1. November 14-15, 2012
September 19, 2018
FEDERAL TAX AND INFORMATION REPORTING FOR 501(c)(3) ORGANIZATIONS CONDUCTING GAMING

2. Tax-Exempt Status What You Need to Know :
Impact of gaming on tax-exempt status
Gaming and unrelated business income
Internal Controls & Recordkeeping
Workers conducting gaming
Reporting winnings & withholding
Gaming excise taxes
Read Pub. 3079
GAMING | EXEMPT ORGANIZATIONS

3. Organizations Participating in Gaming
Important to know the different rules that apply:
501(c)(3) organizations operated exclusively for charitable purposes
501(c)(4) social welfare organizations
501(c)(7) social clubs
501(c)(8) & (10) fraternal organizations
501(c)(19) veterans’ organizations
GAMING | EXEMPT ORGANIZATIONS

4. 501(c)(3) Organizations Largest category of tax-exempt organizations
Common misconception: If proceeds are used for charitable purposes, gaming is charitable
Actual conduct of activity, not the proceeds must further and exempt purpose
Gaming does NOT further an exempt purpose
If gaming is substantial activity, may jeopardize exempt status
May not have a substantial non-exempt purpose
GAMING | EXEMPT ORGANIZATIONS

5. Bingo and “Pull Tabs” Example
Organization formed to give grants to schools
Uses management company for operate Bingo/Pull tabs rather than volunteers
Bulk of profits goes to management company
Only a few small grants went to schools
Result: Jeopardizes exemption, possible revocation
Substantial non-exempt purpose
Possible Inurement and private benefit
Let’s talk about the benefits of 501(c)(3) status. Benefits include – first, obviously – exemption from federal income tax. (c)(3)s are also exempt from federal unemployment tax. (c)(3)s are sometimes exempt from certain state taxes, but this varies by state. A major benefit to (c)(3)s not enjoyed by other categories of exempt organizations is the ability to receive tax deductible contributions. This means that a donor can deduct her gift as a charitable contribution on her own income tax return, lowering her taxable income. This creates an incentive for donors to support a 501(c)(3) organization. Two other benefits are the opportunity to receive proceeds from the issuance of tax-exempt bonds and reduced postal rates.
GAMING | EXEMPT ORGANIZATIONS

6. Unrelated Business Income
Exempt organizations (including churches) are liable for tax on income unrelated to exempt purpose: UBI
Must be:
Regularly carried on
Trade or business
Not substantially related to exempt purpose
File 990-T, Exempt Organization Business Income Tax Return if gross income from UBI $1,000
Gaming may be UBI unless certain exceptions apply
Let’s talk about the benefits of 501(c)(3) status. Benefits include – first, obviously – exemption from federal income tax. (c)(3)s are also exempt
GAMING | EXEMPT ORGANIZATIONS

7. Bingo & Volunteer Exceptions
Bingo exception
Must have wagers placed, winners determined, and prizes, etc. distributed in presence of all placing wagers
Pull tabs don’t qualify: winners not determined in presence of others placing wagers
Casino Nights
May not be subject to UBI if volunteer exception applies
State regulations may apply
Pub. 598, Tax on Unrelated Business Income of Exempt Organizations
Let’s talk about the benefits of 501(c)(3) status. Benefits include – first, obviously – exemption from federal income tax. (c)(3)s are also exempt from federal unemployment tax. (c)(3)s are sometimes exempt from certain state taxes, but this varies by state. A major benefit to (c)(3)s not enjoyed by other categories of exempt organizations is the ability to receive tax deductible contributions. This means that a donor can deduct her gift as a charitable contribution on her own income tax return, lowering her taxable income. This creates an incentive for donors to support a 501(c)(3) organization. Two other benefits are the opportunity to receive proceeds from the issuance of tax-exempt bonds and reduced postal rates.
GAMING | EXEMPT ORGANIZATIONS

8. Internal Controls & Recordkeeping
Oversight Responsibility
Supervise conduct of operation
Choosing location
Reviewing and approving leases
Officer involvement in conducting gaming operations
Separate and segregate workers’ duties to maximize internal controls
GAMING | EXEMPT ORGANIZATIONS

9. Bingo Operations: Internal Controls
Game manager/operator has control, prepares “Daily Sheet”
Cashier receives cash, records serial numbers of games sold
Separate controllers
prepare inventory & paid out receipts
review daily sheets
Board review for consistency of reports
GAMING | EXEMPT ORGANIZATIONS

10. Information Reporting Requirement
Form 990, Return of Organization Exempt from Income Tax – information return
Public inspection requirements
Adoption of form by state agencies
Form 990, 990-EZ, 990-N: Depends on size and financial activity
High non-filer rate among veterans, fraternals
Coordination with state gaming regulators to detect non-filers
Non-filers risk penalties, automatic revocation for failure to file 3 consecutive years
Schedule G required if gross receipts from gaming > $15,000
GAMING | EXEMPT ORGANIZATIONS

