Nonprofit & Government Times Q1 2020

• Raffle tickets may be sold and drawings conducted on an authorized organization’s premises; during its licensed casino nights or carnival games of chance events; and during its licensed bingo occasions; • Only persons 18 years of age or older shall purchase raffle tickets, sell raffle tickets, or conduct or assist in the conduct of a raffle drawing; • Raffle tickets may also be sold to the public outside the premises of an authorized organization or an authorized games of chance lessor, provided such sales occur in municipalities which have passed a local law, ordinance or resolution in which the authorized organization is located and the counties which are contiguous to the county in which the municipality in which the authorized organization is located provided those municipalities have authorized the licensee, in writing , on a Raffle Consent Form to sell such raffle tickets therein; • No sale of raffle tickets shall be made more than one hundred eighty days prior to the date scheduled for the occasion at which the raffle will be conducted; • The winner of any raffle prize shall not be required to be present at the time such raffle drawing is conducted; and, • All proceeds derived from games of chance, including raffles, must be disbursed solely for lawful purposes. proceeds for all raffles conducted during the calendar year will meet or exceed $30,000: The organization must file a game of chance license application with the municipal clerk using forms GC-2, GC-2A and GC-2B along with a $25 annual license fee. It is also required that the organization apply for and obtain a Games of Chance Identification Number from the Board (Gaming Commission) and obtain a Games of Chance License issued by the municipal clerk on form GC-5. The organization must maintain a special raffle or games of chance checking account into which all raffle proceeds will be deposited, and from which such funds will be lawfully disbursed. Addi- tionally, no single prize awarded can exceed the sum of or value of $50,000, except under certain specific RAFFLE CATEGORIES IN NEW YORK AND CORRESPONDING REQUIREMENTS • Category 1: Operation of a raffle in which the cumulative net

go, casino nights and “Calcutta Wagering.” However, there is a general overall warning that participation in the activities of a membership organization by a “guest” of the members can expose the organization to tax on unrelated business income. For instance, if a membership organiza- tion hosts a raffle, but it allows nonmembers to purchase tickets, any income generated from the nonmember sales would be considered Unrelated Business Taxable Income. This assumes that the activity is regularly carried on, which has to do with the frequency of the activity. The Internal Revenue Code also addresses other types of gambling that are outside the scope of this article. Again, this is determined by the commerciality doctrine—paid employees versus volunteers, etc. In fact, a “substantially all” volunteer workforce has its own exception in addition to the bingo exception found in Code section 513(f). In addition to being cognizant of the provisions taxing unrelated business income, exempt organizations that sponsor gambling activities must be certain that the net earnings derived from those activities do not inure to the benefit of any private individual. In particular, this has become the focal point of many state laws. If a charitable organization can establish that (a) the conduct of the gaming activities such as raffles are “substantially related” to the exempt purpose or (b) that the gaming activities are not regularly carried on by the organization, the income derived from the activity will not be subject to tax on unrelated business income except as noted above for some membership organizations. This is in addition to specific exclusions where the work is either done by volunteers or has a specific exemption, as in the case of bingo. With regard to Form 990, gaming activities are reported in Part III of Schedule G if the total from gaming activities exceeds $15,000. Financial data requested by the form is fairly straightforward: (1) gross revenue (gross receipts less contributions), and (2) expenses applicable to the gaming activity. The remainder of the information on Part III is more beneficial to the states, which leads into the next sections of this article, namely, filing requirements related to raffles held in New York and New Jersey.


New York provides a long list of rules pertaining to raffle drawings held by organizations, including the following: FIRST QUARTER, 2020 Nonprofit & Government Times 19

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