Not-For-Profit Raffles and the IRS
It’s that time of year here in Vero Beach where Not-For-Profit fundraising events kick in to full swing! Raffles are frequently utilized as a common practice to help raise more funds during an event, but strict tax rules apply. State laws may differ, however, federal income tax laws apply.
Income tax on unrelated business income and funds raised by raffles apply to Nonprofits. However, there might be an exemption IF the raffle is conducted with 85% or more volunteer labor. Record keeping is essential as evidence to the level of volunteer support at the events where raffles occur. Requirements for reporting raffle winnings to the IRS also depend on the amount collected versus the amount of the ticket price or what the winner receives. The nonprofit is required to file Form W-2G with the IRS and also provide it to the winner of the raffle. This requires the nonprofit to obtain the name, address and social security number of the raffle winner.
There may be withholding requirements from the winnings if the proceeds are more than $5,000. If the raffle winnings are in the form of a noncash payment, such as a piece of artwork or furniture for example, then the proceeds would be calculated as the difference between the wager amount and fair market value of the item won. These type of noncash winnings provide for two options with regards to taxes: the winner may reimburse the nonprofit for the amount of the withholding tax or the nonprofit can pay the tax on behalf of the winner.
KEGA, CPAs works with numerous nonprofits along the East Coast of Florida, assisting them with nuances such as these!