With all of the pressure on funding and fundraising, gaming will be an option for some charities. Whether it involves an annual raffle as part of your major event, or bingo that happens throughout the year, if you are going to consider gaming you need to know the rules.
There are federal and state rules about charitable gaming. Federal rules are primarily about what kinds of activities constitute unrelated business income and what reporting is required.
New York State Gaming Commission regulates gaming activity in the state. If you carry on gaming, you are required to register with New York State Wagering and Gaming and in your local county.
New York State has guidance and regulations for raffles, Bingo, Bell Jar tickets a.k.a. Pull Tab Tickets and Las Vegas Nights or casino games.
Some of the key rules that you need to be aware of are:
- You need to first apply for registration and an identification number with New York State. You can find this form if you Google “New York State 1A Application for Registration and Identification Number”.
- You may also need a games-of-chance license and supplemental forms
- For bingo, you need a special bingo license, and there are several reports to fill out, including cash control reports and quarterly statements of bingo operations.
Reporting is simpler for charities that have less than $30,000 in raffle profits for a calendar year. Much more extensive reporting is required if you are over that limit.
IRS focuses on whether activities are subject to Unrelated Business
Income (UBIT) reporting and taxation. Raffles are generally exempt from UBIT, and bingo is exempt from UBIT in New York State (because for-profits cannot carry on bingo in New York State). However, there is a strict definition of bingo that requires that winners be determined and prizes be distributed in the presence of all persons with wagers in that game.
Several games such as pull tabs and scratch offs, as well as instant bingo and internet bingo, don’t meet IRS’ definition of bingo. These games are not automatically exempt from unrelated business income taxation, although they may be exempt if substantially all activities related to these games are carried on by volunteers. Substantially all means at least 85%, and volunteers are defined to include individuals who don’t get regular compensation, tips, goods or services or other benefits that are proportional to the services they provide. Even contributions to another exempt organization in exchange for volunteer labor provided by that organization will violate the volunteer exception.
IRS also has regulations about reporting winnings. Specifically, when a winner receives at least $600 and that amount is at least 300 times the wager, this must be reported on form W-2G. For example, someone who wagered $5, and wins $750 would not be subject to this reporting requirement because $750 is not 300 times the wager. However, bingo winnings are only reported once they total $1,200.
Withholding is generally required when winnings are more than $5,000 or more than 300 times the amount wagered. This doesn’t apply to bingo but does apply to raffles and poker tournaments.
Final note – IRS and the state share information about charitable gaming. IRS wants to make sure that it is being properly reported and New York State wants to be sure that registrations and reporting are complete.
Charitable gaming can be a useful source of additional unrestricted revenue, as long as you understand and follow the rules.
Hello everybody! Welcome to Heveron & Heveron, CPA’s first blog! We have created this section to keep you, our clients, as up to date on the issues that affect you as possible. In this entry we will be discussing new BBB Wise Giving Alliance’s issued Standards for Charity Accountability.
The BBB Wise Giving Alliance, with the help of experts in the non-for-profit world, has focused on four main issues with respect to accountability; Governance and Oversight; Measuring Effectiveness; Finances; and Fundraising. As far as Governance and Oversight is concerned, the BBB Wise Giving Alliance would like to see all non-for-profit Boards to meet at least 3 times per year and be comprised of 5 members or more. Only 1 member of the Board should be receiving compensation from the organization, (no more than 10% for larger boards) and no other members of the board should receive compensation even as independent contractors. What this means for you is that all but 1 (or 10%) of the voting members of the board should be volunteers. However, non-voting members can be compensated from the organization, for instance, if you are a school and have teacher representatives on the board, whom are compensated, but do not have voting powers, this is alright as long as they are not involved in any discussion related to compensation of employees.
In the second area, Measuring Effectiveness, they note that all charitable organizations should be examining their performance and effectiveness at least every other year to determine what is working, what isn’t working and what needs to be worked on.
Thirdly, Finances, the BBB Wise Giving Alliance states that an organization’s net assets should not be more than 3 times their currently budgeted expenses or, for those without a budget, 3 times of the prior year’s expenses. For those of you lucky enough to have that much funding think about purchasing new equipment, upgrading facilities, or maybe even expanding your services!
Lastly, Fund Raising, the BBB Wise Giving Alliance wants you to assure your donors that they are donating to a worthy organization, that their funds are being spent wisely and that their privacy is being upheld. What this means is that your fund raising solicitations should include an accurate description of what your organization does, who you are and where their money is going. Think about including a reference on your solicitations or invitations that would direct the potential donor to a place where they can get an accurate accounting of your mission statement, program accomplishments, finances, and board list. Does this sound familiar to anyone? All of this information is on your organizations 990EZ or 990! For all of you located in New York State you could simply list charitiesnys.com or nycharities.org on your solicitations. This will direct your potential donors to a website that can provide them with a copy of your past 990s and financial statements! For those not in New York you could list guidestar.org or have copies available at your main office upon request. As far as donor privacy, please keep your donor information confidential and remember to remove those Schedule B’s before you hand out your 990s!
Until next time!