Not a chance
Recent events have rekindled this thought: Buying raffle tickets may not be the most practical way to give to charitable organizations.
Don’t get me wrong, raffles have proven to be good fund-raisers for many charitable organizations. But the recent events (and the time spent working on my tax compliance project) have shown me otherwise from the donor's perspective.
From IRS Publication 526, Charitable Contributions: “You cannot deduct as a charitable contribution amounts you pay to buy raffle or lottery tickets or to play bingo or games of chance.” Some people are taken aback when I mention their raffle tickets are not considered charitable contributions. “But it’s a raffle!” they say. “It’s helping the charitable organization! There’s no harm in a raffle!?” True, there may be no harm. Yet there is a chance, albeit slight, you may win!
That is what happened when a few individuals pitched in on a few raffle tickets with a large cash prize and put the name of a nonprofit organization on the back of the stubs. The individuals bought the tickets to give money to the nonprofit organization conducting the raffle as a donation, not even contemplating one of their tickets might be drawn. How unlucky!
- Under normal circumstances, the unlucky individual not only receives the prize, but a W-2G for winnings greater than $600, and has to declare the winnings as “Other Income” on his/her 1040.
- If the individual tries to turn the winnings over as a charitable contribution, he/she is subject to the limits and deductions based on adjustable gross income. Of course, that is based on an expectation the contribution is in fact tax-deductible.
Because the "winner" was a nonprofit organization:
- Although the winnings would not qualify as unrelated business income because the event is not regularly carried on, I would rather not be the person writing the explanation on Schedule O of the 990.
- I will not be there to see the look on the faces at the nonprofit when it receives the W-2G.
So when my wife asked me recently if we could buy a raffle ticket that benefits a charitable organization, I said: “If you want to really want to make a donation, just give them the money.” Her response: “You just want to be able to write it off!” I was not going to state the obvious or go into the detailed explanation. She later called back: “I split the ticket with someone.”
::: sigh :::
Alan is a sole practitioner based in Central Ohio. He made a career change at 40 after working as a journalist for more than 15 years. Alan started his practice in May 2010 and currently focuses on not-for-profit organizations, individuals and small businesses. He has helped a number of nonprofits obtain their tax-exempt status and assisted others with their audit, compliance and tax needs. Alan has overcome many obstacles, and has spent the past 11 years primarily as an auditor. He also has worked on audits of financial institutions, closely-held businesses and began his second career as an ABL field examiner.