Gaming & Gambling Fundraisers For Nonprofits
Many nonprofits use games of chance and auctions as fundraising vehicles, without realizing that “legalized games of chance” are regulated activities, and indeed illegal in many states.
Charity Poker Night Fundraisers
California law allows eligible nonprofit organizations that have been in existence for at least three years to hold “charity poker night” fundraisers under specific circumstances. Each eligible organization may register with the California Attorney General’s Bureau of Gambling Control to conduct one “poker night” fundraiser each year, at which participants may play controlled games. Gaming events include charity casino nights, poker nights, or other events that involve gambling. Such an event must be no more than five hours in duration. The current registration fee is $100 and is non-refundable, even if the fundraiser is cancelled. All suppliers of equipment used in playing the controlled games must register with the Bureau of Gambling Control as well.
Pursuant to California Penal Code section 330, et seq., slot machines and other games, including roulette, craps, twenty-one, or any banking or percentage game played for anything of value, are prohibited and cannot lawfully be played for charitable fundraising purposes. Only controlled games as defined by California Penal Code section 337j(e)(1) may be played at these fundraising events. The list of approved games can be found on the Bureau of Gambling Controls Standard Game List.
Rules For Winners’ Prizes
Winners’ prizes at these events must be donated, and cash prizes may not be awarded. No individual prize awarded may exceed a cash value of $500, and the total value of prizes awarded may not exceed a cash value of $5,000. Persons under the age of 21 may not participate. At least 90 percent of revenues generated at these events must go directly to the nonprofit organization, and no more than 10 percent of gross receipts may be paid as compensation to the entity or persons conducting the fundraiser, excluding a facility rental fee.
Organizations holding these fundraisers must maintain event records, and be willing to provide an itemized report to the Bureau of Gambling Control upon request. The report includes gross receipts, costs incurred, recipients of net profits, number of fundraiser participants, and prizes awarded. In addition, organizations must maintain event records for IRS reporting purposes and to determine any tax liabilities it may have.
IRS Regulates Games Of Chance
The IRS also regulates games of chance, as well as the taxable income that is earned by victorious game-players. If your organization’s revenue from gaming exceeds a certain threshold, you will be required to complete and attach Schedule G, supplemental Information Regarding Fundraising or Gaming Activities, to your Form 990 or Form 990-EZ. For details on the threshold amounts triggering filing of Schedule G, see instructions for Form 990 or Form 990-EZ, available on the Charities and Non-Profits section of the IRS’s website at https://www.irs.gov/charities-non-profits.
If your organization pays a winner of a game more than a certain threshold amount, you must report the amount and information about the winner to the IRS. The threshold amount at which winnings become reportable depends on the type of game involved. Each time you pay reportable winnings, you must complete IRS Form W-2G, Certain Gambling Winnings, to report those winnings to the IRS and to the person receiving the winnings (the “payee”). The payee should provide you with his or her identifying information. In addition to reporting the winnings to the IRS, your organization may be required to withhold regular income tax and backup withholding from the payee’s winnings. For additional information, see IRS Publication 3079 Tax Exempt Organizations and Gaming. Publication 3079 also provides a tax calendar for organizations that conduct gaming.
In order to ensure that the income from a gaming event will not become taxable, the organization must make sure that the event is substantially related to its exempt purposes.
Contact a Lawyer for Nonprofits
If your nonprofit organization needs legal assistance, please contact the law firm of Henderson, Caverly & Pum LLP. Our attorneys are experienced in advising and guiding nonprofits.