Raffle in church-tax issues?

[Margaret CPA in OH]

A church member wants to 'donate' vacation rental points (she cannot use them before expiring) to the church stewardship campaign to be raffled off.  Sort of.  To encourage contributors to complete pledges by, say, October 31, each would be entered in the drawing with the winner being able to use the points for about a 3-4 stay at a resort.  I cannot think of a tax issue anywhere - you?  She cannot and is not interested in any kind of deduction.  Does the winner have to report as income?  Value would vary, I think, based on location of stay.  Would the church have to be involved at all or just the donor? I'm thinking it is for the benefit of the church but really just between the donor and recipient.

[Lee B]

I looked this up and found :  https://www.irs.gov/pub/irs-tege/notice_1340.pdf

Who knew, Gambling Withholding and or backup withholding could apply 

"Noncash Prizes: For noncash prizes, the winner must pay the organization 25% of the fair market value of the prize minus the amount of the wager."

 

[Margaret CPA in OH]

Hmm, those entered in this raffle will not have paid anything, though.  And the church is not sponsoring it.  The person giving out the points is a member but she is doing this on her own to encourage others to pledge early.  So maybe the points donor should file the W-2G.  As nothing is paid for the possible entry into the raffle,

(a) 0 (the amount a person paid for a chance...) reduced by the wager = less than zero or

(b) the payout is at least 300 time the amount of the wager or 0 x 300 = 0.

And since it is not an organization providing the prize, I read that it is not the responsibility of the church to withhold anything.

Thanks for looking this up!  I will ponder a bit more but am not seeing any responsibility of the church here.

[Lee B]

Years ago I had a client who shopped at a grocery store where by buying groceries you were entered in a chance to win prizes.

She won $3,000 and had to give Fred Meyer her name, address, and SSN which they used to issue a 1099 for her winnings.

[Margaret CPA in OH]

Thanks for additional info.  I don't think I am too surprised about the grocery prize because it was from a business and money (bought groceries) changed hands to enter into the game of chance.  This is from an individual and does not involve money of any kind to 'win,' just turn in your pledge by a given date.  And, of course, church pledges are not even legally enforceable.   I have forwarded the notice to this person and also alerted the pastor who may or may not go along with it.

Interesting exercise....

[Max W]

Since there is no raffle ticket cost involved, it is a gift from one person to another and value of a four night stay at a time share resort will be well below the gift reporting requirements.

[Lee B]

23 hours ago, cbslee said:

Years ago I had a client who shopped at a grocery store where by buying groceries you were entered in a chance to win prizes.

She won $3,000 and had to give Fred Meyer her name, address, and SSN which they used to issue a 1099 for her winnings.

In his situation there was no raffle ticket purchased. The grocery store used a random number generator at the moment the customer paid for their groceries.

I shopped at one of these stores for my groceries and won $5 several times  So was this a gift or?

[Margaret CPA in OH]

No raffle ticket was purchased but money was exchanged.  From the description here, only those who bought/paid for groceries were entered into the raffle.  Was it possible to have been part of this event without having 'paid for' groceries? 

Maybe you got a gift. But you paid for the groceries to even qualify for the $5.  In my church case, no money will be exchanged, nothing purchased to qualify.  The only way to enter is to submit a pledge by a certain date.  Even then, there is no legal, just moral maybe, obligation to actually pay the pledge which would be to the church, not the donor of the trip.

[Margaret CPA in OH]

And I was reminded that our pledge forms ask about time, talent, and treasure.  It is and has been possible to pledge to offer time for maybe committee work and/or talent to be in the choir, provide IT services, etc.  No pledge of money is required - although it would be nice

[DANRVAN]

 

On 9/19/2023 at 2:35 PM, Margaret CPA in OH said:

Does the winner have to report as income?  Value would vary, I think, based on location of stay.  Would the church have to be involved at all or just the donor? I'm thinking it is for the benefit of the church but really just between the donor and recipient.

Technically it is income to the winner of the drawing per sec 74(a) at fmv.   Determining fmv is a gray area, case law points to the value to the recipient.

She might need to file a 1099 but I would not hold her to it as income tax preparer.

[DANRVAN]

8 hours ago, cbslee said:

I shopped at one of these stores for my groceries and won $5 several times  So was this a gift or?

Sounds to me like an award based on the actions of the shopper, not a gift.

[Margaret CPA in OH]

20 hours ago, DANRVAN said:

 

Technically it is income to the winner of the drawing per sec 74(a) at fmv.   Determining fmv is a gray area, case law points to the value to the recipient.

