Nonprofit & Government Times Q1 2020

Not-for-Profit Raffles: Don’t Gamble with Federal and State Requirements MAGDALENA M. CZERNIAWSKI TAX PARTNER, NONPROFIT, GOVERNMENT & HEALTHCARE GROUP ROBERT LYONS TAX DIRECTOR, NONPROFIT, GOVERNMENT & HEALTHCARE GROUP

W i th an ever-increasing need for funding and, in some cases, a decrease in charitable con- tributions, not-for-profits are turning to a variety of other alternatives when seeking to fund their mission. Charitable gambling activities, whether utilized as a stand-alone activity or part of a larger event, such as a gala, are becoming more popular with many organizations. Raffles are one of the most common examples of such activities, and the one that we will examine more closely in this article. While raffles are often an effec- tive way to raise funds, not-for-profits that undertake raffle activities should be cautious and ensure they understand all federal and state filing requirements triggered by the charitable gambling activity. Not following the proper protocol can threaten an organization’s

exempt status and/or create issues at the state and federal levels.

It is important to first be aware that gambling activities can trigger additional reporting requirements for non- profits. Determining whether an activity rises to the level of gambling is more of a state issue than a federal issue, other than proper reporting on Schedule G Part III (Gam- ing Activities). Charitable gambling is more commonly referred to as “games of chance,” though in this article, we will refer to raffles specifically. In general, “Gambling is defined as the wagering, betting, or laying of money or other thing of value on the transpiring of any event what- soever, whether it be on the result of a game of chance or on a contest of skill, strength, speed, or endurance, whereby one party gains and the other loses something for nothing, whether the parties betting be the actors in the event or which their wager is laid or not.” 1

FEDERAL PERSPECTIVE

With regard to not-for-profit organizations, “games of chance” are generally restricted to raffles, lotteries, bin-

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