How do we report income and expenses for an activity paid for by the members of a nonprofit organization? For example, if a nonprofit organizes a bus trip related to its mission where members pay a fee that covers the cost of the trip, must the entire income be recorded as income and the expenses as expenses or can it all just be netted? How do we report a “scrip” fundraising effort where "donors" pay face value for a store credit card and the organization receives a percentage as a contribution? Can the income be netted and only the contribution percent retained by the organization shown as gross receipts? Reporting the full receipts can push a small organization into the need to file a "full" Form 990 when the net effect of these activities is actually very small.
The IRS generally objects to netting the income and expense from nonprofit operations in reporting on the Form 990 (See Ready Reference Page: “IRS Explains Common Mistakes on Form 990”), but gives you a break on special fundraising events. Your bus trip sounds like program service revenue for which the entire revenue should be reported on line 2 of Part VIII, Statement of Revenue, on the Form 990. The expenses should be reported on the appropriate lines of Part IX, Statement of Functional Expense. (The full amounts must also be reported on the appropriate lines in Part I of the Form 990-EZ.)
Since your sale of the store credit sounds like it is unrelated to any exempt purpose, it sounds as though you may be able to treat it as a fundraising event, like the door-to-door sale of merchandise (e.g. holiday wrapping paper that kids sell for their schools) that the IRS includes in its instructions to the Form 990. If so, you will report the total income from members’ purchases on line 8a of the Form 990. Since the members pay the face value of the credit, there is no charitable contribution in this transaction. The cost of the cards to the organization should be reported on line 8b, with only the net income on line 8c. Only the net income from the fundraising activity will show as revenue on the return and that may reduce the total gross revenue enough to avoid having to file the full Form 990. (Line 6 is the corresponding line for reporting on the Form 990-EZ.) (See Ready Reference Page: “Form 990 Reporting for Special Events Can Be Tricky — And Is Often Wrong”)
In either case, you have to determine whether the net income is subject to tax as unrelated business taxable income. By definition, the income from a fundraiser is unrelated to the exempt purpose of the organization. But if the script is sold only for a short period of time during the year, it may not be considered “regularly carried on” and may not be subject to the unrelated business income tax (“UBIT”). If the cards are available throughout the year, however, the income would probably be subject to UBIT if not excluded for some other reason. You would have to file a Form 990-T if the gross unrelated business income (from line 8a) exceeds $1000 and pay UBIT if the net (on line 8c) is more than $1000. (See Ready Reference Page: “Nonprofits Often Worry About UBIT”)
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