Raffles are generally an easy way for a nonprofit organization to quickly and painlessly earn funds to support operations or a specific program activity.  Many organizations are unaware that IRS, state, and local regulations may apply to their raffle activities – this makes what is seemingly a simple activity a bit more complicated!

IRS Regulations

Raffles are generally considered to be gaming activities.  If donors pay a minimum amount to enter the drawing and the potential prize is worth more than a nominal value, the resulting income is gaming.  Gaming activities must be reported separately on the Form 990, and will require additional information on Schedule G if the proceeds exceed $15,000.  In addition, the income may be subject to unrelated business income tax.  This can be avoided if any of the following apply:

  • The gaming activity is conducted by unpaid volunteers
  • The activity qualifies as bingo (special rules apply – contact your tax advisor)
  • Gaming is substantially related to your exempt social and recreational purpose (e.g. the Loyal Order of Water Buffalos offers raffles to its members at its regular weekly meetings as a recreational activity)
  • The activity is not regularly carried on (e.g. an annual fundraising event that does not involve significant planning or promotion during a large portion of the year)

In addition, if the raffle prize is $600 or more (as reduced by the ticket price) and the payout is at least 300 times the amount of the ticket, nonprofits must file Form W-2G to report the gambling winnings.  Form W-2G must be issued to the prize winner by January 31st and filed with the IRS via Form 1096 by February 28th (March 31st if filing electronically). Regular gambling withholding of 25% also applies to winnings of more than $5,000.  These funds must be reported and sent to the IRS via Form 945 by January 31st.

State Regulations

South Dakota state law prohibits games of chance unless a specific exemption is granted (e.g. Deadwood gaming and state lottery tickets) or the event is held for charitable purposes.  Any organization conducting a raffle with the expectation of selling tickets statewide, must send written notice to the Secretary of State before selling any tickets. No specific format is required, but we recommend including all relevant details of the raffle and its charitable purpose.  The written notice can be mailed or faxed to the Secretary of State, ATTN: Raffles.  Failing to follow this procedure is considered a Class 2 misdemeanor.  Live and silent auctions do not fall under these rules.

Local Regulations

South Dakota state law also requires that all organizations provide 30 days written notice to the county or municipality in which the raffle will be conducted.  As such, your organization will need to check the local regulations pertaining to raffles.  The City of Rapid City governs raffles via Ordinance No. 5950, which designates the City Attorney as the administrative official reviewing all raffle requests.  The written notice must include the following items:

  • Full legal name of the organization, along with place and date of incorporation
  • Authority of person applying on behalf of the organization (e.g. Board President)
  • Class of exemption describing the organization (e.g. charitable)
  • Description of the educational, charitable, patriotic, religious, or other public spirited uses for which the proceeds will be used
  • Place, date and time raffle will be held
  • Amount of compensation being paid in connection with raffle
  • Itemization of intended prizes, value, and manner and time of award
  • Signed affidavit certifying the proceeds will not be used for the private benefit of any individual and that no separate organization or professional person is employed to conduct the raffle

The City Attorney is required to object to the request within 15 days of the written notice.  If no objection is received, the request is deemed granted.


Don’t let these rules scare you!  Despite the regulations, raffles are still a great way to raise money for your organization.  Call any of our tax-exempt specialists at 342-5630 for more information.