Federal Taxes for Organizations that Sell Charity Game Tickets

Organizations that sell charity game tickets may be subject to Federal taxes. The following was reviewed by the IRS on November 23, 2004.

Unrelated Business Income Tax (UBIT)

  1. The intent of UBIT on nonprofit organizations was to eliminate any advantage a nonprofit organization would have over a for-profit organization, unless the activity directly related to their nonprofit purpose.

  2. Organizations must pay UBIT where all the following occur:

    1. The activity is NOT related to the exempt purpose of the organization.  The IRS states that the sale of charity game tickets is not related to the exempt purpose of any organization.

    2. The activity is conducted on a regular basis. A "regular basis" is generally interpreted by the IRS as being more than a few times a year.

    3. The activity is conducted by workers receiving compensation.  This is interpreted by the IRS as anyone receiving something of a fixed value (such as money or a certificate) or receiving compensation for another duty (such as bartending or maintenance) while they are conducting the activity described in item a.  Compensation generally does not include a beverage and snack offered for working the event.

  3. Standard deductions for UBIT include:

    1. A specific deduction, currently at $1,000.

    2. The cost of charity game ticket prizes./p>

    3. The cost of the box of tickets.          

    4. Charitable contributions (up to 10% of taxable income).

  4. Additional deductions are typically allocated according to time, space, or occasionally revenue¬ówhichever makes the most business sense.  Often agents will base their logic on past practices.  Some expenses that may be partially deductible include:

    1. Rent 

    2. Paid labor (includes compensated volunteers)

    3. Advertising

    4. Utilities

    5. Repairs

  5. Check tax form 990-T for the UBIT tax rate schedule.

Excise Tax *  (Form 730)
Excise Tax is equal to ¼ of 1 percent (.0025) of gross ticket sales.  Example:  If $250,000 in charity game tickets were sold, Excise Tax would equal $625 ($250,000 x .0025).

Stamp Tax * (Form 11-C)
Stamp Tax is $50 annually.

* As a rule, the Excise Tax and Stamp Tax generally do not apply to those organizations with a 501(c)3 or 501(c)4 tax exempt status.

Employees of the Michigan Lottery are not agents of the IRS nor are they tax consultants.  Each organization should contact a licensed professional or the IRS for more information.  To contact the IRS Exempt Organization Unit, call 877-829-5500.  To receive a copy of Publication 3079 or other tax publications or forms, call 1-800-829-3676 (FORM) or go to the IRS website at www.irs.gov.