Nonprofit Insights & Giving Tips

A raffle can look like one of the simplest nonprofit fundraisers. Sell tickets, draw a winning number, award a donated prize, and keep the proceeds for the organization’s programs. Bingo nights and prize drawings can appear just as straightforward. The difficulty is that once participants pay for a chance to win something of value, the event may fall under charitable gaming or gambling rules. That can introduce licensing, registration, tax reporting, prize withholding, recordkeeping, and state-specific restrictions that do not apply to an ordinary fundraising dinner or donation campaign.

For nonprofits, the important question is not simply whether an event is charitable. Using the money for a good cause does not automatically remove gaming regulations. The IRS treats activities such as bingo, raffles, lotteries, pull-tabs, and several other games of chance as gaming activities, and regularly conducted gaming can potentially generate unrelated business taxable income unless an exception applies. State and local rules can be even more important because they determine whether a particular organization may conduct the game at all and what licence, registration, ticket, prize, and operational requirements apply.

This is why nonprofit raffle laws should be checked before tickets are advertised or sold. An organization should identify the game it intends to run, determine whether participants are paying for a chance to win, confirm that the organization is eligible to conduct it, and understand how the proceeds and prizes will be reported. The following framework helps nonprofit boards, volunteers, and event organizers spot the issues that deserve attention before the next raffle, bingo night, or prize drawing.

Start by Identifying Whether the Activity Is Actually Gaming

The name used in a flyer does not necessarily determine how an event is regulated. Calling something a “fundraising drawing” instead of a raffle may not change its legal character. What generally matters is how the activity works.

A traditional raffle typically involves a prize, an element of chance, and consideration, meaning participants provide something of value for the chance to win. State law determines the precise definitions and whether a particular arrangement is treated as a raffle, lottery, gaming event, sweepstakes, or another regulated activity. Bingo has its own legal definitions and operational rules in many jurisdictions.

The IRS takes a broad view of gaming for federal tax purposes. Its guidance identifies bingo, raffles, lotteries, pull-tabs, scratch-offs, pari-mutuel betting, and other games of chance as gaming activities. A nonprofit should therefore classify the activity before deciding which rules apply rather than assuming that a small fundraiser is outside gaming law because the prize or ticket price is modest.

A Charitable Purpose Does Not Automatically Make Gambling Legal

One of the most common misunderstandings is that a 501(c)(3) organization can legally conduct a raffle because all proceeds support charity. Federal tax-exempt status and state gaming authorization are separate matters.

A nonprofit might be properly recognized by the IRS as tax-exempt while still being prohibited from conducting a particular raffle under state law. Another state may permit charitable raffles but only for organizations that have existed for a certain period, hold a separate gaming registration, use volunteers, limit prize values, or meet other requirements. Some jurisdictions also regulate who can sell tickets and where ticket sales can occur.

That means the first legal review should usually happen at the state level where the activity is being conducted. Local governments may impose additional permits or venue-related requirements. The organization should check the current law in every jurisdiction relevant to the event rather than copying the raffle process used by another charity in a different state.

Raffles, Sweepstakes, and Free Prize Draws Are Not Necessarily the Same Thing

A raffle generally requires participants to provide consideration for a chance to win. A promotion that removes the payment requirement may fall into a different legal category, but simply adding a free-entry option does not automatically resolve every issue.

For example, a nonprofit might advertise that supporters can donate $20 for an entry while also allowing a free method of entry. Whether that structure avoids raffle or lottery classification depends on applicable law and how the promotion is designed and communicated. Consumer promotion laws may also apply.

The key lesson is that organizers should not create legal classifications themselves. If the organization wants to conduct a paid raffle, it should follow the applicable charitable raffle rules. If it wants to operate a free-entry prize promotion, it should make sure the alternative structure complies with the laws governing that type of promotion. Changing the label is not a substitute for changing the underlying mechanics.

Check Whether Your Organization Is Eligible Before Applying for Anything

Not every nonprofit entity is automatically eligible to conduct charitable gaming. A state may limit gaming privileges to particular categories of nonprofit or charitable organizations and may impose minimum operating periods or organizational requirements.

This can create problems for newly formed charities. A group may have received its EIN and even obtained federal tax-exempt recognition but still fail a state rule requiring an organization to have existed or operated for a specified period before conducting charitable gaming.

The legal entity conducting the event also matters. A volunteer may not be able to run a private raffle personally and simply promise to donate the proceeds to the charity. A separate friends group, fiscal sponsor, school-support organization, religious organization, or affiliate may have different rights and obligations.

Before printing tickets, confirm which legal entity is conducting the gaming activity, whether it falls into an eligible organizational category, and whether the licence or registration must be issued in that entity’s name.

A Licence May Be Required Even for a One-Night Fundraiser

Nonprofits sometimes associate gaming licences with casinos or organizations that conduct bingo every week. A one-time charity raffle can still trigger licensing or registration requirements.

