Proper Reporting of Special Fundraising Events: Gaming and Raffles

Many nonprofit organizations, from independent schools to performing arts organizations, have begun to embrace more creative fundraising events in recent years. These can take many different forms. Today, many organizations are augmenting traditional events such as gala dinners and golf tournaments with new events featuring games of chance and raffles. 

These events, while often fantastic fundraising opportunities, can create additional reporting requirements that organizations must be aware of. Depending on the nature of the fundraising activity, the requirements can vary significantly. In some instances, these activities might be considered Unrelated Business Income (UBI) – meaning that your organization is liable for taxes on the funds it raised. 

In this overview, we explore these reporting requirements in greater detail, highlighting the key areas that nonprofit organizations must watch out for to ensure they remain in compliance with all relevant tax regulations and reporting requirements. 

Special Fundraising Events: Form 990, Schedule G

When an organization holds fundraising events, they must disclose these on Form 990, Schedule G. Part I of Schedule G discloses an organization’s fundraising activities, while Part II discloses fundraising events. 

If an organization recognizes gross receipts over $15,000 from fundraising events in the reporting period, it must complete this section – otherwise, their Form 990 filing may be considered incomplete. Fundraising events with more than $5,000 of gross receipts must be reported as distinct events on Schedule G. If an organization has multiple events that meet this criteria, it is only required to report the two events with the largest gross receipts and then report all other events in aggregate under the ‘Other Events’ category. 

The following information must be included for each event that meets the reporting criteria:

• Gross Receipts: the total amount of revenue raised from the event, including ticket sales, charitable contributions, sponsorship income, and more. 

• Contributions: organizations must break out the amount of charitable contributions, gifts, and donations made during the event, including any noncash contributions. This calculation often involves subtracting the Fair Market Value (FMV) of the benefits event attendees received as a result of their ticket purchase (for example, receiving a dinner with an FMV of $40 in return for a $100 ticket would result in a $60 contribution). 

• Gross Income: the gross income of the event is equal to the gross receipts minus contribution revenue. 

• Direct Event Expenses: organizations must disclose the expenses associated with each event, breaking these out into several categories including cash prizes, noncash prizes, facility and rental costs, and food and beverage costs. 

Using the information in the categories outlined above, organizations report the total net income by subtracting the expenses of the events from the gross income. Since the charitable contribution reporting is subtracted and reported separately on Part VIII, it’s common to see a negative figure for net income. This negative figure sometimes prompts leaders to doubt the effectiveness of their fundraising events, but in many instances, this concern is unfounded due to the nature of the charitable reporting.

Gaming Activities: Compliance and Reporting Requirements

Many special fundraising events feature what the IRS terms “gaming activities”: bingo, casino-style games, raffles, and more. These activities are often hugely impactful from a fundraising perspective but can expose organizations to additional compliance and reporting requirements. 

State Compliance Requirements for Gaming Activities

Many states have regulations that define whether nonprofits are permitted to conduct gaming activities. Before planning any events, your first step should be to understand the relevant compliance requirements in your jurisdiction. 

States that do permit nonprofits to host these types of events often have strict rules: from requiring licensing to requiring proceeds to be held in a separate bank account, among other rules. Be sure to determine the compliance requirements in your state. 

Reporting Requirements for Gaming Activities

The IRS also has specific rules around gaming activities that nonprofits should be aware of. There are special rules for bingo, as well as regulations that govern reporting requirements for raffle prizes. Organizations are also responsible for withholding tax on raffle winnings if these winnings exceed $5,000. Form W-2G must be filed if winnings exceed $600 and are at least 300 times the amount of the wager. Thresholds are higher for certain activities, including poker and bingo, and organizations must also consider any state and local income tax withholding requirements. 

All gaming activities must be reported on Form 990, Part VIII. If the gross income from these activities is over $15,000, activities must also be reported on Form 990, Schedule G, Part III. 

Gaming Activities and UBIT

Although there are other nuances, the following tests can be a great starting point in determining if gaming would be considered UBI::

1. Is the gaming activity a trade or business?   Generally yes – gaming activities tend to be business activities instead of charitable.
2. Is the gaming activity regularly carried on? If a nonprofit conducts gaming activities frequently or on a continual basis, the answer is “yes”. If a nonprofit conducts gaming activities only occasionally or sporadically, such as for an annual fundraising event, the answer is more likely to be “no”.
3. Is the gaming activity substantially unrelated to the organization’s exempt purpose? Gaming activities are generally not an exempt activity since they are unrelated to the exempt purpose of the organization hosting them. 

If the answer to all three of these questions is “yes”, it’s likely that the gaming activity will be considered unrelated business income. However, there are a couple of exceptions that nonprofits should leverage to avoid their income from gaming activities being subject to UBIT:

• Having the gaming activity be operated substantially by volunteers, not staff. If over 85% of the total time spent on the activity is spent by unpaid volunteers, proceeds from the activity are exempt from UBIT. Nonprofits must take care to maintain accurate records reflecting the time worked by both compensated employees and volunteers. 

• Structuring the gaming activity to qualify as a “bingo game” as defined in IRC Section 513(f). 

• Games of chance conducted in North Dakota.

• Qualified public entertainment activities. Activities conducted at agricultural fairs and expositions, such as a harness racing event, are typically exempt.

To determine if your organization can apply any of these exceptions, consult a tax advisor with experience navigating these issues in your state. 

Smith + Howard: Experienced Nonprofit Accounting Professionals

Special fundraising events, especially those that include gaming, can be extremely effective fundraising strategies. These engaging events attract donors, promising a fun evening of entertainment and the ability to support the nonprofit’s mission. 

However, without the right guidance, gaming activities and other special fundraising activities can turn into a major headache. Understanding the compliance and reporting requirements of these events is key to hosting an effective fundraiser that generates additional revenues without exposing your organization to unnecessary regulatory or tax risks. 

At Smith + Howard, our nonprofit accounting and tax professionals bring significant experience advising nonprofit organizations on the tax and compliance implications of fundraising strategies. If you’re unsure of the implications of your organization’s special fundraising events, contact us today.