Fundraising Events: Revenue, Recognition, and Regulatory Realities for Not-for-Profits

Fundraising events offer not-for-profits (NFPs) a powerful opportunity to generate revenue, deepen donor engagement, and elevate their visibility within the community. From gala dinners to charitable auctions and raffles, these events can be both financially rewarding and strategically valuable. However, they also introduce a complex layer of compliance, reporting, and recordkeeping requirements that organizations must navigate with care.

Events with Goods and Services: Disclosure Obligations

Most fundraising events involve providing attendees or sponsors with goods or services such as meals, entertainment, or branded merchandise. When a donor’s payment exceeds $75 and they receive something in return, the NFP is required to issue a written disclosure statement. This statement must include:

• A good-faith estimate of the value of goods or services provided; and
• Specific language acknowledging that a portion of the payment is not tax-deductible.

Importantly, even items donated to the organization at no cost must be included in the value estimate. Accurate valuation is essential to ensure donors receive proper tax documentation and the organization remains compliant with IRS requirements.

Audit and Accounting Considerations

Fundraising activities can introduce significant complexity into an NFP’s financial reporting and audit process. Revenue recognition must be carefully evaluated, particularly when donor payments include both a contribution and a purchase component. Organizations should ensure that event proceeds are properly classified in accordance with GAAP, distinguishing between contributions, exchange transactions, and sponsorships. Additionally, donated goods and services must be recorded at fair value, and any related liabilities (such as sales tax or prize payouts) should be accrued appropriately. Auditors will often scrutinize event documentation, including donor acknowledgments, valuation methodologies, and compliance with disclosure rules. Strong internal controls and clear accounting policies are essential to ensure transparency and reduce the risk of audit findings.

Charitable Auctions: Valuation and Contribution Challenges

Charitable auctions present unique reporting complexities. In most cases, purchasing an item at auction does not qualify as a charitable contribution. However, if the NFP provides a fair market value estimate for each item in the auction materials, and a donor pays more than that amount, the excess may be treated as a deductible contribution.

Key elements concerning donated items received and sold:

• The NFP should issue a tax receipt detailing the total amount paid and the estimated value received.
• If a donor contributes a non-cash item valued over $500, the NFP may be asked to sign Form 8283, which supports the donor’s tax deduction.
• If the NFP sells that item within three years, it must file Form 8282 to report the sale details to the IRS.

Tracking the receipt, use, and disposition of donated items is critical to ensure proper documentation and timely filing.

Sales Tax Considerations

Sales tax may apply to items sold at fundraising auctions, depending on state law. Some states offer exemptions for:

• Items donated to the NFP
• Sales below a specified threshold

Others require NFPs to collect and remit sales tax regardless of donation status. Organizations should consult state-specific guidance and maintain clear records of auction transactions.

Raffles and Gaming: Withholding and Reporting Requirements

Gaming activities, including raffles, sweepstakes, and lotteries, introduce additional tax and legal considerations:

• Form W-2G is required for certain reportable winnings, and NFPs must collect payee information and signatures.
• If winnings exceed $5,000, the NFP must either:
  • Withhold income taxes from the winner; or
  • Pay the taxes on the winner’s behalf.

State laws vary widely. Some jurisdictions require registration and impose strict reporting rules, while others prohibit certain gaming activities altogether. Before hosting such events, NFPs should verify legality and compliance requirements in their state.

How Citrin Cooperman Can Help

Fundraising events can be transformative for not-for-profit organizations — but only when executed with financial discipline and regulatory awareness. By understanding the nuances of donor disclosures, auction valuations, tax filings, accounting treatment, and gaming laws, NFPs can maximize impact while minimizing risk. Proactive planning and consultation with legal and financial advisors are essential to ensure every event is both successful and compliant.

Our Not-For-Profit Industry Practice works with organizations to ensure the best practices are in place to support future growth and success. If your organization is considering hosting an event for the first time or just wants a refresher on the best way to track the reporting requirements, please reach out to John Eusanio, Amber Dedmon, or your Citrin Cooperman advisor.