Reporting Restricted Grants

Question: The IRS now requires that restricted grants or contributions be included as offsetting revenue. What is meant by restricted? Do we account for the revenue when it is received or when the program expenses are incurred?

Recommendation: We recommend that organizations follow generally accepted accounting principles on what constitutes a restricted grant. According to FASB Accounting Standards Codification (ASC) 958-605-25 Not-for-Profit Entities Revenue Recognition a donor-imposed restriction "specifies a use that is more specific than broad limits resulting from the nature of the organization, the environment in which it operates, and the purposes specified in its articles of incorporation or bylaws or comparable documents... A restriction on an organization's use of the assets contributed results either from a donor's explicit stipulation or from circumstances surrounding the receipt of the contribution that make clear the donor's implicit restriction on use."

Accounting principles also direct that the revenue should offset expenses when the restrictions are met (i.e., when the funds are spent for their designated purpose as opposed to when the funds are received and are recognized as revenue in the income statement.

The task force also recommends questions related to this topic be directed to the organization’s finance and fund raising staff with consultation from legal counsel.

(June 2014)

Please Take Note: The information provided does not constitute legal or tax advice. The material is provided for informational/educational purposes only. Please consult with counsel regarding your organization's particular circumstances.