The accounting treatment of services donated to a nonprofit frequently comes up in conversation. This blog post is meant to simplify three of the most common scenarios if those discussions:
Should a nonprofit include the value of donated services in its reported revenue?
No, unless the contributed service either: 1) creates a new non-financial asset, 2) increases the value of an existing non-financial asset, or 3) requires specialized skills that would need to be purchased if not donated. If any of these three conditions is met, then yes, revenue must include the donation of service.
Should the donor of services count the contribution as a charitable donation?
No, donated services are not a charitable contribution for individual tax reporting purposes.
Should the donated service revenue appear in financial statements and tax filings like Form 990?
No, not unless required as described above. If financial reporting is required based on the criteria above then the value of donated services should be included with the revenue on the financial statements. However, the value of these donated services is still not included in reported revenue or grants received by a nonprofit on IRS Form 990 even if it is required on the financial statements.
Note that separate disclosure and treatment of non-cash volunteer contributions to a nonprofit may be included on Form 990. IRS provides this additional instruction on the possible disconnect between tax accounting and financial accounting for a nonprofit: “The organization can report the amount of any donated services, or use of materials, equipment, or facilities it received or used in connection with a specific program service, on the lines for the narrative description of the appropriate program service. However, don’t include these amounts in revenue, expenses, or grants reported on Part III, lines 4a–4e, even if prepared according to generally accepted accounting principles.”
Can a nonprofit keep track of and recognize the donation of noncash contributions of services?
Yes, many nonprofits track volunteer hours and recognize these donors of time. It’s just that this most commonly does not appear in the organization’s financial reports except as explanatory information.