Author: Christine Manor

A reader asked:
If my 501 (c) 3 organization receives a check/donation in January 2012 (postmark is also for January 2012), but the check has a December 2011 date, is it correct that we are to record that donation as 2012 income … even though the intent of the donor may be for the gift to be considered a 2011 donation?

Christine responds:
Here is what the IRS has to say about the timing of contributions, in Publication 526 Charitable Contributions (http://www.irs.gov/pub/irs-pdf/p526.pdf):

If the envelope is postmarked 2012, the contribution is for 2012. If the envelope is postmarked 2011, the contribution is for 2011. This is called “constructive receipt.”

The organization is deemed to have constructively received a gift the moment the promise is made or when the money leaves the control of the donor, i.e. placed in the mail. Back-dating a check does not prove that the gift was made in the prior year.

It is possible, however, that an envelope placed in a post office box may not be picked up for a day or two during the holidays!!

Even if you do not normally make copies of donation checks during the year, be sure to do so when you are depositing December donation checks in January.

Many organizations try to stretch the year when individual donors fail to mail their gifts before the actual end of the year. Many others play it safe by adhering to a strict policy of dating a gift by the date of receipt. Some judgment on the part of the organization may well be needed in a few cases. The safe and conservative approach is to attribute the gift to the later date when there is confusion.

The reader also asked:
If a check used to make a donation has two names on it, do we write the tax receipt only to the person who signed the check or to both people whose names are on the check?

Hank responded:
Assuming you didn’t get a note with the check indicating that it came from one (not both) of the people named on the check, and assuming that you have no record of prior giving from one-or-both of those named, the acknowledgment/receipt/thank you should be addressed to both.

How they use that receipt is up to them. If you’ve gotten prior gifts from one of the people named on the check, but not the other, then you can use your judgment as to whether to thank just the prior donor. It never hurts to thank someone !!

BTW, you are not sending them a “tax receipt,” you are sending them a receipt they can use for tax purposes … an important distinction !! For the purposes of donor relations, it would also be best for the receipt to be in letter format, with some warm words of thanks.

See IRS Publication 1771 (http://www.irs.gov/pub/irs-pdf/p1771.pdf) for guidance on providing acknowledgement of a donation.

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Christine L. Manor, CPA, wrote QuickBooks for Not-for-Profit Organizations, available from The Sleeter Group … at www.sleeterstore.com. Christine can be reached at clm@clmanor.com

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Have a comment or a question about starting, evaluating or expanding your fundraising program? Contact Hank at Hank@Major-Capital-Giving.com With over 30 years of counseling in major gifts, capital campaigns, bequest programs and the planning studies to precede these three, he’ll be pleased to answer your questions.

Not long ago, we received an email with a “programs-vs-finance” question….

“Finance is telling me that once a grant is approved it should be listed in the GL immediately, because it becomes a liability not to do so.

“We have always waited for the grant award letter to be returned before actually marking the grant “approved,” in case a donor has an issue with something in the letter.

“Since most people want their money, I get the letters back within a week and pay out within two to four weeks.

“How would an auditor look at a grant that was approved on May 1 but not posted to the GL until July 1… This grant would probably have a start date of June 1.”

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The accounting rules state that gifts must be recorded as soon as you know about them and they are unconditional (not contingent on something else happening). When approved by the funder, the grant is recorded as income in restricted funds and a receivable. As the money is sent to the organization, the receivable is relieved. As the money is actually spent on funded expenses, the income is released from restricted to unrestricted. This transfer is usually done at the end of each month in a lump amount for the month, rather than with each transaction. After the transfer, the income and expense report for the grant should show net income of zero because the recognized income will equal the expenses. This continues until the grant is used up or you return funds.

Many people outside the nonprofit world have a hard time understanding this concept – that you have to spend money in order to recognize income.

Sometimes this leads to strange looking results. If the grant is approved in May 2011 and your fiscal year begins in July 2011, it is completely against audit rules not to record that grant in the fiscal year ending 30 June 2011. That leaves you with a large source of income in one year and a large expenditure in the next year. The classified Balance Sheet (one with columns for unrestricted, temporarily restricted, and permanently funds) makes it clear when restricted funds have been received and spent. It’s the total column that you are likely to see in your day-to-day accounting software that looks extra good in one year and extra bad in the next.

Back before SFAS 116 (1993), the restricted funds would be shown as a liability called Deferred Income. Now the funds are shown in the equity section as Restricted Net Assets.

There are some segments of SAFS 116 (www.fasb.org) that govern the financial statement presentation of restricted funds.

To obtain a full understanding of the subject look at the PPC Guide to Nonprofit Contributions

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Christine L. Manor, CPA, wrote QuickBooks for Not-for-Profit Organizations, available from The Sleeter Group … at www.sleeterstore.com. Christine can be reached at clm@clmanor.com