Accounting for Forgivable Loans and Other Revenue

With the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, 501(c)3 non-profit organizations and 501(c)19 veterans’ organizations with 500 or fewer employees (or that meet SBA size industry standards) were able to apply for emergency relief. Part of that relief came in the form of potentially forgivable loans through the U.S. Small Business Administration (SBA).

In a previous blog post on revenue recognition, we talked about how to account for forgivable loans on financial statements in light of new FASB rules. Generally speaking, most loans — even forgivable loans — must be reflected as liabilities on the books until compliance requirements are met at the end of the compliance period, and if loan funds must be returned in the event of noncompliance.

Small businesses can no longer apply for Paycheck Protection Program (PPP) loans. However, you may still be eligible for loan forgiveness, though not every forgivable loan is treated the same. Our not-for-profit accounting and advisory team is available to guide your organization on the terms and the recording of forgivable loans. You can also visit the SBA website for more details.

Accounting for Bundled Gifts

Other questions we receive about revenue recognition include recording and disclosures for bundled gifts. Following the Tax Cuts and Jobs Act of 2017, an increased standard federal deduction means that many taxpayers will be utilizing the standard deduction instead of itemizing their deductions. Therefore, many taxpayers will no longer itemize their charitable contributions and receive a tax benefit for their contributions. To regain some tax benefit for their charitable contributions, taxpayers may consider a bundled gift to charities that will take them above the standard deduction threshold. The thresholds for a single filer for 2022 and 2023 are $12,950 and $13,850, respectively; and for a married joint filer, $25,900 and $27,700, respectively.

So for example, a couple who gives $10,000 each year to their favorite charity could choose to give $30,000 to that charity in one year and nothing in the following two years. By bunching up the deductions, the taxpayer can deduct their itemized deductions that will exceed the standard deduction amount.

A bundled gift sounds like a great boon to your not-for-profit organization, however some donations come with stipulations or “restrictions” by the donor. Additionally, your organization may need to consider how to record and manage this donation. Using the same example above, a major donor who gives $30,000 or three years’ worth of donations in one year — and nothing in the following two years — will affect your organization’s budget management and accounting.

Depending on the existence or absence of donor-stipulated restrictions, a not-for-profit organization may be able to release only a portion of the bundled gifts into the general funds each year over three years. The gifts may be reflected as part of the donor-restricted contributions and net assets on the books until all the funds are released, which could potentially be at the end of three years, depending on how the restrictions are worded. Related activities and balances should be disclosed in the financial statements.

Proper accounting for all forms of not-for-profit revenue is not only fiscally responsible, it’s also important for proving your financial need for future funding. LvHJ has advised not-for-profits on accounting standards and alternative revenue sources for decades. Request a consultation from our premier nonprofit accounting firm.

Next: Preparing for Your Nonprofit Audit


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