Legal Guide

How to be Charitable

Charity is a virtue of the heart, and not of the hands, says an old writer. Gifts and alms are the expressions, not the essence, of this virtue. A man may bestow great sums on the poor and indigent without being charitable, and may be charitable when he is not able to bestow any thing. Charity is therefore a habit of good-will, or benevolence in the soul, which disposes us to the love, assistance, and relief of mankind, especially of those who stand in need of it. The poor man who has this excellent frame of mind, is no less entitled to the reward of this virtue than the man who founds a college. For my own part, I am charitable to an extravagance this way. I never saw an indigent person in my life, without reaching out to him some of this imaginary relief. I cannot but sympathise with every one I meet that is in affliction; and if my abilities were equal to my wishes, there should be neither pain nor poverty in the world.

–Joseph Addison

How to Raffle a House

A home raffle is the “top dog” of raffle prizes, with some properties being raffled off that are worth over $1 million. This also be one of the most difficult raffles to pull off successfully. You’ll find out how you can go about getting a house to raffle off. (There are several different ways to do this!) Can your group score a big win with a house raffle? Start finding out by answering these questions.

  1. Do you have a successful fundraising team in place? By “successful”, I mean a team with a proven record of excellent communication, organization, execution, and a history of profitability? Don’t even think about holding a house raffle if your team struggles putting on something as simple as a car wash. House raffles are the “big leagues” of non-profit fundraisers. Is your group really ready for “prime time”?
  2. Are you operating too far out of your organization’s comfort zone? What I mean is if you are a small organization, working on your first nationally-based fundraiser, are you trying to raffle off a million dollar home or a $150,000 home? Bite off only that which you can realistically chew.
  3. Does your team think beyond your own local market? If you are going to conduct a house raffle, you will HAVE to sell tickets all over the United States and possibly even the world. If this thought is scary to you and your team members, you should stay away from this large-scope fundraising method.
  4. Does your team manage it’s online affairs well? Every email, every Tweet, every posting on Facebook needs to be responded to quickly and professionally. Your website needs to be current and error free. When anyone, from any place in the world, wants to find out about you, they should have no trouble doing so. Your online “welcome mat” needs to be out!
  5. Does your board of directors have both an attorney and an accountant with non-profit experience who are willing to donate their services for free? If not, do you have access to these kinds of professionals who will help you pro bono? And, be prepared, there will be many hours of research and document creation involved in setting your house raffle up.
  6. If this is your first house raffle, do you think your organization is willing to hire a professional fundraiser to help navigate this potentially bumpy path? Trying to do this on your own, especially the first time, is a recipe for disaster.
  7. Do you have a board member or an executive director who is willing to put in hours of up-front time studying how successful house raffles are run? This will include interviewing several other organizations either in person or over the phone. Remember board members usually have other commitments that take them away and your executive director can’t devote all of his or her time to the raffle, so excellent time management skills will be required during the planning process.
  8. Does your marketing team have the creativity to launch a global campaign to sell tickets? Some house raffles set a goal of selling upwards of 20,000 tickets at over $100 each. This astronomical goal will require an extraordinary sales effort. IS your team really capable of this gargantuan task?
  9. Are you prepared with an informative, attractive, and accessible website that has all the pertinent information potential buyers will need and want before buying your tickets either in person or online? If you sell tickets online, do you have a properly secure website set up for making encrypted financial transactions?
  10. Are you planning this raffle at the right time of year for your organization? The majority of your attention during the raffle period will be focused on the raffle itself. Don’t schedule the drawing and the months leading up to it during your busiest operational season.

Tax Reporting for Raffles

This post is courtesy of Ellis Carter, blogger at Charity Lawyer Blog.

As the recession deepens, we get more and more creative ideas from people wanting to conduct complex raffles. In Arizona, the most popular questions this year involve raffles of real estate. While raffles can be great revenue generators for charitable organizations, many charities do not realize that in most states, including Arizona, raffles are illegal gambling. Cautionary tales abound. Most states have specific exceptions for charitable raffles but require the charity and the raffle to meet specific criteria to qualify. For example, a raffle is not gambling in Arizona if:

  • it is sponsored by a nonprofit that has been in existence for 5 years;
  • no insider receives a direct or indirect pecuniary benefit other than participation on an equal basis with all other participants; and
  • no person participates directly or indirectly in the management, sales or operation of the raffle other than the non-profit’s employees and agents.

Many jurisdictions require non-profits to obtain a permit to conduct a raffle. Permits can take weeks or even months to process. In addition, there are number of tax issues that must be considered when planning a raffle. Tax issues include the following:

Deductibility of Ticket Price. A ticket purchaser has not made a deductible gift. The consideration pid is considered equal to the “chance” to win a prize therefore there is no disinterested gift and therefore no contribution deduction.

Deductibility of Prizes Contributed. Those contributing prizes to the raffle may be entitled to a deduction depending upon whether the contribution is an interest in property (as opposed to a non-deductible service or right to use property). The charitable deduction for in-kind contributions that are raffled off in support of a charity are generally going to be limited to the taxpayer’s basis in the property (rather than fair market value).

