(Updated 2025)
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.
You may have heard of rules for nonprofit raffles, but you’re not sure what they mean for you or how to stay within the law. It’s very real to be afraid of making a small mistake and losing your nonprofit’s tax-exempt status.
In Arizona and other states, raffles are often called illegal gambling. That means that only certain charities can hold them, and they have to follow strict rules.
This post will go over the most important laws, permits, and tax issues. We will show you how to keep your charity safe and follow the rules for nonprofit raffles. Read on to find out how to make sure your next raffle is safe, legal, and helps your charity.
You might be surprised by the details.
Important Points
In some states, like Arizona, charity raffles are considered gambling. Only certain nonprofits, usually 501(c)(3) groups that have been around for at least a year (since a rule change in 2022), can legally run them.
Before selling tickets, most states require nonprofits to get a raffle license. Fees for registration range from $15 to $550. Local rules may not allow or limit the sale of tickets online.
According to IRS rules, people who buy raffle tickets can’t say that they are tax-deductible donations. Donors of prizes can only write off the cost of the item, not its value.
If a prize is worth $600 or more and is at least 300 times the ticket price, the nonprofit must report it with IRS Form W-2G. For non-cash prizes over $5,000, charities must withhold 25% for federal taxes; if winners don’t give their taxpayer ID, backup withholding goes up to 31%.
Sending raffle tickets across state lines or to places where they are against the law is against both state and federal law. Nonprofits should make it clear who can join, what the prizes are, what the age limits are, and always get winner affidavits to protect themselves legally.
Important Parts of Charity Raffles
Many nonprofits use charity raffles to raise money, but state laws about raffles are very clear. Before selling tickets for a chance to win prizes, tax-exempt groups must check the steps for registering for a raffle and get the right permit.
Raffles Are Legal Gambling
In many places, like Arizona, state laws see raffles as lotteries, which are illegal forms of gambling. Only a few tax-exempt groups, like 501(c)(3) charities, can hold raffles if they follow strict rules.
In some states, nonprofits need to check their entity status letter and register with the attorney general. Some rules for raffles say that you can’t sell tickets online or that the prizes can’t be too big.
To be legal, nonprofit raffles must be for a good cause. If groups don’t follow state raffle laws, they could face criminal charges. Homeowners’ associations, social welfare groups, and public charities should know that breaking these rules could mean losing their tax-exempt status.
Every fundraising event must be open and fair, according to strict rules.
Rules for Running Raffles in Arizona
Arizona’s charity groups must follow clear rules for running raffles. According to a rule change in 2022, only nonprofits that have been around for at least one year can hold a fundraising event like a raffle.
Only real members of the nonprofit who live in the area can run the game of chance, sell tickets, or handle the business. People who work for the company, like officers and board members, can enter but can’t make money unless they buy tickets themselves.
Only Arizona residents can buy raffle tickets through the charity’s own website. No other websites or people who don’t live in Arizona can do this. The rules for the raffle should say who can enter (18 and older), how much each ticket costs, what the prizes are, when the event will take place, how to get in touch with the organizers, and other important information for bidders and participants.
There is no state agency that runs these raffles, but you still have to follow certain rules to keep your nonprofit status safe under section 501(c). Even though it’s not required by law, it helps to put your raffle rules in all of your promotional materials.
Attorneys who know Arizona’s laws about charitable gaming can help charities avoid making mistakes that could put their tax-exempt status at risk or get them in trouble with the attorney general’s office.
Permits Needed for Raffles
Before holding a fundraising event like a raffle, most nonprofits need a permit or license. Usually, only groups that don’t have to pay taxes under 501(c)(3) can apply. Nonprofits usually have to be around for at least one to five years.
Depending on your state and the size of your event, the cost to enter the raffle can be anywhere from $15 to $550.
Each state has its own rules about permits, prize limits, and how long you have to run your business before you can apply. In a lot of places, most of the money raised (from the raffle) has to go to charity, not to pay for things.
Your state’s Office of Charitable Gaming or attorney general’s office might need forms like form ct-nrp-1 or form ct-nrp-2. Some states don’t let people buy tickets online, and others have strict rules about using the internet to raise money for nonprofit raffles and silent auctions.
Processing times can take weeks or even months, so make sure to plan ahead according to local laws and raffle rules.
Tax Effects of Charity Raffles
When a nonprofit corporation holds a charity raffle, it raises tax questions for both the corporation and its supporters. The IRS has rules that can affect how many tickets you sell, how much you give away as a prize, and even how you report the money you make from your raffle.
Deducting the Cost of Tickets
According to IRS rules, buying a ticket for a nonprofit raffle is not a tax-deductible donation. Even if the money goes to a good cause, the IRS sees raffle tickets as gambling, not as a gift.
The payment isn’t tax-deductible if you have a chance to win a prize. Even if you are a qualified 501(c)(3) charity, you cannot deduct the cost of tickets for events like galas or raffles.
Selling raffle tickets is not the same as giving someone a gift. You can only deduct the part of a gala dinner that is more than the cost of the goods, like a meal. You can’t deduct the cost of the raffle tickets.
