When we conduct nonprofit audit engagements, one area consistently leads to the most discussions: proper revenue recognition and net assets treatment. Even well‑run and sophisticated organizations can stumble over the nuances of donor restrictions and proper tracking.

In this article, we break down some essential steps every nonprofit should follow to improve revenue recognition and net asset treatment for a clean and speedy audit!

Step 1: Is it a contribution or program service revenue?

The first step is determining the nature of the funds received. The primary question is who receives the primary benefit from the transaction. Program service revenue arises when both parties exchange roughly equal value (think conference or training revenue), or the payor is acting as a contractor on behalf of a specific third party. Contribution revenue arises when the benefit flows to the general public or to beneficiaries who meet certain eligibility criteria. Getting this classification correct initially is key to everything that follows.

Step 2: Does the contribution include donor-imposed restrictions?

Once donations have been identified as contributions, there is further review needed to determine if the contribution contains donor-imposed restrictions. There are two types of donor-imposed restrictions: purpose and time. Funds that must be used for a specific program or activity have donor-imposed purpose restrictions.  Funds that are designated for a future period or are tied to a multi-year pledge have donor-imposed time restrictions.  These restrictions affect both revenue recognition and the timing of net asset releases.

Step 3: Are there donor-imposed conditions?

Some contributions come with conditions that must be met before the organization is entitled to these funds.  In these cases, revenue is recognized only after the condition is satisfied. Common examples include performance metrics or milestones tied to future payments.  A key reminder: routine reporting requirements are not conditions. There must be a substantive barrier to receiving the funds. Reimbursable grants would also fall under this category.

Step 4: Strengthen your net asset tracking

Once contributions are properly classified, the next challenge is tracking restrictions and releases. Strong internal processes make a difference. Best practices include maintaining a clear up-to-date net asset schedule; tracking expenditures by program or purpose; recording releases promptly and consistently. Good tracking reduces audit adjustments and improves transparency.

Step 5: Troubleshoot common issues

We frequently see the following challenges during our audits of non-profit clients:

• Donor restricted donations recorded as unrestricted. This often happens when donor intent isn’t clearly documented or reviewed. Review every contribution/grant agreement carefully. Confirm whether restrictions or conditions exist before recording the revenue. If there is unclear or conflicting information in the agreements, reach out to the donor to clarify.
• Improper tracking of releases from restrictions. Without a reliable system, it’s easy to lose sight of when funds should be reclassified. Implement a robust internal tracking method. A consistent, ongoing process for monitoring restrictions and releases is essential.
• Overlooking time restrictions. Contributions receivable can carry timing stipulations that get missed. Analyze year‑end contributions receivable. This helps ensure any time restrictions are properly identified.
• Insufficient donor documentation. Lack of written donor support can lead to misclassification and audit challenges.
• Board‑designated net assets. These are still considered net assets without donor restriction, even though the board has earmarked them for specific purposes. The additions and releases of these should be tracked in the same way as donor restricted net assets.
• Donor Advised Fund (DAF) contributions. Most DAF distributions are without donor restriction because the sponsoring organization, not the individual donor, retains legal control once the funds are contributed.

Step 6: When in doubt, reach out early

If you’re unsure how to classify or record a contribution, connect with your auditors before the audit begins. Early conversations help resolve gray areas, ensure proper documentation, and lead to smoother and more timely audit engagements.

By: Rachel Zutshi

As we kick off the 2026 calendar year, several federal administrative changes are affecting how taxpayers receive refunds and remit tax payments. To help ensure your filings and payments remain timely and accurate, we have summarized the most important updates below.

Phase-Out of Federal Paper Checks

Effective September 30, 2025, the federal government has discontinued issuing paper checks for most federal tax refunds. Direct deposit is now the standard method for receiving refunds. As a result, you may be asked by your tax preparer or the IRS to provide or confirm bank account information to facilitate direct deposit while completing your tax return.

In addition, the Treasury is in the process of phasing out its acceptance of incoming paper checks. Given these changes, we recommend using secure federal payment portals whenever possible: either using the IRS.gov/pay site for one-time payments or creating an account with the IRS through ID.me for individuals and EFTPS.gov for trusts and businesses. These platforms provide immediate confirmation for your records and eliminate reliance on postal processing. This shift aligns with new federal mandates, reduces the risk of lost or stolen mail, and generally results in faster posting of payments and refunds.

Electronic Payment Requirements for Trustees

Trustees should be aware that the IRS now requires federal tax payments for trusts to be made through the Electronic Federal Tax Payment System (EFTPS). Unlike other electronic payment options, EFTPS requires a formal enrollment process to verify the entity’s identity. Once enrolled, please keep in mind that EFTPS payments must be scheduled by 8:00 p.m. ET at least one calendar day before the tax due date to be considered timely.

• Action required: Enroll the trust at EFTPS.gov. For EFTPS enrollment, trusts are treated as a “Business” and should select that option under “Enroll me as”
• PIN process: After enrolling online, the IRS will mail a physical Personal Identification Number (PIN) to the address of record.
• Timing considerations: The PIN is sent via standard mail and typically arrives within 7 to 10 business days. Payments cannot be made until the PIN is received and the account is fully activated; we would encourage you to enroll as soon as possible.
• Lost PIN: If you have misplaced your EFTPS PIN, contact EFTPS at 1-800-555-4477. After identity verification, EFTPS can process a payment by phone and will mail a replacement PIN.

Important Note on USPS Postmarking

The U.S. Postal Service has changed certain operational practices, and local post offices may no longer apply same-day postmarks. To ensure payments and other time-sensitive filings are legally recognized as mailed ahead of the tax deadline, we recommend using the electronic payment options offered by the IRS and many states.  If a paper mailing is required, you should use Certified Mail so that you receive a confirmation receipt to prove that it was timely mailed.

The IRS is not alone in mandating electronic payments as many states have adopted similar programs.  Hopefully, this will help combat various types of fraud and keep data more secure.  We encourage you to enroll in these IRS programs soon to avoid any future delays in payments or refunds. If you have questions about these new requirements or need assistance with EFTPS enrollment, please contact your Snyder Cohn advisor.

by: Zane Sanchez