Learn the Rules and Regulations of Fundraising Raffles: Improve Your Next Charity Event by Knowing Important Raffle Rules and Regulations

Ask anyone what the most popular fundraiser activities are, and you'll likely hear "raffle" (followed closely by "silent auction" and "charity dinner"). There's just something about selling tickets for a good cause -- and then awarding someone with a great prize -- that appeals to fundraiser event managers and donors alike. 

But before you can host a raffle for your own upcoming gala, you'll need to make sure you know all the rules. Raffles are technically a form of gambling, after all, and while local and national governments do support the right for nonprofits and charities to raise money for their cause, this right does come with some stipulations. To make sure your raffle truly benefits your staff, volunteers, donors, and community, it's essential that you learn (and follow) all the raffle rules and regulations of your state and country.

To help you out, PayBee has created this article to provide an overview of the laws surrounding raffles and how you should go about conducting your own raffles. We'll examine the best practices of putting on a raffle and go into how PayBee's online fundraising platform can help make yours run much smoother.

Understanding Raffle Laws and Regulations

Raffles enable people to buy tickets which are then drawn randomly in exchange for a prize of monetary value (like cash, a vacation package, or gift basket). This makes raffles a form of gambling, which would normally make them prohibited in the United States. However, many states in the U.S. (although not all) make exceptions for fundraisers, particularly those held by organizations like schools and churches.

Every state has its own raffle laws and restrictions. Some prohibit raffles entirely. Others only make holding online raffles illegal. Still other state regulations allow nonprofits and charities to hold raffles, but only if they can show they have the right legal status.

Even if your organization is allowed to hold a raffle, there may still be restrictions on how many raffles you can hold every year. Paperwork requirements could also require you to register your raffle ahead of time with the proper agencies (like the attorney general's office). 

In addition, raffle laws can vary from county to county (or city to city) within the same state. This could affect your ability to legally offer a raffle based on where your nonprofit is located or where you decide to hold your fundraisers.

Because of this, it's imperative that you do your research before offering a raffle and know all the rules and standards you need to follow. Even if raffles are legal in your state, you could still encounter restrictions that prevent your specific type of organization from holding one.

Know the Rules for What Nonprofit Organizations Can Conduct a Raffle

So, what rules does your nonprofit or charity need to follow to offer a raffle in your fundraisers? The first thing you need to be aware of is that state, city, and county laws change constantly, so you need to get the most up-to-date information while planning your fundraising event. This can be done by:

• Doing an Internet search for "raffle laws" + [your state]
• Securing the services of a gaming lawyer. This can cost money, but it will give you access to the most current information on laws, permits, and regulations.
• Visiting your state/city/county website and looking up raffle regulations.  

Generally speaking, individuals and most non-government organizations cannot legally hold a raffle. To be part of the exception, your nonprofit or charitable organization needs to have tax-exempt status from the Internal Revenue Service (IRS). This is also known as 501(c)3 status.

To apply for this status, visit the IRS website and obtain a Form 1023 or Form 1023-EZ (which can be used by certain smaller organizations). You can also find answers on common questions asked about applying for 501(c)3 status on the website. Bear in mind that even after applying for 501(c)3 status, your organization may need to be in operation for a certain number of years before you can legally offer a raffle.  

Licensing, Permits and More: What Rules Does Your Organization Need to Follow?

If you've done some research into the state and local laws surrounding raffles, you probably learned you need to apply for certain licenses and raffle permits. Applying for a license may require some paperwork, but having a license or permit helps protect your nonprofit and your supporters by ensuring the state knows what prize your raffle will give away and when it will give away that prize.

Again, the law concerning raffles varies state to state, so you'll want to do some research on precisely what licenses and permits you'll need. Keep in mind that you may have to apply for the license several weeks or even months in advance of your raffle, so make sure to give yourself enough time. You'll also want to carefully review the application in case it requires specific forms of paperwork or registration fees. Plus, certain states offer different licenses based on the type of raffle you're hosting, so be careful to apply for the right one.

You'll also need to report your raffle revenue to the IRS as well as the prize you're offering if its monetary value exceeds $600 and it's over 300 times the value of the ticket. Both cash and non-cash prizes must have income tax withheld from them if the proceeds are valued at over $5000. Understand, this also means you'll want to keep detailed and accurate records of all the income you generate at your fundraising event so you can be aware of your tax obligations. 

More Than Selling Tickets: Best Practices for Raffle Management

While raffles are an effective nonprofit fundraising tool, they're also a great way to improve your relationship with your supporters, local government, and community. If you can show that you're following proper legal and ethical practices while conducting your raffle, this will increase the trust people have in you -- and help your donors feel their contributions are going to a good cause.

Be transparent about your activities -- not only with legal entities but also with your supporters. Reveal where the money you're collecting from your raffles is going (preferably to your community programs). Communicate that this raffle follows all federal, state, and local requirements. Make sure all your paperwork is in order so you can avoid any headaches for regulatory bodies (and yourself) when you need to show you have the proper licenses, permits, and paperwork to conduct your raffle(s).