To deduct other contributions, you must list them on IRS Form 1040 Schedule A. Before giving money to a charity, always check the IRS website to see if it is tax-exempt.
If you have questions about the rules for a raffle, it’s best to ask a tax advisor or the attorney general’s office for help.
Giving prizes and being able to deduct them
After talking about how to deduct the cost of tickets, it’s important to look at how raffle prizes affect tax deductions. Nonprofits depend on businesses or people in the community to donate prizes, but those donors can only claim a deduction equal to the cost of the item they gave, not what it might sell for at fair market value.
For instance, if a business gives away a new bike that it bought for $150, it can deduct that amount, even if the bike’s value is listed as $350 on the raffle rules.
Prize donations must also follow IRS rules for proof and be reported using the right forms, such as Form CT-NRP-2 or an entity status letter, when needed during nonprofit fundraising events.
State laws may require more proof that charitable gaming follows all the rules in Penal Code Section 320.5 or the rules for major league sports raffles. Donors should talk to a tax professional because this area can get tricky quickly. When figuring out redemption values, interest in property counts for more than just the total market value.
The paperwork for signing up for a raffle usually includes these details: Non-cash donations are tax-deductible in the same way as all other charitable gifts, according to the strict rules set by nonprofit groups that handle raffle proceeds and expenses.
What Nonprofits Need to Know About Reporting Prize Money
More rules for nonprofits come from prize contributions. If the prize money is $600 or more and is at least 300 times the cost of the ticket, all nonprofits must tell the IRS about it.
For this step, use IRS Form W-2G. This rule applies to all types of raffle prizes, whether they are cash or not, like cars or trips. Winners need to send in IRS Form W-9 with their taxpayer identification number so that the organization can fill out the necessary forms.
If a non-cash prize is worth more than $5,000, the federal government says that 25% of the prize money must be withheld. Nonprofits must fill out IRS Form 990 if their total raffle income is more than $15,000. If the fundraising event doesn’t fit with the nonprofit’s main goal, the money from the raffle may be subject to Unrelated Business Income Tax.
These steps help nonprofits stay tax-exempt and follow state laws about raffles while they are registering. To stay up to date on IRS reporting requirements and stay within the law for both state and federal raffles, always talk to a tax professional.
Tax Withholding Duties for Nonprofits
When giving away raffle prizes worth more than $5,000, nonprofits must keep 25% of the fair market value. This rule applies to all kinds of prizes, both cash and non-cash, at nonprofit raffles.
You need to report the amount withheld to the IRS using Form W-2G. Winners also need to fill out IRS Form W-9 so that the nonprofit can get the right tax information. If a nonprofit doesn’t withhold the tax, it has to pay it to the IRS.
You also need to keep careful records of all non-cash prizes that are worth $5,000 or more.
The nonprofit must send all withheld taxes to the IRS. All charitable groups that hold fundraising events with big prizes must follow these steps because raffle winnings are considered taxable income.
Next, learn how to set up backup withholding so that you can follow the rules for federal raffles.
Setting Up Backup Withholding
Many charities are surprised by backup withholding rules when they hold a fundraiser or a nonprofit raffle. The IRS says that if someone wins a charity raffle and doesn’t give their taxpayer identification number, they have to withhold 31% of the prize.
This rule applies to all kinds of raffle prizes, whether they are cash or not. For instance, what if someone wins a $10,000 raffle prize but doesn’t give their Social Security number? The nonprofit has to keep $3,100 and send it to the IRS.
Using Form W-2G, charities must tell the IRS about all prize payments and keep good records. Winners of prizes must also be told about their tax withholding responsibilities. If the nonprofit doesn’t withhold the right amount, it may have to pay the tax.
If the winner doesn’t give the right taxpayer information, backup withholding is always 31%, but regular gambling withholding is 25% for prizes over $5,000. Keeping up with the rules for raffles and IRS forms, such as the entity status letter, protects the organization from fines.
Following Federal Laws in Charity Raffles
Federal rules about raffles affect how nonprofits run their fundraising events, set the rules for the raffle, and handle the money that comes in from the raffle. Your group can stay safe and legal by keeping track of its raffle registration duties, IRS forms, and state laws about raffles.
Rules for Sending Raffle Tickets
There are strict rules about selling or sending raffle tickets through the U.S. mail. It is against the law to promote or give away illegal lotteries, which includes some nonprofit raffles.
Your charity could be breaking both federal and state laws if it sends tickets to states where raffles are not allowed. Some states don’t even let you mail raffle tickets across their borders.
If a group doesn’t follow these rules, they could face criminal charges. Check the rules in each state before you start a mail-based fundraising event. The Federal Trade Commission has rules about promotions sent through the mail as well. Nonprofits and homeowners’ associations can be fined or even charged with a crime if they break these rules.
Before you use the U.S. mail to reach ticket buyers or promote your fundraising tools online or offline, make sure that nonprofit raffles are legal in your area.