Non-profit’s Obligation to Report Prize Income. The prizes are taxable income to the winners so the non-profit must ensure it properly reports the raffle prizes to the I.R.S. Generally, raffle prizes must be reported on Form W-2G with a copy to the winner if a) the amount paid, reduced by the amount the person paid for the chance to win a prize, is $600 or more; and b) the payout is at least 300 times the amount of the wager.

Non-profit’s Obligation to Withhold from Prize Income. If the fair market value of winnings amount to more than $5,000, the non-profit must withhold taxes from the winnings and report this amount to the I.R.S. on Form W-2G. The non-profit is liable for any tax it fails to correctly withhold.

Back-up Witholding. If the prize is reportable (the amount paid, reduced by the amount the person paid for the chance to win a prize, is $600 or more; and b) the payout is at least 300 times the amount of the wager) and the winner fails to supply a taxpayer identification number, then the Foundation must withhold 31% of the total proceeds.

Federal Laws. Federal law strictly limits non-profits from conducting multi-state raffles. If the non-profit plans to use the U.S. mails for any part of the raffle – e.g. for mailing entry cards or raffle tickets – there are federal laws and regulations that bear consideration. Also, the FTC is empowered to regulated certain types of sweepstakes and contests.

Non-profits sponsoring raffles should consider creating raffle rules and treating them as contracts. Drafting detailed rules permits the non-profit to set defined limits on the giveaway – who may participate, what laws apply, warranty and liability disclaimers, etc. Raffle rules also provide a way for non-profits to cancel or modify their obligations in the event that too few tickets are purchased or there are other technical problems. We have also advised non-profits running raffles to have the raffle winner (or winners) sign an affidavit of eligibility and a release of liability. This is a good place to ensure the winner understands his or her tax reporting obligations and is eligible to accept the prize.

Constructing a legal and compliant raffle takes time and may require the advice of a professional. Non-profits that take care to do it right will avoid embarrassing and costly legal mistakes and have a model that they can use to raise funds again and again.

Raffle Ticket Printing

There are numerous software packages you can purchase and several interactive websites on which you can create your own tickets.

Professional Ticket Printing

Consider going old school and hire a professional print shop to make up the tickets for you.

It’s worth the little extra money to make sure the tickets come out looking top notch. This professional touch will give your group a credibility that your personal bubble-jet just won’t. I’ve made business cards at home before too, but they never look as sharp as when I’ve paid a printer to do them. In addition, if you find a printer that has done up raffle tickets before, they might be able to help you ensure you’ve got everything you need in the right spot!

Make sure the tickets are printed on a heavy-duty card stock, since they may be in the possession of the ticket buyer a while before the drawing occurs. A thicker stock also makes a better impression than a flimsy piece of paper.

Raffle Tickets

The design, printing and quality of raffle tickets are an important part of planning a raffle.

Raffle Ticket Design

Raffle tickets have two parts- the section that the buyer keeps and the stub that gets turned into the organization for the actual drawing. When individual tickets are sold, be sure that all the information matches on the stub and on the part the buyer keeps. This includes the raffle ticket number (0088 out of 1,000 for example).

When a person buys a ticket(s), the person selling it or collecting it must make sure that all the information is properly filled out. If there is anything that’s isn’t clear, and that ticket happens to win, there can be confusion that could lead to a bad situation for everyone involved.

These kinds of errors can especially happen if the person buys a great number of tickets and quickly scribbles out the information by hand. To avoid any potential headaches, make sure that whoever is collecting the ticket stubs checks to verify all the information is accurate, legible, and complete.

While each state does have different regulations as to what must appear on a raffle ticket, here is a very basic list of what should appear on each portion of the ticket.

On the portion the TICKET BUYER keeps:

  • Name of the non-profit conducting the raffle
  • The date and time of the drawing
  • The location of the drawing- use a specific address, not just the name of the building or business
  • The grand prize and any other lesser prizes that will be awarded
  • The ticket number and the number of total tickets printed- e.g. 0088 of 1,000
  • The amount each ticket costs- e.g. $5 or 5 for $20
  • The statement “Person need not be present to win” (if required)
  • The raffle license number issued by the state (if required)

On the portion the NON-PROFIT keeps (also known as “the stub”):

  • Name of the non-profit conducting the raffle
  • The date of the drawing
  • The buyer’s full name
  • The buyer’s phone number
  • The buyer’s address (street, city, state, zip code)
  • The buyer’s email address

Note: Be sure to make the stub portion of the ticket big enough so that the lines don’t have to be smushed together and people have to write super small. Personally, I can barely print legibly on college ruled lined paper, so please give people like me some room to write legibly!

Raffle Ticket Design Regulations

Check with your state’s regulations as to what has to be legally included on each ticket. Some states have stricter rules/laws than others. For instance, some states require the raffle license number be printed on both parts of the raffle ticket (as well as on all advertisements for the raffle!), while others demand that you include what all the prizes are on the ticket’s face.

Some states even make you print the statement “You need not be present to win” on the ticket. If you miss something that the state requires, that could place your entire raffle in jeopardy. Do your homework before sending the tickets to the printers.