The process can depend on the type of game, expected proceeds, prize value, frequency, location, and organization conducting it. Some states provide different licence classes for small raffles, large raffles, bingo, pull-tabs, or recurring gaming. Others may exempt limited activities from formal licensing while still imposing operational conditions.

Do not wait until a few days before the event to investigate this requirement. Applications can require information about officers, the event location, prizes, financial accounts, intended use of proceeds, responsible gaming personnel, and previous gaming activity.

The organization should also verify when authorization becomes effective. Filing an application does not necessarily mean the nonprofit can immediately begin selling raffle tickets.

Online Ticket Sales Create an Extra Layer of Risk

Moving a raffle online seems attractive because it lets supporters buy tickets quickly and expands the fundraising audience. It can also create a complicated jurisdiction problem.

A state that permits an in-person charitable raffle may restrict online ticket sales, electronic payment methods, interstate participation, or the use of particular online gaming platforms. A participant purchasing a ticket from another state can potentially introduce the law of a second jurisdiction.

That is why nonprofit raffle laws should be checked specifically for electronic sales rather than assuming the rules for paper tickets apply online. The organization should determine where tickets may legally be sold, where purchasers must be located, what information must appear on the electronic ticket or confirmation, and whether the payment processor permits gaming transactions.

Social media does not change this analysis. Selling tickets through Instagram messages, Facebook posts, email links, or another online channel can still constitute an online gaming transaction even though the nonprofit is not using a dedicated raffle website.

Do Not Assume a Payment Processor Allows Raffle Transactions

Even when state law permits a charitable raffle, the organization’s payment service may have separate rules concerning gambling and gaming.

Many payment providers classify gambling-related transactions as restricted, prohibited, or subject to additional approval. A processor used successfully for ordinary donations may therefore block raffle payments or freeze funds if transactions violate its terms.

Check the provider’s current acceptable-use or restricted-business policy before promoting electronic ticket sales. If the nonprofit uses a charitable gaming platform, confirm what the platform actually handles. Some services may provide ticketing and drawing technology but leave legal compliance, licensing, tax reporting, or participant eligibility with the nonprofit.

The platform’s ability to create a raffle does not prove that the organization is legally permitted to conduct one in its jurisdiction.

Ticket Design Can Be a Compliance Issue

A raffle ticket is more than a receipt. State regulations may require particular information to appear on tickets or promotional materials.

Depending on the jurisdiction, required information could include the organization’s name, ticket price, drawing date, prize description, licence number, ticket number, restrictions, or location of the drawing. Rules can also govern whether tickets need to be sequentially numbered and how unsold tickets are accounted for.

If tickets are printed before these requirements are checked, the organization may need to replace an entire batch. Online tickets can create the same problem if required disclosures are missing from the purchase process.

Keep a copy of the final ticket, promotional materials, and approved rules with the event records. If questions later arise about how the raffle was presented, the nonprofit should be able to show exactly what participants were told.

Define the Prize Before You Begin Selling Tickets

The prize should be known, available, and accurately described before the raffle launches.

If a donor has promised a vacation package, vehicle, artwork, jewelry, event tickets, or another high-value item, the organization should confirm ownership, restrictions, expiration dates, taxes, transfer costs, and any other conditions attached to the prize.

For example, a donated trip might exclude airfare or have blackout dates. A vehicle may involve registration, title, or tax costs. An event package could expire before the winner can reasonably use it.

Advertising a “$10,000 vacation” when the actual benefit has substantial restrictions creates unnecessary legal and reputational risk. The nonprofit should document how the prize value was determined and preserve the donor information supporting that value.

Prize Value Can Affect Federal Reporting

Gaming prizes can trigger federal information-reporting obligations. The IRS uses Form W-2G to report certain gambling winnings, and the reporting requirements depend on the type of gaming, the amount won, and generally the relationship between the winnings and the amount wagered.

For raffles, the nonprofit should review the specific W-2G thresholds and withholding rules that apply at the time of the event. High-value prizes deserve particular attention because a winner may have reporting or withholding consequences even when the prize is property rather than cash.

The organization should collect any required taxpayer information before releasing a prize when applicable. Waiting until after a winner has driven away with a vehicle or taken possession of expensive property can make reporting much harder.

The IRS publishes specific guidance for tax-exempt organizations conducting gaming and for raffle prizes, making it worthwhile to review current federal requirements during event planning rather than after the drawing.

A Raffle Ticket Is Not Necessarily a Charitable Donation

Supporters may assume that because a nonprofit receives the money, the full raffle ticket price is a charitable contribution. That assumption can be wrong.

The IRS distinguishes between a charitable contribution and a payment where the participant receives something in return, including a chance to win a prize. A raffle purchase generally has a gaming component rather than functioning like an unrestricted donation.

Organizations should therefore be careful about issuing ordinary charitable donation receipts for raffle ticket purchases. Messaging that says “Buy a $50 ticket and receive a $50 tax deduction” may create tax problems for the participant and inaccurate records for the nonprofit.