She might need to file a 1099 but I would not hold her to it as income tax preparer.

Well, I think, as it is not really a business transaction, the donor/gifter of the trip would not have to file a 1099.  Neither the donor nor the church are my clients although they did ask my advice/opinion of this possibility to encourage early returns of pledges of time, talent and treasure.  I've shared the collected comments from folks here with the pastor and donor. The decision is theirs.  I still feel that the church, while possibly benefiting for budget preparation purposes, an early idea of the financial trends of pledges, has no real reporting role here.

Thanks to all for the discussion.  This forum is always surprising with the variety of topics to ponder.

[Slippery Pencil]

This is a legal issue.  Unless you're a lawyer, you shouldn't advise on it.  Depending on the laws of the state, the state gaming commission may may disagree with numerous assumptions stated above.  Tell the donor and church to contact a lawyer. 

[Margaret CPA in OH]

Well, I offered my opinion, not really advice, and provided the research etc. offered here then turned it over to the donor and the church.  I do find it exceedingly hard to believe (though not impossible) that the state gaming commission would go after an independent donor receiving no cash and offering something (yes, of value) merely for turning in a pledge for time talent OR treasure, which cannot be legally enforced, by a given date.

I'm out but still have found this interesting.  I am not a lawyer but would be surprised if a lawyer (I will ask one at church) would take the threat of legal action in this seriously. 

Thanks for the opinions and advice of all.

[Slippery Pencil]

Depends upon the state.  Gaming commissions shut down small time raffles and other gambling activities all the time.  Most gaming commissions would probably see this as being offered by the church, not an individual, and see the rigmarole of the church giving the individual a list of pledgers so the individual, "not the church", can hold a drawing to be the semantic game the church and individual are playing.

If your state has a lax gaming commission, go for it.  If it doesn't, don't get caught.

[Lee B]

12 hours ago, Slippery Pencil said:

This is a legal issue.  Unless you're a lawyer, you shouldn't advise on it.  Depending on the laws of the state, the state gaming commission may may disagree with numerous assumptions stated above.  Tell the donor and church to contact a lawyer. 

 

3 minutes ago, Slippery Pencil said:

If your state has a lax gaming commission, go for it.  If it doesn't, don't get caught.

In theory, what you are saying is possible, but aren't you kinda exaggerating?

[DANRVAN]

I don't see where any legal advice was given.  Just potential tax and reporting issues.

[Slippery Pencil]

On 9/23/2023 at 2:35 PM, cbslee said:

In theory, what you are saying is possible, but aren't you kinda exaggerating?

No.  Gaming is a legal issue and some states' gaming commissions are pretty strict.  If the church wants to fool around with gaming issues, they'd be wise to find out the potential consequences of their actions.

[DANRVAN]

Out of curiosity per Oregon DOJ division of charity:

Who may conduct bingo, raffle and Monte Carlo events in Oregon?

Only organizations exempt from paying federal income taxes may conduct charitable gaming events in Oregon. This includes public agencies and public schools. Private organizations qualify if they are active nonprofits. An organization must have held tax-exempt status for at least one year and been engaged in its charitable, fraternal or religious purpose during that time.

=======

Do all bingo, raffle, and Monte Carlo gaming operations require licenses?

Generally, all nonprofit organizations wishing to operate bingo, raffle and Monte Carlo events are required to have licenses issued by the Oregon DOJ. Following are the only three exceptions:

Nonprofit organizations operating bingo games with a handle of no more than $2,000 per session and with a total handle of no more than $5,000 per calendar year.

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

Nonprofit organizations holding Monte Carlo events with a handle of no more than $2,000 per Monte Carlo event and a total handle of no more than $5,000 per calendar year.

===

On 9/19/2023 at 2:35 PM, Margaret CPA in OH said:

Would the church have to be involved at all or just the donor? I'm thinking it is for the benefit of the church but really just between the donor and recipient.

For Oregon, it does not look like a good idea for an individual to conduct a raffle.

[jklcpa]

Is this more of a substance over form though?  Individual owning the vacation points receives nothing in the transaction. Church has no guarantee of payment but indirectly benefits by the possibility of increase in pledges. 

It seems to me that this transaction merely sidesteps the individual's donation to the church of the item being raffled.

ETA - OH gaming is regulated by state's AG. Here's the portion about raffles.

Edited September 25, 2023 by jklcpa
Added info on OH raffle regulation

[DANRVAN]

47 minutes ago, jklcpa said:

Is this more of a substance over form though? 

Probably not even a raffle by definition since participants are only making pledges and not $$ for tickets, and the pledges might be for time or talent instead of dollars.