 

What’s your favorite small raffle prize?

There are lots of great prizes that you can choose for a raffle. Here’s a page with all kinds of great prizes for less than $100.

Does your raffle require a raffle license?

Before a raffle is held, most states require organizations to obtain a charitable gaming license or permit. As with gambling laws, gambling permit and licensing requirements differ from state to state.

Here are a couple of states that require a raffle license:

Connecticut has six classifications of raffle permits based on factors such as the duration of the raffle and the total value of the prizes.

It is compulsory by law that, in Michigan, any printed material about the raffle MUST have the license number printed clearly on it. There are also other requirements that the time, date, and location, as well as the prize(s) must be printed on the tickets themselves.

Since every state is different it is important to check with your state’s raffle laws. Most states have information online but if not you can always contact the state’s attorney general’s office as a first step. In Raffle Secrets we include 11 sample questions to ask when contacting the state attorney general’s office.

Your city or county may also require a raffle license or raffle permit. So be sure to check locally before going forward with your planning.

More Raffle Ticket Sales Through Multi-Ticket Discounts

It may sound counter intuitive to sell raffle tickets at a discount. However done correctly this technique can provide a boost to sales, create excitement and increase overall revenue.

Think about all the times at the grocery store where you bought more because of offers such as “buy one, get one half price” or 3 for $1. Now we just apply these same concepts that have worked in retail for hundreds of years to your raffle!

The trick is to build in the discount from the beginning. Include any ticket price variations in your official rules. Never, ever, reduce the ticket price mid-way through the raffle. Some groups resort to this option because ticket sales are low, so they think that lowering the price will get more buyers. Not only does this send the wrong message to people (that you are desperate) it may be in violation of the law.

While raffles have a predetermined “donation” in terms of the ticket price, you can encourage people to increase that donation by buying additional tickets. Offering bonus free tickets or a reduced price for a larger number of tickets encourages people to buy more tickets, thus increasing the overall proceeds of the raffle.

There are a variety of ways to structure this promotion, depending on the base price of one ticket. Here are a few examples:

  • $10 for one ticket, $20 for 3 tickets
  • $20 for one ticket, $50 for 3 tickets, $100 for 8 tickets
  • Buy two tickets for the big raffle, get a bonus ticket for a secondary drawing
  • Half price on tickets only during the “kickoff” period, such as the first two weeks of ticket sales
  • Century Club Bonus – donate $100 and get double the number of chances. So if your base ticket price is $10, if the person donates $100 they get 20 chances in the drawing

So as you see there are a many ways that these promotions can be created. Just put yourself in the shoes of the potential ticket buyer and consider what would be attractive to them. What would it take to get them to “bump up” to the next level? Then remember that the goal is to increase the overall proceeds of the raffle and make sure that your promotion will help do that.

How to Run a 50/50 Raffle

A 50/50 raffle is a pretty straightforward type of raffle. You sell tickets at a predetermined amount, usually something low like $1 or $5 each. The person whose ticket is drawn recives half of the total amount of the “pot” and the other half goes to the “house” or benefiting organization.

The prize is the half of the amount collected from ticket sales. Typically participants have to be present at the time of the drawing to win. If nobody claims the prize when the number is drawn, simply draw another number until somebody wins.

The trouble with 50/50 raffles is that since the prize is cash, they are more likely to be restricted by state or local laws. Furthermore, when they are allowed they are often the exclusive domain of nonprofit organizations (like other raffles).

In the article below you’ll read about what is probably a very common occurrence. That is, a social group (bowing league) holds spontaneous and unlicensed 50/50 raffles to defray their group’s expenses. However, this social group does not qualify under state law as a group that is allowed to legally hold raffles.

A number of Central Jersey bowling alleys are among those facing $3,000 fines in connection with illegal 50-50 raffles, according to state officials.

In the 50-50 drawings, after the winner was paid, either the bowling alley or the bowling league — depending on who sponsored the drawing — received the other 50 percent of the total funds, Lamm said.

Under state law, veterans organizations, religious congregations, charities, civic and service clubs, educational and fraternal organizations, senior citizens associations and clubs, and volunteer fire companies and rescue squads may hold raffles, officials said.

Thomas Martino, who has owned Majestic Lanes for the past 19 years but has been involved in bowling for 37 years, said 50-50s have always been a way of life at bowling lanes. He said raffles are not run by bowling centers, but rather the leagues that use the facilities. He said the money is used for banquet fees, sunshine funds or holiday or birthday parties. “It’s part of the social experience,” he said.

Nadine Sokalski, general manager at Stelton Lanes in Piscataway, said the 50-50 raffles were conducted by bowling leagues that rent lanes at the bowling alley. In the meantime, all 50-50s have been halted, Sokalski said. But she said some long-term solution is needed.

Source: mycentraljersey.com

As this example illustrates, for those found breaking gambling laws, enforcement is swift and publicly embarrassing, and the penalties can be grim.

50/50 raffles can be a fun and easy raffle to raise money. Just be sure to check with authorities first.