After a long winter, it is finally time to enjoy the beautiful outdoors of the Black Hills! The good weather also means a flurry of charitable golf tournaments. Although your development team takes the lead in seeking out businesses to be hole sponsors, donate prizes, and form teams of golfers, the accounting department also plays a critical role in all phases of the tournament.
Any communication made to golfers, sponsors, or donors by the development team has both accounting and tax implications. If the accounting department is not involved in these discussions in advance, unintended complexities and additional work could be created. Things to consider include:
- Who will be collecting cash and soliciting prizes?
- How much of the fee represents golf and cart rentals vs. contributions?
- Are all in-kind contributions of prizes being tracked?
- Do fundraising materials contain statements restricting tournament proceeds for any specific purpose of the organization?
- Are sponsors receiving any substantial return benefit?
As with any significant process, internal controls surrounding cash collections should be reviewed to ensure no one individual has complete control over the process. This can be especially challenging if volunteers are utilized as part of the fundraising team. Prizes being solicited from area businesses should be logged and safeguarded. Involving more than one individual in this process will ensure the prizes make it to the tournament and are not kept for personal use. Receipts should be given for cash collected in advance. The numerical sequence of receipts should be tracked independently to ensure completeness. More than one individual should be involved in collecting cash at the event – dual control will prevent cash receipts from being taken. Also consider publishing a list of all donors and sponsors, along with contact information to notify the organization if the information is not accurate – this contact should be someone independent of the development and accounting staff.
Several unique accounting considerations could apply to your golf tournament:
- Participant fees should be split between direct donor benefits (i.e. fair value of green fees, cart rental, food, etc.) and contributions (any excess amount).
- In-kind contributions should technically be recorded at fair market value at the time of the donation, and then removed from the general ledger when they are given out as prizes. The resulting contribution revenue and special event expense should be recorded.
- If proceeds are restricted for a specific purpose, they need to be tracked in order to ensure funds are spent as intended.
Tournament Tax Implications
- Splitting tournament fee revenue between direct donor benefits and contributions is also required for reporting your golf tournament properly on Form 990, as these are two separate line items.
- If gross receipts from your tournament exceed $5,000, you may be required to report the event in more detail on Schedule G. This detail includes itemizing event expenses (e.g. food, facility rentals, and prizes).
- Identifying the benefit tournament sponsors receive in exchange for their sponsorship is necessary to determine if sponsorship revenue results in unrelated business income tax. If a sponsor receives “substantial return benefit” (e.g. advertising beyond just identifying the sponsor), you may be subject to additional tax.
Your work is not done after the tournament is over. In addition to finalizing the accounting, you also need to consider two other important items:
- Prizes paid to individuals that exceed $600 require 1099 reporting
- Tournament donors (including golfers who paid more than fair value to participate) should receive acknowledgement letters thanking them for their donation and advising them of their charitable deduction. A good faith estimate of what the donor received in return for the contribution (i.e. green fees, meal, etc.), must be included in the acknowledgement. If the donor provided a non-cash prize, the acknowledgement should include a description of the item, but not a value.
You are now ready to hit the golf course! Contact the professionals at Ketel Thorstenson, LLP if you need any assistance or clarification as you plan your tournament.