Not-for-Profit Contributions: Annual Checkup


By Lauren Weddell

As we approach the end of the calendar year and individual and corporate donors are making contributions for tax-planning purposes, it’s the perfect time for a refresher on the treatment of contributions within your financial statements.

A donor-imposed restriction limits the use of the contribution, but doesn’t change the nature of the contribution and the fact that it should be recorded within the financial statements as an unrestricted, temporarily restricted or permanently restricted contribution upon notification from the donor. A restriction can be explicitly stated by the donor (for renovations, scholarships, books or exhibits, endowment, etc.) or it can be implicitly stated by the nature of the receipt (a donation made for a capital campaign for which 100% of the funds raised go towards a new dormitory). Contributions of an unconditional pledge with payments due in future periods (a $100k pledge with $20k installments over 5 years) should be reported as a temporarily restricted contribution in the initial year and released each year thereafter, unless the donor expressly stipulated, or circumstances surrounding the receipt, make it clear that the gift was intended to be used to support current period activities. All of the above unconditional contributions should be recorded when you are notified by the donor of the pledge, not when the cash is received. Multi-year pledges should be discounted to present value using a risk-free rate of return appropriate for the expected term of the promise to give.

A donor-imposed condition specifies a future, uncertain event (a matching requirement, completion of a building, a stock hitting a certain price) whose failure to occur gives the donor the right to release themselves from the obligation or request their already gifted funds be returned. A pledge conditional on the filing of an annual or quarterly report should not be considered a condition if the likelihood of not meeting that requirement is remote. If the donor stipulations are unclear or vague, a promise that contains stipulations that are clearly not unconditional should be assumed to be a conditional promise. These conditional pledges should be disclosed but not be recorded within the financial statements until the condition has been met. Funds received before the condition has been met should be recorded as a refundable advance.

As straightforward as the rules sometimes read, in practice, it can often be difficult to determine the nature of a stipulation in a donor letter and whether that stipulation is a condition or restriction. Also, depending on how often development and accounting reconcile their records, one department could have information that the other needs to know to appropriately record the asset. If in doubt about the proper accounting treatment, always consider donor intent first and consult with your CPA as needed.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter

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© 2019 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.