Making Rules for Entering a Raffle
Write clear rules for the raffle as if they were contracts with the people who enter. Explain who can enter, how many people can enter from the inside, and how to follow state laws about raffles, such as Arizona’s Penal Code Section 320.5.
List the permits you need, like a raffle permit or form ct-nrp-2. Add deadlines for signing up for the raffle and getting the attorney general’s approval. Say if eligibility for nonprofits is necessary.
Tell people how winners are chosen and how they are told they won. Be clear about how winners are chosen, how they are told, and what proof they need to give, like an affidavit or release. Talk about taxes and make sure you explain that prizes worth more than $5,000 may require both the organizers and the winners to report their income.
Set up liability disclaimers so that your charity doesn’t have to deal with problems that come up when tickets are lost or events are canceled because of technical issues or low ticket sales.
Next, the requirements for the Winner’s Affidavit and Release become clear…
What you need to do to get a Winner’s Affidavit and Release
Winners must sign an affidavit of eligibility and a release of liability for nonprofits. This affidavit proves that the winner has followed all the rules of the raffle and can claim the prize.
It also makes it clear what their tax responsibilities are, such as using the right taxpayer identification number to report prize income. The release of liability protects the nonprofit from lawsuits related to raffle prizes or costs.
Official rules for the raffle should clearly explain these affidavit requirements. This will help people follow both Arizona state raffle laws and federal rules. Many releases say that the winner agrees to let the nonprofit use their name or picture to promote the organization.
Getting these signed papers is a good way to manage risk. Next, making sure that raffles are legal means checking each step for fairness and accuracy.
Making sure that raffles are legal
Laws at the federal, state, and local levels set rules for raffles run by nonprofits. Before you can sell tickets, many state raffle laws say you have to register for the raffle or get a raffle permit. In Arizona and many other states, for instance, charitable groups must register with the attorney general’s office using forms like form ct-nrp-1 or form ct-nrp-2.
During this process, you will need your entity status letter and employer identification number.
If you use the phone or online cookies to promote the fundraising event, FTC trade rules apply. Telefunders must follow strict rules about making calls, and they must always say what your nonprofit organization is on each call.
According to the Charleston Principles, charities should register in their home state and in any other state where people buy tickets or see ads online. If you don’t follow the rules for major league sports raffles, you could lose your tax-exempt status. You could also face fines or criminal charges under penal code section 320.5.
Correctly reporting raffle income, expenses, prize money, and sales tax collected from credit card sales are also important parts of compliance. Before you plan your next fundraising tool for a good cause, make sure you know about any new changes to the law about raffles. This is especially important if you use online fundraising methods or cross state lines.
Changes to the Law on Raffles
Arizona now lets nonprofits hold raffles after they’ve been around for a year. Before 2022, groups had to be in business for five years first. State laws about raffles can change quickly, so charities need to check the rules often.
Many states have more rules about selling tickets online, and you might need a special raffle permit.
The attorney general and other state agencies often change the rules and forms for raffles, like form ct-nrp-1 or form ct-nrp-2. Under penal code section 320.5, major league sports teams have their own rules for events where they raise money.
To make sure that legal fundraising tools stay in line with current charitable gaming laws, each nonprofit should use the right registration methods and keep track of changes.
Related post: Charitable Gambling in Arizona
Conclusion
It takes care and planning to run a nonprofit raffle. Raffles are considered gambling under Arizona law, so nonprofits must follow strict rules, get the right raffle permit, and follow all raffle rules to stay legal.
People who buy tickets can’t get a tax break, but people who give prizes might be able to, though there are limits. Nonprofits need to know when to withhold taxes, how to report prize income, and how to follow safe raffle rules.
If you follow these steps, your fundraising event will be safe, easy, and good for your charitable goals. Do you have questions about registering for a raffle or filling out forms? Talk to people you trust, look up the most recent state laws about raffles, or get in touch with a lawyer who works for a charity.
Taking care of business today can help your nonprofit succeed and give you confidence in your mission.
Questions and Answers
1. What is registering for a raffle, and why does a nonprofit need it?
Before you can hold any nonprofit raffles, you need to fill out state forms like form ct-nrp-1 or form ct-nrp-2. This step shows that your group follows the rules for charitable organizations that hold raffles.
2. What rules govern charity raffles during fundraising events?
State raffle laws, such as Penal Code Section 320.5 and specific rules set by the attorney general, must be followed by nonprofit groups. These explain how to deal with the money from the raffle, the costs, the prizes, and even the big league sports raffle programs.
3. How can a group prove that it is tax-exempt for a charity gaming event?
When registering for a raffle permit or using fundraising tools, charitable nonprofits often need an entity status letter to show that they are tax-exempt.
4. Are there rules about how nonprofit raffle money can be used?
Yes, all the money raised must only go to good causes. State laws say that you can’t spend more than you should on costs or make money from nonprofit fundraising through raffles.
5. Who is allowed to run a legal charity raffle under current law?
Only some charities with the right permits can hold these events. To be eligible, a charity must be a registered nonprofit and meet the requirements set by local and state law for nonprofits.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.