Reporting Issues

Contributions - 6 General Requirements - (2 of 6)

In order for a contribution to be deductible for income tax purposes, the contribution must meet 6 general requirements. In our previous post we discussed the gift of cash or property. In our post today we will discuss what types of organizations can receive contributions and provide substantiation to the donor in order to deduct the donation for income tax purposes.

Requirement #2 for contributions is that the donation of cash or property must be made to or for the use of a qualified organization.

Ordinary and Necessary Expenses (1 of 2)

In light of the current spotlight on televangelists let's review appropriate expenses and required documentation/substantiation.

For an expense to be an appropriate expense for a ministry, the expense must be ordinary and necessary, which in general requires a showing that the expense was incurred principally for and has a reasonably close relationship to the tax-exempt purpose of the church or ministry.

Additionally, proper documentation must be made for the expenditure. For meals, the following should be recorded:

> the amount and a description of each separate expenditure;

Contributions/Event - (1 of 4)

The following was a recent question we received via e-mail and we want to share the common situation with you.

Introduction: Contributions may be the most gracious form of expression that a donor can provide a church/ministry to aid in its vision. Yet, with gracious offerings can come many challenges when attempting to account for the funds. Most ministries solicit contributions through a variety of avenues each offering it’s own set of challenges in how the revenues and expenditures should be treated.

The following example is a scenario that many ministries and churches encounter:

Designated Funds vs Restricted Funds

So what defines a designated fund/contribution? Shouldn't accounting be simple? Isn't it basic math (one plus one equals two)?

The difficulty lies in the terminology or meaning of words. The manner in which the word designated is used can cause significant differences in how churches account for a transaction.

Not all designated funds are accounted for as restricted funds. Accounting standards state only third party designated funds are to be accounted for as restricted funds. Internally designated funds, such as board-designated funds, are accounted for as unrestricted funds.

Basis of Accounting for Non-Profit Entities - (1 of 4)

Small non-public entities prepare financial statements for a variety of reasons. Usually, it is done at the request of third parties (banks, potential investors or other interested parties) or simply for internal monitoring purposes. The basis of accounting that an entity uses to prepare its financial statements generally is determined by the needs of the users.

Contribution - When to Record?

The following is a question that we have received from a controller of a large church in the north east.

Question - During the Watch-Night service, Bishop called for a cross-over offering that was taken after 12AM and the envelopes were dated 1/1/08. When is the contribution recorded? 2007 or 2008?

Answer - The contribution is recorded when delivered to the Church. The cross-over offering was delivered after 12AM and therefore should be recognized in 2008.

Charitable Contributions - Requirements - (1 of 6)

Contributions are typically the most significant source of income for a church or ministry. In order to be a deductible expense for a tax payer the contribution must meet six requirements. Our post today will discuss the first requirement:

Designated Contributions

We receive several questions each year regarding designated or restricted contributions. Designated contributions are contributions made to a church or ministry for a specified purpose or program. The donor may designate a specific project or a specific individual relating to the contribution. Whether or not the contribution is deductible for income tax reporting depends on the type of designation and whether the Church has control and discretion over the contribution.

The following are several examples...

Contributions Webinar

On November 29, 2007 NACBA and Your Church(Christianity Today) is sponsoring a webinar relating to the tax and financial reporting requirements for contributions. The webinar lasts an hour, with a 45 minute audio/video lecture and then a 15 minute question and answer period.

For more information, go the registration website and consider signing up for this webinar.

All you ever wanted to know about contributions!

Asset Defined

Straight from FASB's Norwalk Connecticut Headquarters:

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) approved a revised definition of what constitutes an asset on October 22, 2007, the first day of their two-day joint meeting.