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Raffles - IRS Rules

  • 1.  Raffles - IRS Rules

    Posted 03-17-2025 04:07 PM
    Good Afternoon everyone,

    Our day of giving is coming up in March, and Athletics would like to do the following with gifts:

    An example might be "a Valpo Gift pack for the first 500 people to donate $1000 or more".  Or the first 500 to donate $500 or more, be a part of a human tunnel for Men's Basketball, etc.  Is this okay?

    However, for example, at basketball games, we have several insurance promotions for raffles, such as a chance to win $10,000 on a series shot or specific donated TV raffles. These are not gifts, correct?

    My question is, a gift can't be required to enter a game of chance, correct?

    Thanks
    Liz



    Thanks
    Liz






    --
    Liz Arizpe
    Assistant Vice President of Advancement Operations
    Valparaiso University
    Advancement
    510 Freeman St.
    Valparaiso, IN 46383
    (Phone) 219-464-5610


    The information in this communication is confidential and intended only for use by the addressee(s). Unauthorized review, use, disclosure, or copying of this communication or any part thereof is strictly prohibited. If you have received this communication in error, please notify me immediately by return email and destroy this and all copies thereof, including all attachments.


  • 2.  RE: Raffles - IRS Rules

    Posted 03-17-2025 04:23 PM
    That is correct, Liz. The gift is negated if it causes the entry into a game of chance. So, there are no gifts in either of your examples - although you could argue that donors 500+ in your first example are making a gift provided they knew that would not receive anything.

    John

    John H. Taylor
    919.816.5903 (Cell/Text)

    Big Ideas - Small Keyboard





  • 3.  RE: Raffles - IRS Rules

    Posted 03-17-2025 04:27 PM
    John,

    The first example still means they would get into the game, so does a ticket sale matter? Does it count for FMV?

    Thanks
    Liz



    --
    Liz Arizpe
    Assistant Vice President of Advancement Operations
    Valparaiso University
    Advancement
    510 Freeman St.
    Valparaiso, IN 46383
    (Phone) 219-464-5610


    The information in this communication is confidential and intended only for use by the addressee(s). Unauthorized review, use, disclosure, or copying of this communication or any part thereof is strictly prohibited. If you have received this communication in error, please notify me immediately by return email and destroy this and all copies thereof, including all attachments.





  • 4.  RE: Raffles - IRS Rules

    Posted 03-17-2025 04:55 PM
    John,

    If they say the first 500 donors to donate $1,000 will receive a "Valpo Gift pack," and we will share the fair market value for the gift pack in the marketing, is it okay to limit it to the first 500 donors?

    Thanks
    Liz



    --
    Liz Arizpe
    Assistant Vice President of Advancement Operations
    Valparaiso University
    Advancement
    510 Freeman St.
    Valparaiso, IN 46383
    (Phone) 219-464-5610


    The information in this communication is confidential and intended only for use by the addressee(s). Unauthorized review, use, disclosure, or copying of this communication or any part thereof is strictly prohibited. If you have received this communication in error, please notify me immediately by return email and destroy this and all copies thereof, including all attachments.





  • 5.  RE: Raffles - IRS Rules

    Posted 03-17-2025 05:03 PM
    It is still a game of chance to be one of the first 500. You are better off either giving the gift pack to everyone (making it a standard QPQ for all) or stating anyone can enter without making a gift and get the gift pack if one of the first 500 to respond.


    John H. Taylor
    919.816.5903 (Cell/Text)

    Big Ideas - Small Keyboard





  • 6.  RE: Raffles - IRS Rules

    Posted 03-17-2025 07:01 PM
    John,

    Thanks for your answer. So, our general council responded to the first set of example with this answer:

    I am not aware of any IRS issue on this front.  State law prohibits gambling but I think we have an argument this is not that.   More importantly, I do not see the county prosecutor coming after us for this.  So I think it is very low risk of any legal implications.

    Can you share any IRS guidelines/publications that I could share with him?

