that may not fit your mission? Does that mean as a NPO you can not take advantage of this opportunity?  Not necessarily.  The income can be earned, but depending on its source, it may be considered unrelated business income. If the revenue is unrelated, then net income in excess of $1,000 is subject to the excise tax.

What types of property or transactions are specifically exempt or subject to being taxed? Continue reading…

Some unrelated business income is specifically exempt from being taxed, such as certain types of mineral royalty income and income from the sale of merchandise, substantially all of which was donated to the organization. Certain common endeavors that NPO’s may consider which result in UBIT are gift shops, rental of personal property and rental of debt-financed real property. Some NPO’s have also been contacted about leasing property to locate cell phone antennas or even billboards on their property. Before launching into these ventures, give us a call.  We may be able to assist you in structuring the agreement so that the tax implications can be minimized, or at the very least, provide you with information to avoid the shock of having to cough up 35% of your “new found” money.

This area of tax-exempt is complicated and often abused. Contact us for help.

The IRS clearly states that, “If a donor received something of value in return for the contribution, a common occurrence with fund-raising efforts, part or all of the contribution may not be deductible.” 

So what is deductible? The amount that is deductible is actually the amount given over and above the fair market value of the event or purchase. This is where the organization should step in and give some assistance to the attendees. Before the event the organization should determine the fair market value of the event and inform the participants how much of their contribution is deductible and how much is for the goods or services provided at the event. 

For instance, if a golf tournament is held, it would be a good idea to include a phrase on the registration form stating, “of the $250 registration fee, $100 is considered to be the value of participation in the tournament” This clearly informs the donor that the participation in the golf tournament is valued at $100 and the remaining registration fee is considered to be a contribution to the organization. Also, when determining the fair market value of the event, the organization should consider all that is offered to each participant at the event, including meals, entertainment, contests, prizes, etc.  These values should be determined in advance, and a conscious effort should be made by the organization to clearly inform the participants of the split between their payment for services and deductible contributions.

Need additional help?  Contact us.

What is a raffle? According to www.dictionary.com, a raffle is a form of lottery in which a number of persons buy one or more chances to win a prize.

According to Texas state statutes, Chapter 2002 of the Occupations Code sets the rules for charitable raffles. Some of the notable provisions of the law include:

• No more than two raffles can be conducted per year.
• The two raffles cannot be conducted simultaneously.
• Organization must set a specific date to award the prize.
• Mass communication (via newspaper, radio or television) is not allowed.
• Individuals may not be compensated for conducting/promoting the raffle.
• The tickets must be sold by the organization and its representatives.
• The prize cannot be cash.
• The organization must have possession of the prize in your possession at the time of ticket offering.
• A $50,000 maximum prize value.

Due to these requirements, Organizations must act wisely when scheduling these events. The tickets must also have the following specific information on their face:

• Name and address of the organization
• Ticket price
• Description of prize(s)
• Date the prize will be awarded

How does gaming affect the redesigned Form 990? If you collect more than $15,000 from the gaming event, the information must be disclosed in Schedule G. Need help in determine what is a “game”? Call me.

• Is there a game of chance?
• Does the game involve cards, dice, or other gambling devices?
• Are the chances of winning equal for all players excluding the effects of skill?

There are certain common events that have been ruled against or could possibly constitute illegal gambling. These include:

• An entry fee to participate in a game of chance.
• A rubber duck race requiring an entry fee.
• A poker run where individuals pay for cards to see who gets the best hand to win a prize.
• Many more possible….

If your organization is still considering certain gaming activities, there are steps you can take to make the event fun and legal. Consider these options:

• No fee to enter or play, with the exception of a food charge (then we recommend you solicit a contribution for the food.)
• Each participant that comes must be in consideration for the prize offered.
• Charge an entry fee but award no prizes for winning or the prizes could be offered as door prizes with everyone having the possibility of winning (This will generally not substitute for casino nights, but may work with other games.) 

For annual gaming revenue that exceed $15,000 the new redesigned Form 990 requires additional disclosure of the event. Remember, this tax form is public record and assessable by state and local taxing authorities.

Illegal gaming for the participant is a Class C Misdemeanor. The host may be charged with a Class A Misdemeanor and face higher fines and possibility of jail time.

For more information on gaming and ramifications see Chapter 47 of the Texas Penal Code.

For organizations that report functional classifications of costs, AICPA Statement of Position (SOP) 98-2 establishes financial accounting standards for accounting for costs of joint activities related to fund-raising in order to provide assurance to external users of financial statements that fund-raising and other functional classifications of costs are stated fairly. If the fund-raising activity is considered a joint activity meeting certain criteria outlined in SOP 98-2, the costs attributable to a particular function should be charged to that function and the remaining joint costs that cannot be attributed to a particular function should be allocated between functional classifications. If the activity does not meet these criteria, all of the costs of the joint activity should be reported as fund-raising, with the exception of costs incurred for exchange transactions. If the joint costs are allocated, the organization should allocate costs using a rational and systematic method that results in a reasonable allocation of costs, applied consistently.

SOP 98-2 also requires financial statement disclosures about the nature of the activities for which joint costs have been allocated and the amounts of joint costs.

See AICPA SOP 98-2, <em>Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fund Raising</em> for more information and specific examples related to this topic.