11. Employment Tax Responsibilities
Payment of employment taxes required if workers are employees
Employer responsibilities for employees
Form W-2 to employee and SSA
Form 941, Employer’s Quarterly Federal Tax Return
File Form 940, Employer’s Annual Federal Unemployment (FUTA) --- except 501(c)(3)s
Employees v. Independent Contractors
1099- MISC for independent contractors
$600 threshold for calendar year
GAMING | EXEMPT ORGANIZATIONS

12. Payments to Winners Form W-2G, Certain Gambling Winnings
Requirement varies based on type of gaming activity and prize
Bingo: Prize  $1200
Pull-tabs: Prize  $600 and 300 times wager
Slots: Prize is  $1,200
The organizational test is met by having a properly written organizing document. This document – your articles of incorporation, articles of association, trust document or Constitution – must limit your purposes to one or more of those listed in section 501(c)(3). And, it must not expressly empower your organization to engage in a non-exempt activity. Your organizing document must also include certain other language required by the IRS. Publication 557, Tax-Exempt Status for Your Organization, has some sample language. This publication is available on the IRS website, or you can order a hard copy by calling
The “operational” test can sometimes create the most problems for an organization. In order to meet this test, a 501(c)(3) organization must limit its participation in some activities while absolutely refraining from others. Failure to do so jeopardizes an organization’s 501(c)(3) status.
We’re going to spend quite a bit of time talking in detail about the types of activities that can jeopardize exempt status; that is, the types of activities that can cause an organization to fail the operational test. Before we start that, though, I’d like to talk to you about the so-called “foundation status” of 501(c)(3) organizations. We find that many (c)(3)s get confused about this, so let’s spend a few minutes talking about it.
GAMING | EXEMPT ORGANIZATIONS

13. Gaming Excise Taxes Excise taxes on amount of wager
Occupational tax on persons engaged in receiving wagers
Properly operated 501(c)(3)s would generally not be subject to tax
Properly operated fraternal/veterans’ organization may be subject to tax
The organizational test is met by having a properly written organizing document. This document – your articles of incorporation, articles of association, trust document or Constitution – must limit your purposes to one or more of those listed in section 501(c)(3). And, it must not expressly empower your organization to engage in a non-exempt activity. Your organizing document must also include certain other language required by the IRS. Publication 557, Tax-Exempt Status for Your Organization, has some sample language. This publication is available on the IRS website, or you can order a hard copy by calling
The “operational” test can sometimes create the most problems for an organization. In order to meet this test, a 501(c)(3) organization must limit its participation in some activities while absolutely refraining from others. Failure to do so jeopardizes an organization’s 501(c)(3) status.
We’re going to spend quite a bit of time talking in detail about the types of activities that can jeopardize exempt status; that is, the types of activities that can cause an organization to fail the operational test. Before we start that, though, I’d like to talk to you about the so-called “foundation status” of 501(c)(3) organizations. We find that many (c)(3)s get confused about this, so let’s spend a few minutes talking about it.
GAMING | EXEMPT ORGANIZATIONS

14. To reach our Charities and Nonprofits page, go to IRS
To reach our Charities and Nonprofits page, go to IRS.gov and click “Information for…” then select Charities & Nonprofits.
GAMING | EXEMPT ORGANIZATIONS

15. Find publications, webinars, FAQs and much more on this page.
GAMING | EXEMPT ORGANIZATIONS

16. Educational activities are specially designed for the EO community.
GAMING | EXEMPT ORGANIZATIONS

17. IRS Video Portal
irsvideos.gov
GAMING | EXEMPT ORGANIZATIONS

18. 2012 EO Workshops/Live Events
Find a workshop in your area. Events go on year round.
Specialized speaker request? Send an to
Minimum of 100 people or 75 organizations - if travel is required
Requests must come from a nonprofit entity or government entity
GAMING | EXEMPT ORGANIZATIONS

19. Register for the EO UPDATE!
It’s FREE and it keeps you up to date with what’s happening in EO.
GAMING | EXEMPT ORGANIZATIONS

20. Check out EO’s new on-line exempt org search tool.
It’s updated monthly!
GAMING | EXEMPT ORGANIZATIONS

21. StayExempt.irs.gov
This is one of the best ways to learn what every exempt organization should know.
GAMING | EXEMPT ORGANIZATIONS

22. StayExempt.irs.gov StayExempt includes 21 online courses.
GAMING | EXEMPT ORGANIZATIONS

23. EO’s Life Cycle website is important to all non-profit entities.
GAMING | EXEMPT ORGANIZATIONS

24. GAMING | EXEMPT ORGANIZATIONS

25. The A-Z Site Index is one of our most helpful pages
GAMING | EXEMPT ORGANIZATIONS

26. For More Information Charities and Nonprofits page
For forms, publications, general information:
Web-Based Training Program
For 501(c)(3) organizations:
StayExempt.irs.gov
Outreach Event Requests
General Questions
Account issues only:
(toll free)
GAMING | EXEMPT ORGANIZATIONS