If We Are a Non-Profit Can We Have a Poker Night to Raise Money?

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You either own or are a part of a nonprofit organization, and you are trying to come up with great ideas to raise money. Car washes, door-to-door donations, and bake sales can get old after a while. You are looking for something that is not only interesting and fun, but that you can involve your local community in as well. “How about a poker night?” someone suggests. Poker is a fun game, can involve lots of people, and can offer an incentive to donate. But before you start making flyers and buying playing cards by the case, there are some things you should consider.

Is It legal?

The first thing you should research is how your county or state regulates games of chance. Poker falls under this category and could be subject to several rules. Your nonprofit may have to apply for a gambling license in order to operate a poker night. Raffles and games like bingo might also be subject to other restrictions.

What About Taxes?

The issue of taxes is also something to consider. Some states consider money raised from games of chance as unrelated business income, and subject to taxation. Also, any winnings won by your players are subject to taxes. Some places require nonprofits to pay a Gaming Excise tax.

Can Employees of the Nonprofit Work the Event?

Running a game of chance as a nonprofit could also have consequences when it comes to employees of the nonprofit working the event. It could trigger background checks to be performed on the CEO or even the staff of your organization. Staff members might not even be allowed to work the event in some states.

Can Donors Deduct Donations Given or Money Won at the Gaming Event?

Your players may participate in a game of chance thinking that any money they win or donate will be tax deductible. But they would be wrong. Unfortunately, any money spent as an entry donation is actually considered a purchase for an experience or product, and winnings are subject to tax laws similar to lottery winnings.

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So What Can a Nonprofit Do to Make Sure Their Poker Night Is Legal?

In order to avoid tax issues, employee issues, and potentially losing donors over misinformation, there is a process to follow. It is imperative that you follow these steps, as missing even one can result in legal action against your organization.

  1. Review your state laws. Each state has its own set of rules pertaining to charity gambling events. There could be laws pertaining to age limits of players as well.
  1. Get proper licensing for vendors and/or alcohol sales. In most states, it is required to have a liquor license to sell alcohol at any event, even if a nonprofit is holding the event. Certain cities, counties, or states may also require licenses to have food or merchandise vendors participate in the event.
  1. Inform your donors about the restrictions. If you’re cleared to have the event and have acquired the proper licensing, make sure in the marketing information that you mention the donor’s tax rights and responsibilities if they win. Also state that any entry fees are not tax deductible.
  1. After the event, file the proper paperwork. Some states might require detailed information about the donations collected and the amount won by the winning player. It may be required that your nonprofit keep a special record of the person who won your event. And in some states like Pennsylvania, a separate bank account must be opened wherein all proceeds from your event are deposited.
  1. Find out if there are any limitations on how proceeds from your event can be used. In some states, like North Carolina, none of the proceeds can be used to pay employees who worked the event, or to pay any rental fees for the facility the game was played in.

What Are the Ramifications of Not Following the Rules?

If your organization fails to meet the legal requirements of your state, there could be dire consequences. Nonprofits that filed under the 501(c)(3) tax exempt status might not be able to run gaming events at all – as the government does not consider gaming as a charitable activity. If you were to conduct such an event it could put your nonprofit’s tax-exempt status in jeopardy.

Violations of the gambling laws could also lead to civil and criminal charges of noncompliance, and heavy fines could be levied against you. If the violations are particularly severe, the state could issue a cease and desist order to your organization which would prohibit your nonprofit from participating in any fundraising activities whatsoever. The only way this order can be relieved is if the nonprofit becomes compliant with the law, negotiates a settlement with the government, and pays any fines levied upon it.

These punishments can cost your nonprofit severely in terms of dollars and cents. But of even greater concern is that the public image of the organization could be irreparably damaged, resulting in the loss of donor support. For a nonprofit, this is practically a death sentence. Attempts to repair the image of a nonprofit might not be enough to salvage it, resulting the loss of jobs and a gap in any charitable services your organization provided.

Your nonprofit organization provides goods and services that improve the lives of people in your community. Having interesting and fun fundraising events is a must, but if you choose to hold a poker night – be sure to follow the law to the letter. If you falter, it could mean the loss of respect from your community, the loss of revenue to continue your charitable works, and the unemployment for your entire staff and board.

The government grants nonprofit organizations the special ability to act in ways other companies or businesses cannot – in exchange for improving their city, state, and country. It is a privilege that should not be squandered. Charity is necessary in this country, and without it many people would be sick, homeless, or dead. The unique services provided by nonprofits are incredibly valuable to our society. Don’t let one innocent event shatter that privilege.

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