    Thanks
    Liz



    --
    Liz Arizpe
    Assistant Vice President of Advancement Operations
    Valparaiso University
    Advancement
    510 Freeman St.
    Valparaiso, IN 46383
    (Phone) 219-464-5610


    The information in this communication is confidential and intended only for use by the addressee(s). Unauthorized review, use, disclosure, or copying of this communication or any part thereof is strictly prohibited. If you have received this communication in error, please notify me immediately by return email and destroy this and all copies thereof, including all attachments.





  • 7.  RE: Raffles - IRS Rules

    Posted 03-17-2025 07:29 PM
    Counsel should research to satisfy their "low risk" determination.

    The IRS, as far as I know, does not look at degrees of risk.

    The IRS focuses on games of chance and whether money is required to enter one. If so, they say those funds aren't deductible. Sure, what's described here isn't "gambling" from a State perspective (states set gambling laws). But it could be a game of chance that renders the requisite payment not deductible.

    USLegal,com defines a game of chance in part like this: "Games of chance are those games whose outcome depends upon an element of chance, even though skill of the contestants may also be a factor influencing the outcome."

    I found this in paragraph 402.211 of the Texas Administrative Code: "(1) Game of chance--A game or contest that awards a prize and whose outcome is determined, at least in part, by the element of chance or luck."

    I agree with your attorney that what's proposed here isn't gambling, but it seems to meet the definition of a game of chance (but I am not a lawyer). Donors are making payments in the hope of winning something.

    You all need to decide whether to treat these as tax-deductible gifts or transactions that have a "low risk" of being considered something else.

    If it were me, I'd not claim these payments were tax deductible and instead treat the effort as a "proceeds to benefit" activity. Then, you run no risk.

    John 

    John H. Taylor, Principal
    John H. Taylor Consulting, LLC
    2604 Sevier Street
    Durham, NC     27705

    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987







  • 8.  RE: Raffles - IRS Rules

    Posted 03-17-2025 07:45 PM
    John,

    Thanks for all the information. It is very helpful. I'm concerned about any risk.

    Liz



    --
    Liz Arizpe
    Assistant Vice President of Advancement Operations
    Valparaiso University
    Advancement
    510 Freeman St.
    Valparaiso, IN 46383
    (Phone) 219-464-5610


    The information in this communication is confidential and intended only for use by the addressee(s). Unauthorized review, use, disclosure, or copying of this communication or any part thereof is strictly prohibited. If you have received this communication in error, please notify me immediately by return email and destroy this and all copies thereof, including all attachments.





  • 9.  RE: Raffles - IRS Rules

    Posted 03-17-2025 07:48 PM
    That's why I always look for win-win-no-risk. As I mentioned earlier, allowing people to "win" without any gift is always a good idea (it's the way public radio handles all their games). Or don't worry about tax-deductibility and call it a proceeds to benefit event (and CASE lets you count those net proceeds)!

    John

    John H. Taylor, Principal
    John H. Taylor Consulting, LLC
    2604 Sevier Street
    Durham, NC     27705

    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987







  • 10.  RE: Raffles - IRS Rules

    Posted 03-17-2025 08:00 PM
    John,

    The complication for us is this is part of our giving day and we have challenges based on giving(gifts), so I don't know how to figure this part out. if it had been any other time the proceeds are not a problem.

    How do schools count the net proceeds if they are not gifts?

    Liz



    --
    Liz Arizpe
    Assistant Vice President of Advancement Operations
    Valparaiso University
    Advancement
    510 Freeman St.
    Valparaiso, IN 46383
    (Phone) 219-464-5610


    The information in this communication is confidential and intended only for use by the addressee(s). Unauthorized review, use, disclosure, or copying of this communication or any part thereof is strictly prohibited. If you have received this communication in error, please notify me immediately by return email and destroy this and all copies thereof, including all attachments.





  • 11.  RE: Raffles - IRS Rules

    Posted 03-17-2025 08:05 PM
    If it's a "proceeds to benefit" event, you don't frame it as a deductibility thing. Only that it's a fundraiser and that the net proceeds will benefit so-and-so. Per CASE, you can count that lump-sum amount (usually on a "various donors" record) in your official fundraising totals.

    John H. Taylor, Principal
    John H. Taylor Consulting, LLC
    2604 Sevier Street
    Durham, NC     27705

    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987