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Gaming Requirements for Exempt Organizations

By Annmarie Novotney

Exempt organizations often have a focus on events or fundraisers from which to generate additional funds to promote their missions. Frequently, games of chance like bingo, pull tabs, raffles, card games and lotteries are used as part of these events. Although it can be argued that these activities are a means to generate income used to fulfill an organization’s exempt purpose, gaming activities themselves do not support the exempt purpose of most types of exempt organizations. Because of this, most gaming revenue is considered to be unrelated business income (UBI) and subject to unrelated business income tax (UBIT), unless the income meets exceptions to the UBI rules.


Generally, the following activities are excluded from normal UBI –

  • Gaming activities that are infrequent in nature. Gaming that is regularly carried on (occurring with a frequency similar to comparable activities of the organization, or if it is purposed in a manner similar to commercial gaming activities), is typically included in UBI for an exempt organization. However, if gaming is used infrequently, for example, at a select few events each year, it may be considered exempt and not taxable
  • Bingo games are generally excluded, if they meet the requirements under Internal Revenue Code Sec. 513(f). Those requirements are met under the following –
    • The game includes activities where wagers are made, winners are determined and prizes are distributed all in the presence of other players.
    • The game is conducted where no commercial competition exists (this means within the same state, generally).
    • The game is legal under state and local law.
    • Note that variations of traditional bingo are not typically covered (instant bingo, mini bingo, pull tab or scratch off bingo) because winners are usually determined after the gaming activities have concluded. However, they could still potentially be excluded under the other exceptions.
  • Any gaming activities where the work is substantially performed by unpaid volunteers are generally exempt. The unofficial guideline for “substantial” is 85%, borrowed from other areas of exempt organization law. Generally, this means 85% of the total hours worked to put on a gaming event must be performed by unpaid volunteers.
    • Note that compensation can be interpreted broadly and may include payments made to individuals not considered volunteers, like bartenders, wait staff, security, and other workers outside of the organization that could be hired for a specific event.
    • Volunteers that can obtain goods or services from the organization at a reduced price in return for services may also be considered to have been compensated.
    • If an organization chooses to use volunteer labor, detail records of hours worked should be maintained.

Applying general rules to specific circumstances can be dangerous, so for more information, please visit https://www.irs.gov to review Publication 3079, Gaming Publication for Tax-Exempt Organizations.


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