Charitable fundraisers that feature games of chance — everything from bingo and raffles to baccarat and roulette — help U.S. nonprofits raise millions of dollars every year. However, hosting gambling events can also trigger certain tax-related responsibilities. Before scheduling a casino night, lottery or other “regulated” activity, review these rules:
Unrelated business income (UBI). If your nonprofit regularly conducts a gaming activity, you may be required to report it to the IRS and pay tax on it. For example, nonprofits that gross more than $1,000 in UBI from regular gaming fundraisers may need to file Form 990-T, “Exempt Organization Business Income Tax Return.”
Wagering excise and occupational taxes. Your organization could be subject to these taxes depending on the type of wagering you engage in, how it’s structured, and how you benefit from the proceeds. Generally, these taxes apply to lotteries or wagering pools that involve a sporting event or contest that’s conducted for profit.
Reporting participant winnings. Depending on the type of game and the amount won, you may need to report the participant’s winnings to the IRS. This applies if your fundraiser includes a single:
- Instant/pull-tab prize equal to or over $600 that’s also at least 300 times the amount of the wager,
- Bingo or slot machine prize equal to or over $1,200, or
- Keno prize equal to or over $1,500.
You should obtain the winner’s name and Social Security number.
Tax withholding. Regular income tax or backup withholding is necessary for some games with winnings over a certain threshold. No withholding is required for bingo prizes (before deducting the wager) up to $1,200. But withholding is necessary when raffle and some other types of winnings are at least $600 and are 300 times or more the amount of the original wager. Your organization must pay these amounts, regardless of whether you get the withholding from the winner.
This list of IRS rules isn’t exhaustive, and there may be exceptions. Also, you may be subject to additional regulations imposed by your state or municipality. For example, you might need to obtain a license or segregate earnings in a separate bank account. And some states and municipalities ban gambling activities altogether.
The best way to help ensure your organization and its fundraising activities remain tax compliant is to discuss your plans with us.
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