Are you gambling with your nonprofit tax-exempt status?

This article applies to gaming activities conducted by Oregon Nonprofit Corporations that have been granted tax-exempt status under IRC 501(c)(3) and are classified as a public charity. It does not apply to entities granted 501(c)(3) status and classified as a foundation and it does not apply to entities granted exempt status under other sections of IRC 501(c). Knowing these rules is not negotiable. Violating gaming (aka gambling) rules will jeopardize your 501(c)(3) status.

First, what is gaming?

Gaming includes (but is not limited to): bingo, pull-tabs/instant bingo (including satellite and progressive bingo), Texas Hold-Em Poker and other card games, raffles, scratch-offs, charitable gaming tickets, break-opens, hard cards, banded tickets, jar tickets, pickle cards, Lucky Seven cards, Nevada Club tickets, casino nights, Las Vegas nights, and coin-operated gambling devices. Coin-operated gambling devices include slot machines, electronic video slot or line games, video poker, video blackjack, video keno, video bingo, video pull-tab games, etc.[1]

Gaming, in and of itself, is not a “charitable” activity. There is nothing inherently charitable about gaming. It is a for-profit business activity. Although a charity may use the proceeds from gaming to pay expenses associated with its charitable programs, gaming itself does not further exempt purpose.

Before your organization holds a gaming event, two levels of analysis need considering.

(1) A nonprofit charity may hold gaming activities so long as the gaming activity is insubstantial compared to the overall fundraising activities of the charity.

(2) Some or all of the charity’s earnings from gaming activities may be considered by the IRS as business income unrelated to the organization’s charitable purpose and the charity will be liable to pay unrelated business income tax (UBIT). UBI is income from an activity that (a) is a trade or business, (b) is regularly carried on, and (c) is not substantially related to furthering the nonprofit’s charitable purpose.[2][3]

There are no hard and fast rules. Gaming is absolutely a “trade or business” without exception and gaming is not a “charitable” activity (and using the income from gaming to further charitable purpose does not convert gaming into a charitable activity). Factors to consider include, the time and money spent on the gaming event, the amount of money brought in by the event, and frequency these events are held.

A useful method is to look at the frequency and continuity of your organization’s event, and the manner the event will be held, then compare your plan with the for-profit gaming businesses are conducted in your community.

… And that’s just a bit of what the IRS has to say about charities conducting gaming events. Oregon has its own set of rules.

All charities conducting operations in Oregon must register with the Oregon Department of Justice. (ORS § 128.650). The types of gaming activities vary and the laws are complex. For the purposes of this article, let’s consider the common charity gaming activities: Bingo, raffles, and Monte Carlo events.[4] In Oregon, only tax-exempt nonprofits can qualify to run bingo, raffles, and Monte Carlo games.

The organization must obtain a license from the DOJ in order to hold a bingo, raffle, or Monte Carlo event. Information about licenses can be found here:

There are three exceptions to licensure:

(1) Nonprofit organizations operating bingo games with a handle[5] of no more than $2000 per session and with a total handle of no more than $5000 per calendar year.

(2) Nonprofit organizations holding raffles with a cumulative handle of no more than $10,000 per calendar year.

(3) Nonprofit organizations holding Monte Carlo events with a handle of no more than $2000 per Monte Carlo event and a total handle of no more than $5000 per calendar year.

This brief article is intended both as general information and as a warning. Before your nonprofit decides to hold a gaming event, consult these and other resources:

If you are concerned about what you read, please contact an attorney qualified to counsel your organization about charitable gaming activities.

[1] IRS. “Gaming’s Impact on Tax-Exempt Status.”

[2] See IRS Pub. 598

[3] Exceptions: UBI does not include certain qualifying bingo games, activities conducted with substantially all volunteer labor, and qualified public entertainment activities.

[4] If your organization is considering doing one of these three events, review the statutes and OARs to learn what specifically is authorized in bingo, raffles, and Monte Carlo events (see OAR 137-025-0020). If your organization is considering a different form of gambling consult an attorney.

[5] OAR 137-025-0020(6) “Handle” means the total amount of money and other things of value bet on the bingo, lotto or raffle games, the value of raffle chances sold or the total amount collected from the sale of imitation money during Monte Carlo events.

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