Fundraising is often a top priority for nonprofits, and when they get creative to raise money, it’s important to ensure they are staying within the bounds of all state and federal fundraising rules and regulations. One of the ways a nonprofit may want to raise funds is through gaming or gambling, like raffles, casino nights, or sports pools and brackets. However, all of these are treated uniquely in New York State, some are permissible, some are not, and there are specific licensure requirements necessary to do any of them.
The New York State Gaming Commission (“the commission”) permits only certain games of chance for this kind of fundraising. The list of roughly 20 permissible games includes roulette, blackjack, color wheel, bell jar, and raffles, among others. Notably absent from the list is anything that cannot fully be considered a “game of chance” such as a sports-related pool, bracket, or squares contest.
In order to run any one of the explicitly permissible games, an organization must follow the state’s strict procedures on registration, conduct during the gaming, and reporting after the fact. The process of registration with the state includes filing a notarized Form 1A Application for Registration and Identification Number, with all required specific documentation attached, and awaiting a decision from the commission thereafter. Additionally, many types of games, including raffles – one of the most commonly run gaming fundraisers – have their own specific forms and applications attached. If all of the proper documentation is submitted, and an organization is approved for an ID number, the next concern becomes ensuring all game-specific guidelines are adhered to while the actual gaming occurs. Examples of these guidelines, which can be found on the commission site, include the filing of additional game-specific forms, the adoption and announcement of specific rules for the game(s), ensuring tickets, machines, or other necessary items are purchased only from commission-licensed games of chance suppliers, enacting and documenting security procedures, and filing time-sensitive post-gaming reporting forms (often with additional fees attached) with the commission or the county.
At the federal level, IRS Publication 3079 speaks to the impacts of fundraising through gaming on a nonprofit’s federal tax-exempt status by nonprofit type, and it delineates how to ensure that the organization that engages in the gaming activities does not jeopardize its exempt status or inadvertently create any unexpected tax liabilities. Typically, if the fundraising efforts are infrequent and insubstantial in terms of time and effort required, then fundraising via gaming will likely not impact the entity’s tax-exempt status at the federal level. Of course, there are additional federal considerations such as the potential of unrelated business income tax and reporting and recordkeeping responsibilities, but a New York State nonprofit’s main concern should be compliance with the New York State Gaming Commission’s regulations, as outlined above.
While state attorneys general have historically not prioritized investigation or action related to these kinds of gaming fundraisers, a nonprofit that intends to raise money via a gaming or gambling related contest must be aware of the state requirements to lawfully do so. Be sure your organization has and maintains a full understanding of the rules around creative fundraising and complies with all reporting requirements at the state and federal level. This will ensure that raising money doesn’t end up actually costing you money.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
