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

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

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

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

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

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

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

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

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

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

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

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 1-800-829-3676. 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

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 1-800-829-3676. 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

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

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IRS Video Portal irsvideos.gov GAMING | EXEMPT ORGANIZATIONS

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

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

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

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For More Information Charities and Nonprofits page For forms, publications, general information: www.irs.gov/charities Web-Based Training Program For 501(c)(3) organizations: StayExempt.irs.gov Outreach Event Requests tege.eo.ceo@irs.gov General Questions Account issues only: 1-877-829-5500 (toll free) GAMING | EXEMPT ORGANIZATIONS