958-605-55 Implementation

General

55-1 This Section, which is an integral part of the requirements of this Subtopic, provides general guidance to be used in distinguishing contributions from exchange transactions, including membership dues and agency transactions .

> Implementation Guidance

55-2 The accounting and reporting of grants, membership dues, and sponsorships is determined by the underlying substance of the transaction.Those terms are broadly used to refer not only to contributions but also to assets transferred in exchange transactions.A grant, sponsorship, or membership may be entirely a contribution, entirely an exchange, or a combination of the two; therefore, care must be taken in evaluating each grant, sponsorship, or membership agreement.In addition, those resource transfers may also have the characteristics of agency transactions.

55-2A The implementation guidance is organized as follows:
a. Distinguishing contributions from exchange transactions (see paragraphs 958-605-55-3 through 55-8 : )

b. Distinguishing the contribution portion of membership dues (see paragraphs 958-605-55-9 through 55-12 : )

c. Distinguishing contributions from agency transactions (see paragraph 958-605-55-13 : ).
> > Distinguishing Contributions from Exchange Transactions

55-3 Some transfers of assets that are exchange transactions may appear to be contributions if the services or other assets given in exchange are perceived to be a sacrifice of little value and the exchanges are compatible with the recipient's mission.

55-4 Foundations, business entities, and other types of entities may provide resources to not-for-profit entities (NFPs) under programs referred to as grants, awards, or sponsorships.Those asset transfers are contributions if the resource providers receive no value in exchange for the assets transferred or if the value received by the resource providers is incidental to the potential public benefit from using the assets transferred.A grant made by a resource provider to a not-for-profit entity (NFP) would likely be a contribution if the activity specified by the grant is to be planned and carried out by the NFP and the NFP has the right to the benefits of carrying out the activity.If, however, the grant is made by a resource provider that provides materials to be tested in the activity and that retains the right to any patents or other results of the activity, the grant would likely be an exchange transaction.A careful assessment of the characteristics of the transaction, from the perspectives of both the resource provider and the recipient, is necessary to determine whether a contribution has occurred.

55-5 For example, a resource provider may sponsor research and development activities at a research university and retain proprietary rights or other privileges, such as patents, copyrights, or advance and exclusive knowledge of the research outcomes.The research outcomes may be intangible, uncertain, or difficult to measure, and may be perceived by the university as a sacrifice of little or no value; however, their value often is commensurate with the value that a resource provider expects in exchange.Similarly, a resource provider may sponsor research and development activities and specify the protocol of the testing so the research outcomes are particularly valuable to the resource provider.Those transactions are not contributions if their potential public benefits are secondary to the potential proprietary benefits to the resource providers.

55-6 Moreover, a single transaction may be in part an exchange and in part a contribution.For example, if a donor transfers a building to an entity at a price significantly lower than its market value and no unstated rights or privileges are involved, the transaction is in part an exchange of assets and in part a contribution to be accounted for as required by the Contributions Received Subsections of this Subtopic.See paragraphs 958-720-45-18 through 45-19 : for premiums provided to donors and Example 4 (paragraphs 958-225-55-11 through 55-15 : ) for direct benefits provided to donors at special events.

55-7 Examples 1 (see paragraph 958-30-55-2 : ) and 1 (see paragraph 958-605-55-14 : ) illustrate the need to assess the relevant facts and circumstances to distinguish between the receipt of resources in an exchange and the receipt of resources in a contribution.

55-8 The following table contains a list of indicators that may be helpful in determining whether individual asset transfers are contributions, exchange transactions, or a combination of both. Depending on the facts and circumstances, some indicators may be more significant than others; however, no single indicator is determinative of the classification of a particular transaction.Indicators of a contribution tend to describe transactions in which the value, if any, returned to the resource provider is incidental to potential public benefits.Indicators of an exchange tend to describe transactions in which the potential public benefits are secondary to the potential proprietary benefits to the resource provider.
Indicators Useful in Distinguishing Contributions From Exchange Transactions

> > Distinguishing Contribution Portion of Membership Dues

55-9 The termmembersis used broadly by some NFPs to refer to their donors and by other NFPs to refer to individuals or other entities that pay dues in exchange for a defined set of benefits.Some NFPs receive dues from their members. These transfers often have elements of both a contribution and an exchange transaction because members receive tangible or intangible benefits from their membership in the NFP.Usually, the determination of whether membership dues are contributions rests on whether the value received by the member is commensurate with the dues paid.

55-10 For example, if an NFP has annual dues of $100 and the only benefit members receive is a monthly newsletter with a fair value of $25, $25 of the dues are received in an exchange transaction and should be recognized as revenue as the earnings process is completed and $75 of the dues are a contribution. (See paragraph 958-605-25-1 : for recognition of the exchange portion of membership dues. See the Contributions Received Subsections of this Subtopic for the reporting of the contribution portion.)

55-11 Member benefits generally have value regardless of how often (or whether) the benefits are used. For example, most would agree that a health club membership is an exchange transaction, even if the member stops using the facilities before the completion of the membership period.It may be difficult, however, to measure the benefits members receive and to determine whether the value of those benefits is approximately equal to the dues paid by the members.

55-12 The following table contains a list of indicators that may be helpful in determining whether membership dues are contributions, exchange transactions, or a combination of both. Depending on the facts and circumstances, some indicators may be more significant than others; however, no single indicator is determinative of the classification of a particular transaction.
Indicators Useful for Determining the Contribution and Exchange Portions of Membership Dues