Be aware of ethical considerations. While there may be technically nothing wrong from allowing members of your board or staff from purchasing raffle tickets and participating in your raffle (since it's a game of chance), it could be bad PR if one of them wins the prize. People might wonder if your raffle is rigged, which could dissuade others from participating in your future raffles. By following the rules of for-profit companies (which prohibit employees and their families from participating in a company's game of chance), you'll avoid any unfortunate issues and be looked more favorably by your public who'll know you practice ethical fundraising. 

Issues with Holding Raffles (And How to Avoid Them)

As popular and fun as charitable raffles are, they still come with plenty of issues and legal pitfalls. Here are our suggestions for how to avoid the most common ones:

Keeping track of all the legal requirements

This one's pretty obvious. Now that you've seen how many legal rules and issues are involved when you conduct raffles, the thought of offering one might be stress-inducing.

This is particularly true if you happen to live and work in a place where raffle laws extend from the national level to the state level to the county and city levels. Even if you manage to take care of the basic requirements, there may be a key law or regulation that slips by your notice.

To counteract this, it really is useful to get a gaming lawyer on your team. While this can come with its own expenses, a lawyer knows how to find and breakdown all the steps to holding a successful raffle and can help with legal terms. They can identify all the licenses and permits you need and help with the paperwork. And by investing some money upfront, you avoid a lot of (potentially costly) aggravation later. 

Selling tickets

Once you get all the legal requirements concerning charity raffles in order, you still need to sell a large number of raffle tickets to raise money for your nonprofit or charity. This can be a challenge if your current donor pool isn't large and your reach isn't wide.

To handle these fundraising challenges, contact volunteers who work in large offices and have sizable social circles. See if they'd be willing to sell tickets to their family members, friends, and co-workers -- and offer a prize as incentive for the volunteer who sells the most tickets. 

Be tactful. Not all volunteers like selling raffle tickets and some may already be overworked helping you put on your fundraising event. Make sure the people you do recruit are willing to do this task -- and only give them as many tickets as they can handle.

Too much red tape

Depending on your location and the resources of your nonprofit, you may just find that there's too much red tape and compliance issues surrounding holding a raffle for you to feel comfortable offering one at your next fundraising event. 

If this is the case, you might consider offering different games such as a sweepstakes (or open drawing) where people can enter to win a prize for free. Many people will still be willing to donate to your cause to enter (although since this isn't required, your sweepstakes won't be considered a raffle). Plus, both raffles and sweepstakes are effective at getting people to attend your fundraising gala, learn about your cause, and donate (especially if you're offering a good prize). 

Bear in mind that sweepstakes can have their own regulations attached to them (although they tend to be less stringent than the ones associated with raffles), so you should still research any legal requirements before holding one. 

FAQs: From Ticket to Prize

Are raffles considered fundraising?

Raffles conducted by nonprofits and charities are considered a form of fundraising and are very effective at raising money for community programs. However, raffles are also considered a form of gambling (as they are a game of chance), so nonprofits and charities must be careful to follow all applicable national and state laws and regulations to avoid trouble. 

What is the legal difference between a raffle and a drawing?

A raffle is a form of lottery. People purchase raffle tickets for money in hopes of winning an advertised prize. Because of this, raffles must follow federal and state laws concerning gambling.

By contrast, a drawing (also called an "open drawing") does not require people to pay to participate. As such, it is not considered a raffle or lottery (and should not be advertised as such). Entrants can simply fill out an entry form or receive a ticket for free to enter the drawing and are not required to make donations or pay for tickets. Because drawings are not classified as a lottery or raffle, they do not have the same laws and regulations associated with them that raffles do. That said, there are other laws surrounding drawings that you should research.

What are the IRS rules for raffle prizes?

Your nonprofit or charity must report raffle winnings when the winning amount of the prize is over $600 and at least 300 times the raffle ticket price. When calculating the amount, you can deduct the price of the raffle ticket from the winning amount to see if you need to report the raffle winnings to the IRS.

Income tax must be withheld from from the winnings if the proceeds (amount won minus cost of the raffle ticket) are over $5000. This also applies to a non-cash prize (like a car or vacation package) based on their fair market value or a valuation conducted prior to the raffle.  

Moving Forward: Making Sure Your Charity Fundraisers Follow the Law

Raffles are a highly effective way of raising money for nonprofits, but they come with their share of legal and ethical challenges. Hopefully, this article has provided you with some insight on the rules surrounding raffles and has impressed upon you the importance of understanding all federal and state rules (as well as sometimes city and county laws) concerning raffles. Both online resources and gaming lawyers can provide you with additional help in determining if a raffle can be held in your state and if so, what rules you should follow.

Once you decide to host a raffle, make sure to use a fundraising platform like PayBee to build your raffle campaign. You'll find our software very user-friendly and capable of easily creating and customizing various raffle campaigns. Better yet, our system is designed to track your campaign activities and automatically generate financial reports, which will come in very handy when reporting your raffle-generated revenue to the IRS. 

To see how well PayBee works for your nonprofit, take our software for a test drive. Sign up for a free demo of our system and discover how intuitive our digital platform is. You can experience our fundraising platform from both sides by taking part in a mock auction that reveals some of the fun fundraising activities your guests will take part in, and ask technical questions to our expert staff to learn how to build winning campaigns with our software. Countless nonprofits and charities have taken advantage of our fundraising software to create winning raffles, galas, auctions, virtual events, and hybrid fundraisers, so sign up for a free demo and learn how we can do the same for your team!