What Your Nonprofit Needs To Know Before Planning A Casino Night
Charitable fundraisers featuring games of chance, such as bingo, raffles, baccarat, and roulette, are frequently used to help U.S. nonprofits raise millions of dollars annually. However, hosting gambling events can also bring certain tax-related responsibilities. Therefore, before planning a casino night, lottery, or other regulated activity, read through this article to better understand the rules your nonprofit will need to follow.
Unrelated Business Income (UBI)
If your nonprofit regularly conducts gaming activities, you may need to report it to the IRS and pay taxes on it. For instance, nonprofits that gross more than $1,000 in Unrelated Business Income from regular gaming fundraisers might need to file Form 990-T, “Exempt Organization Business Income Tax Return.”
Wagering Excise & Occupational Taxes
Your organization could be liable for wagering excise and occupational taxes depending on the type of wagering, its structure, and how your nonprofit benefits from the proceeds. Generally, these taxes apply to lotteries or wagering pools involving a sporting event or contest conducted for profit.
Reporting Participant Winnings
Depending on the game type and the amount won, your nonprofit 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 greater than $600 that’s also at least 300 times the amount of the wager.
- Bingo or slot machine prize equal to or greater than $1,200.
- Keno prize equal to or greater than $1,5001.
For compliance purposes, your nonprofit 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 greater than a certain threshold. No withholding is required for bingo prizes (before deducting the wager) up to $1,200. However, withholding is necessary when raffle and some other types of winnings are at least $600 and are 300 times or greater than the amount of the original wager. Your organization must pay these amounts, regardless of whether or not you get the withholding from the winner.
This list of IRS rules isn’t exhaustive, and there may be exceptions. Additionally, 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. Some states and municipalities ban gambling activities altogether.
The best way to ensure your organization and its fundraising activities remain tax-compliant is to discuss your plans with a nonprofit tax professional.
Additional Considerations:
State and Local Regulations
Beyond federal tax obligations, your nonprofit must comply with state and local tax regulations. This may include obtaining specific licenses, adhering to local gambling laws, and ensuring that all gaming activities are conducted legally.
Recordkeeping
Proper recordkeeping is essential for compliance. Maintain detailed records of all gaming activities, including the amount of money raised, expenses incurred, and how the proceeds are used. This documentation will be crucial if your organization is audited.
Volunteer Involvement
If your gaming activities involve volunteers, ensure that their roles and responsibilities are clearly defined. Volunteers should be trained on the legal requirements and ethical considerations of conducting gaming activities.
Public Perception
Consider the public perception of your gaming activities. While these events can be lucrative, they may also attract scrutiny from donors and the community. Transparency about how the funds are used and the benefits to your nonprofit can help mitigate any concerns.
How A Nonprofit CPA Firm Can Help
Is your nonprofit hosting a casino night or similar event in the near future? Are you and your board of directors considering this type of fundraising event? A CPA firm that specializes in nonprofit organizations can help you navigate the choppy tax landscape. Contact a GBQ CPA today for insight and assistance.
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