Your spring gala cleared $12,000 on the raffle and the silent auction combined, and every dollar went straight into programs. Then your treasurer asks an uncomfortable question: do we owe tax on the raffle money? The answer surprises most nonprofit boards. The IRS generally treats gaming — bingo, raffles, pull-tabs, casino nights — as a business activity, not a charitable one. Spending the proceeds on your mission does not make the activity itself tax-free. If your games are run regularly and no exception applies, that "little raffle" can generate unrelated business income tax, winner-reporting obligations, and a separate tax return you have never filed.
This guide walks through how the IRS analyzes charity gaming, the two exceptions that most often save bingo nights and raffles, the winner paperwork that trips up small nonprofits, and the bookkeeping habits that keep a fun fundraiser from becoming a compliance headache.
Why the IRS Sees a Business, Not a Fundraiser
Tax-exempt status means the IRS does not tax income from activities that further your exempt purpose. But income from an unrelated trade or business is taxable even when the organization is a charity. The test has three parts, and gaming usually satisfies all three:
- It is a trade or business. Selling raffle tickets, charging bingo card fees, and operating pull-tab dispensers is commerce. It looks the same whether a charity or a for-profit runs it.
- It is regularly carried on. A one-off drawing at an annual dinner is viewed differently from weekly bingo. Frequency, duration, promotion effort, and how commercial operators run similar games all factor into this judgment call.
- It is not substantially related to your exempt purpose. Teaching kids to read, sheltering animals, staging concerts — those are your mission. Running games of chance is not, even if the profits fund those things. The IRS says this explicitly: using gaming proceeds to pay for charitable programs does not convert gaming into a charitable activity.
Fail all three prongs and the net income is generally subject to unrelated business income tax (UBIT), reported on Form 990-T. Gross unrelated income over $1,000 means a filing obligation, even for organizations that otherwise file only the short Form 990-EZ or 990-N.
Two important nuances before you panic. First, gaming that is small relative to everything else your organization does will not by itself cost you your exemption — but it can still generate tax. Second, the "regularly carried on" prong is genuinely facts-and-circumstances. A single annual raffle with modest promotion looks very different from bingo every Friday night advertised like a commercial hall. Many small nonprofits live safely on this prong alone — until their "annual" event quietly becomes monthly.
Exception 1: Substantially All Volunteer Labor
The most useful escape hatch for small nonprofits is the volunteer-labor exception. If substantially all the work of running the gaming activity is performed without compensation, the activity is not treated as an unrelated trade or business at all — no UBIT, regardless of how often you run it.
That sounds simple. The details are where organizations get caught:
- "Substantially all" has no fixed percentage in the statute. The IRS compares hours worked without pay against hours worked with pay, looking at all facts and circumstances. Treat this as a high bar — the overwhelming majority of hours, not a bare majority.
- Count every worker, not just callers and dealers. Setup and teardown crews, concession staff, advertising and design help, bookkeeping, security, janitorial — everyone whose work carries on the activity goes in the denominator. A fully volunteer bingo night that hires a paid security guard and a paid cleaner has two compensated workers to account for.
- Compensation is interpreted broadly. Tips count. Free or discounted goods and services given in exchange for work can count. Even workers paid by a third party — for example, security guards supplied and paid by a contractor you hired — can count as compensated labor for your activity.
- Truly minor perks are usually fine. Small refreshments for volunteers have been treated as de minimis rather than compensation, but this is a facts-and-circumstances call, not a blank check. Keep perks modest and uniform.
- Volunteer labor must actually produce the income. The exception covers activities where people's work is a material income-producing factor — running the games, selling the tickets, staffing the event. It does not launder passive income streams that happen to have a volunteer somewhere nearby.
The practical takeaway: if you want this exception, run the event like you mean it. Use a volunteer sign-in sheet that records hours. Avoid paying anyone connected with the gaming operation — including through vendors — and document that choice. The organizations that lose this exception usually lose it over one paid helper nobody thought to count.
Exception 2: Traditional Bingo — but Not Pull-Tabs
Bingo gets its own dedicated exception. Certain traditional bingo games are excluded from unrelated business income by statute, even if workers are paid and the games run regularly.
"Traditional" does real work in that sentence. To qualify, the game generally must work the way bingo-night bingo works: players place wagers, numbers are called, winners are determined and prizes distributed with everyone present. Two common variants fail this test:
- Pull-tabs and instant bingo do not qualify. Pre-printed tickets where the winner is predetermined are not bingo in the statutory sense, even when sold at a bingo hall. They remain fully exposed to UBIT analysis.
- Satellite, linked, and online-style variants are suspect. Anything where wagering, number-calling, and prize distribution do not happen together in one room drifts outside the exception.