If an event includes both a genuine charitable contribution and a gaming payment, the organization should determine whether those amounts need to be separately identified and how acknowledgement rules apply. Nonprofits should not improvise donor tax language merely because the proceeds ultimately support charitable programs.

Bingo Has a Special Federal Tax Exception, but It Is Narrow

Bingo deserves separate attention because federal tax law includes a specific unrelated business income exception for certain bingo games. The IRS confirms that certain qualifying bingo activities are not treated as an unrelated trade or business.

That exception does not mean every activity called bingo qualifies. The Internal Revenue Code and regulations contain a specific definition of bingo. The IRS describes the game as involving cards typically containing five rows of five squares, with participants placing markers as randomly selected numbers are called and the first person completing a designated pattern winning.

The federal exception also depends on additional conditions. Organizations should review the current IRS definition and state law before assuming electronic games, instant bingo, pull-tabs, or other activities receive the same tax treatment as qualifying bingo.

State gaming authorization remains separate from the federal unrelated business income analysis.

Regular Gaming Can Create Unrelated Business Income

A nonprofit does not automatically lose its tax exemption because it conducts gaming, but gaming activity can raise unrelated business income tax issues.

The IRS explains that gaming is generally a trade or business when operated for profit and that regularly conducted gaming may produce unrelated business taxable income when it is not substantially related to the organization’s exempt purpose and no exception applies.

Frequency matters. A single annual event may be evaluated differently from a weekly commercial-style gaming operation. The nature of the organization and activity also matters.

This is why nonprofits planning recurring bingo nights, regular raffles, or other ongoing gaming should not treat each event as an isolated fundraiser. The cumulative pattern may affect the federal tax analysis. Accounting records should separately identify gaming revenue and directly connected gaming expenses so the organization can determine whether Form 990-T or other reporting may be required.

Volunteer Labor Can Change the UBIT Result

Federal tax law provides an important exception where substantially all the work involved in an otherwise unrelated trade or business is performed by volunteers without compensation.

The IRS explains that under Section 513(a)(1), a trade or business is excluded from unrelated trade or business treatment when substantially all the work in carrying it on is performed for the organization without compensation.

This exception can be relevant to charitable gaming because many nonprofit raffles and bingo events rely heavily on volunteers. However, the organization should not automatically assume it qualifies because “most people helping were volunteers.”

Document who actually performed the work. That can include planning, ticket sales, administration, gaming operations, bookkeeping, setup, cleanup, and other activities. If compensated staff perform substantial portions of the work, the analysis becomes more complicated.

Volunteer status also does not eliminate licensing, wagering tax, prize reporting, or state gaming requirements that independently apply.

Federal Wagering Taxes Can Apply Even When UBIT Does Not

One of the more easily overlooked federal issues is that unrelated business income and federal wagering excise taxes are separate systems.

The IRS specifically warns exempt organizations that wagering excise tax obligations can arise even if gaming occurs only occasionally, including an annual raffle, and may apply even when the activity falls within an unrelated business income exception.

This is important because a nonprofit may correctly determine that its volunteer-run gaming event does not produce UBIT and mistakenly conclude that no other federal gaming tax requirements exist.

Organizations conducting gaming should review whether federal wagering tax registration, occupational tax, or excise tax rules apply to their particular event. The answer depends on the game and circumstances, so the analysis should be made separately from the charitable organization’s normal Form 990 obligations.

Keep Gaming Money Easy to Trace

Good financial records are essential even when an event is small.

The organization should be able to reconcile how many tickets were created, how many were sold, how many remained unsold, how much money was collected, what payment methods were used, what prizes were awarded, and what expenses were paid.

For example, if 2,000 tickets were printed at $10 each and 1,400 were sold, expected gross receipts would be $14,000. The accounting records should support that number. If cash collections show only $11,800, the nonprofit needs to know why.

Numbered tickets, sales logs, deposit records, payment processor reports, prize receipts, licence records, winner documentation, and expense invoices create an audit trail.

Gaming revenue should not be placed into a cash box and later entered into accounting as one unexplained fundraising deposit. The organization needs enough detail to support regulatory, tax, and internal-control requirements.

Cash Controls Matter More at Gaming Events

Raffles and bingo nights frequently involve cash, which increases the opportunity for mistakes and misuse.

One volunteer should not necessarily control ticket distribution, cash collection, prize approval, and final reconciliation alone. Basic separation of duties can make the process more reliable. For example, one team may issue ticket batches while another reconciles collections and unsold tickets.

Cash should be counted by more than one authorized person and documented. Deposits should be made promptly according to the nonprofit’s financial-control policy.

If volunteers sell tickets away from the event, create a method for issuing and returning ticket books. Record who received each numbered range and reconcile sold tickets, unsold tickets, and cash when they return.

These controls are not simply about preventing deliberate theft. They make it much easier to investigate ordinary mistakes before the nonprofit files reports based on incorrect totals.