Reporting Pass-Through Contributions as a Nonprofit Organization

Pass-through contributions are donations made to a nonprofit organization with the requirement that the funds must be passed on to specific, unrelated beneficiaries, including other nonprofits. The nonprofit organization does not have the variance power to redirect these contributions, and as such, is acting as an intermediary or agent for these funds.

For example, a government agency may provide a nonprofit with funds to be used as housing vouchers for individuals experiencing homelessness. The gifted funds in question merely “pass-through” the nonprofit organization from the government agency to the individuals.

Like all grants and donations, pass-through contributions must be recorded by both the donor and the recipient. Properly reporting pass-through contributions is critical for maintaining financial transparency and ensuring that your entity keeps its 501(c)(3) tax-exempt status.

Under the Generally Accepted Accounting Principles (GAAP), pass-through contributions should be treated as agency transactions and recorded as a liability (not revenue) by the pass-through entity. As the funds are distributed to the final recipient, the pass-through organization should decrease this liability. No revenue or expense should be recorded by the intermediary organization unless it withholds a percentage of the agency funds for processing efforts.

If the pass-through entity is given variance power, or the ability to direct who will receive the funds, the contribution will be recorded as revenue. Likewise, if the donor is financially interrelated with the pass-through entity, allowing one of the entities to influence the financial and operating decisions of the other, the contribution will be recorded as revenue.

To determine how your organization should report pass-through contributions, consult with the nonprofit accounting experts at SST.