BINGO! What now?
Not-for-profit organizations use various methods to attract current and potential funding sources. In the current state of the economy, organizations are trying new and unique ways such as holding gaming activities including bingo, raffles, or card games either as stand-alone activities or as part of larger special events to draw in contributors. Gaming activities, however, come with a number of specific rules surrounding filing and withholding requirements that organizations need to be aware of prior to hosting these events.
- FORM 990 or 990-EZ
Not-for-profit organizations with annual gross receipts generally more than $50,000 are required to file either Form 990 or 990-EZ depending on their actual gross receipts for the year whether the organization holds a gaming event or not. However, as part of the annual filing, if the organization collects more than $15,000 in gross receipts from gaming activities during the year, it is required to complete Schedule G to provide certain information including gross revenue and direct expenses from gaming, how the gaming was operated, and state and local gaming license detail.
- FORM 990-T
If income from gaming activities is determined to be unrelated business income subject to tax (UBIT) and the gross income from the gaming is greater than $1,000, the organization is required to complete Form 990-T. Depending on other activities of the organization, this filing may trigger tax on the amount of income generated that is unrelated to the mission of the organization.
- FORM W-2G
Form W-2G is an annual information form used to report certain gambling winnings. Specifically, the Form W-2G is filed by the organization hosting the gaming activity when an individual wins a prize with a minimum specific dollar amount. The form must be submitted to recipients by January 31 and the IRS by February 28 of the year following the year the winnings were paid. The reporting requirement is triggered depending on a number of factors including the type of gaming conducted and prize amount. IRS Publication 3079, Tax-Exempt Organizations and Gaming, is a helpful resource on these matters.
As an example of the rules in this area, a raffle of $1,000 on a ticket wager of $2 would be reportable since the winnings are greater than $600 and more than 300x the amount of the wager, while the same payout on a wager of $5 would not be, even though the winnings are more than $600, since it is not more than 300x the wager.
- FORM 5754
Winnings for any type of gaming claimed by multiple individuals require the completion of Form 5754 by the exempt organization to document the person to whom the winnings are paid as well as any other individuals who are receiving a portion of the winnings. The form is not submitted to the IRS but should be kept by the exempt organization for four years. Form 5754 should be used to complete a Form W-2G for each individual receiving a portion of the winnings if the prize, in total, meets the requirements for reporting.
In addition to various filing requirements, gaming may also trigger withholding and/or back-up withholding on the winnings. Details on various withholding requirements once again depend on the game played and the amount of prizes won, and can also be found in IRS Publication 3079.
Again using a raffle example, winnings of more than $5,000 require withholding of 28% of the net gaming winnings. If the prize was $5,000 or less but $600 or more, backup withholding of 31% would apply if the payee did not furnish a proper social security number (SSN). Like a raffle, a bingo winner of $1,200 or more must provide a proper SSN or be subject to backup withholding at 31%.
Noncash prize winnings are reported at the fair market value of the item won and withholdings are also based on this amount. The amount to be withheld should be collected from the prize winner.
Withholding on gaming winnings, including backup withholding, is reported annually on Form 945. This form is required to be filed by January 31 of the year following the withholding. The exempt organization payer is responsible for paying the regular withholding or backup withholding whether or not it collects from the prize recipient. The best time to collect withholding or backup withholding is before the prize is paid.
As you can see, there are a number of specific requirements surrounding gaming activity. In fact, the above-mentioned filing and withholding requirements are just a sample of the regulations surrounding gaming in the not-for-profit community. There are additional rules and requirements that also must be taken into account not only on the Federal level but the state and local levels as well. As a general rule, not-for-profit organizations should have a good understanding of these filing and withholding requirements and how they interact with each other prior to holding a gaming event.