The game must also comply with applicable state and local law — and that is a bigger hurdle than many boards expect, because charitable gaming is regulated state by state. Most states require a license or registration before you sell a single ticket, restrict who may conduct games, cap prize values, dictate how proceeds may be spent, and limit advertising. Several states sharply restrict or prohibit online raffle ticket sales. An unlawful game cannot be a protected game, so confirm your state registration and local permits before you print tickets, not after.
Raffles Have No Bingo-Style Safety Net
Notice what is missing: there is no statutory raffle exception parallel to the bingo rule. A raffle survives UBIT only through the general defenses — it is not regularly carried on, or substantially all volunteer labor runs it. That makes raffles the highest-risk common fundraiser for nonprofits that also pay event staff or run drawings on a repeating schedule.
Season-ticket-style setups deserve special attention. A sports booster club that raffles off prizes at every home game, or an arts group with a monthly 50/50 drawing, is running something regular, promoted, and commercial-looking. If paid staff touch the operation, both general defenses may be gone at once. Either move the labor fully to volunteers or budget for Form 990-T and price ticket margins accordingly.
State law bites raffles first and hardest. Check whether your state requires advance registration, restricts ticket buyers to a geographic area, mandates specific disclosures on the ticket stub (license number, drawing date, prize description), or requires a separate filing after the drawing reporting gross receipts and winners. Keep every permit, approval letter, and post-event filing with the event's books permanently — state regulators audit raffles far more often than the IRS does.
When a Winner Triggers Paperwork: Form W-2G
Separate from UBIT, the organization that pays a gaming winner may have information-reporting and withholding duties. For raffles and most non-bingo, non-slot wagering, the rule is:
- Report on Form W-2G when the proceeds — winnings minus the cost of the wager — are $600 or more and at least 300 times the wager. A $10 ticket winning a $6,000 prize produces $5,990 in proceeds, which clears both thresholds, so the organization reports it.
- Withhold federal income tax, generally 24 percent, when proceeds from a raffle or similar wager exceed $5,000. Using the same example, the organization withholds from the prize and remits it, reporting the withholding on the W-2G.
Bingo, keno, and slot-machine winnings follow different thresholds, so apply the raffle rule only to raffle-type prizes. Practical consequences for your event planning: record each winning ticket's purchase price, get the winner's taxpayer identification information before handing over large prizes, and have blank W-2G forms and a withholding procedure ready before drawing night. Discovering the rule while the winner waits at the table with a $10,000 check is the wrong time to learn it.
The Returns You May Owe: 990-T and Schedule G
Three filing touchpoints matter for gaming nonprofits:
- Form 990-T (Exempt Organization Business Income Tax Return) is due when gross unrelated business income exceeds $1,000. Taxable gaming income goes here, with directly connected expenses deducted. Estimated payments may apply if the liability is large enough.
- Schedule G (Fundraising and Gaming Activities), attached to Form 990 or 990-EZ, requires detailed gaming reporting once gross gaming revenue exceeds $15,000. Expect to break out gross revenue, prizes, and direct expenses by game type.
- State filings vary widely — gaming tax returns, charitable solicitation renewals reflecting gaming revenue, and raffle-specific accountings all exist depending on your state.
Note the mismatch that surprises treasurers: you can owe Schedule G disclosure at $15,000 of gross gaming receipts while owing 990-T tax on a much smaller net number, or vice versa. Track gross and net separately from the first ticket sold so both returns pull from the same ledger.
Bookkeeping That Keeps Gaming Fun
Gaming compliance is mostly recordkeeping. Set up a separate class or project in your books for each gaming event and track these items as the event happens, not at year-end:
- Gross receipts by game type. Bingo card sales, raffle ticket sales, pull-tab revenue, admission charges tied to gaming — each in its own line. Gross figures drive Schedule G thresholds.
- Prizes paid, winner by winner. Name, amount, date, ticket or wager cost, and whether a W-2G was issued. Reconcile total prizes to both the bank account and the tax filings.
- Direct expenses. Printing, advertising, hall rental allocable to the event, gaming supplies, license and permit fees, and any contracted services. These offset UBIT on Form 990-T, but only if documented.
- Volunteer hours log. Names, dates, hours, and roles from the sign-in sheet, plus a roster affirming no compensation. This log is your evidence for the volunteer-labor exception — reconstructing it months later during an audit is unconvincing.
- Worker roster including vendors. List everyone who worked the event, who paid them, and what they did. This is how you catch the paid security guard or the designer's discounted services before they quietly destroy your exception.
- Permits and filings. State license, local approvals, ticket-stub disclosures, post-event reports, W-2G copies, and withholding remittance confirmations — filed with the event, retained permanently.
Reconcile gaming cash to the bank statement within days of the event while memories are fresh. Gaming drawers are cash-heavy, volunteer-handled, and lightly supervised — exactly the combination where skimming hides and where clean records protect honest volunteers from suspicion.
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