Miriam Korngold

Associate with the law firm Garvey Schubert Barer

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IRS Rules You Must Follow for Contests and Drawings

Membership, pledge drive, tax law

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Raffles or drawings can accomplish fundraising goals for a tax-exempt organization while also providing entertainment for the organization and participants. But these fundraising events require a bit of tax planning to keep IRS issues at bay (and note that separate laws apply to state-level and federal income tax exemptions).

The IRS views raffles and drawings similarly to lotteries: participants pay for the chance to win prizes, and the host typically determines winners by drawing tickets at random.

When hosting a raffle or drawing, tax-exempt organizations may need to:

  • Obtain information about the prize winners
  • Report prizes to the IRS
  • Notify the winners of this reporting
  • Withhold federal income tax on the prizes
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