TAX-EXEMPT ORGANIZATIONS AND GAMING
| TAX-EXEMPT ORGANIZATIONS AND GAMING |
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Introduction
Saturday night bingo in the church hall,
one-armed bandits in the social club, video
lottery at the veterans’ club, poker night
at the fraternal lodge – all of these are
*
examples of gaming – sometimes called
gambling – by organizations exempt from
federal income tax.
For many years now, exempt organizations have operated these and many
other types of games as a part of their activities. Why do organizations
“game?” Probably the number one reason is to raise funds – either to help
cover the cost of running their organizations or to support worthy causes.
For some organizations, gaming also permits its members to socialize with
each other and fosters fellowship.
Whatever the reason, an organization conducting any type of gaming should
understand how the activity can impact its federal tax-exempt status, as well
as its tax and information reporting responsibilities. In the following chap-
ters, this publication will provide an exempt organization – whether it is run-
ning games already or deciding whether to start – the information it needs
to operate in a manner that will not jeopardize its exempt status or generate
unexpected tax bills.
Note: Many states and localities regulate gaming by exempt organizations.
This publication does not address state or local gaming licensing require-
ments. For licensing requirements, please consult the appropriate agencies
in your locale.
* Gaming includes (but is not limited to): bingo, pull-tabs/instant bingo (including satellite and progressive bingo),
Texas Hold-Em Poker and other card games, raffles, scratch-offs, charitable gaming tickets, break-opens, hard
cards, banded tickets, jar tickets, pickle cards, Lucky Seven cards, Nevada Club tickets, casino nights, Las Vegas
nights, and coin-operated gambling devices. Coin-operated gambling devices include slot machines, electronic
video slot or line games, video poker, video blackjack, video keno, video bingo, video pull-tab games, etc.
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Table of Contents
Chapter 1 Gaming’s Impact on Tax-Exempt Status 6
Chapter 2 Gaming and Unrelated Business Income 9
Exhibit A Is It Unrelated Business Taxable Income? 13
Chapter 3 Maintaining Records 14
Chapter 4 Exempt Organizations Reporting Requirements 15
Chapter 5 Workers Conducting Gaming Activities 17
Chapter 6 Reporting Winnings and Withholding Income Tax 22
Chapter 7 Gaming Excise Taxes 25
Exhibit B General Tax Calendar for Organizations That Conduct Gaming 29
Exhibit C Summary of Forms, Publications and Other Resources for
Organizations Conducting Gaming 34
Table of Contents 5
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Section 501(c)(3) – Charities, Schools, Churches, and
Gaming’s Impact on
Religious Organizations
Tax-Exempt Status An organization may qualify for exemption under section
501(c)(3) of the Code if it is organized and operated ex-
CHAPTER 1 This chapter will explore the impact of gaming on an
clusively for religious, charitable, scientific, literary or edu-
organization’s tax-exempt status according to the
cational purposes or for the purposes of testing for public
section of the Internal Revenue Code (the Code)
safety, fostering national or international amateur sports
under which it is exempt. Chapter 2 will explore
competition, or preventing cruelty to children or animals. To
when an organization’s gaming might give rise to
be exempt under section 501(c)(3), an organization must
income tax liability. You should refer to your organi-
engage in activities that accomplish one or more of these
zation’s exemption letter from the IRS to determine
purposes. Examples of section 501(c)(3) organizations in-
the subsection under which you were granted ex-
clude schools, churches, and non-profit hospitals.
emption. If you do not have a copy of your orga-
nization’s letter, you may call IRS Tax Exempt and A common misconception is that gaming is a “charitable”
Government Entities Customer Account Services activity. There is nothing inherently charitable about gam-
at 877-829-5500 (toll-free) to request a copy or to ing. It is a recreational activity and a business. Although a
determine your organization’s subsection. charity may use the proceeds from gaming to pay expenses
associated with its charitable
programs, gaming itself does
not further exempt purposes.
Thus, the sole purpose of a
501(c)(3) organization can-
not be to conduct gaming.
In addition, a section 501(c)
(3) organization must not be
organized or operated for
the benefit of private inter-
ests, such as the creator or
the creator’s family, share-
holders of the organization,
other designated individuals
or persons controlled directly
or indirectly by such private
interests. No part of the net
earnings of a section 501(c)
(3) organization may inure
to the benefit of any private
shareholder or individual.*An
organization puts its exempt
status in jeopardy when gam-
ing results in inurement or
private benefit to individuals,
or where funds from the ac-
tivity are diverted for private
purposes.
A charity conducting gaming
as an insubstantial part of its
Gaming is no different than the conduct of any other activities will not ordinarily jeopardize its tax-exempt status
trade or business carried on for profit. Though the but may be subject to the tax on unrelated business income.
activity may generate funds to pay expenses associ- See Chapter 2.
ated with the conduct of exempt activities, gaming The IRS determines whether an organization is conducting
itself does not further the exempt purposes of most a “substantial” unrelated activity by examining all of the facts
types of organizations. and circumstances. There is no “bright-line” or numerical
There are several categories of organizations, how- test prescribed by the Code. The IRS will consider the dol-
ever, whose exempt function includes social or rec- lars raised by and spent on an unrelated activity as well as
reational activities for members and their bona fide the time and other resources devoted to it in making the
guests. For these organizations, gaming itself may determination of substantiality.
further an exempt purpose. Every 501(c)(3) organization has a second important tax
For more information on specific subsections, see classification: It is either a private foundation or a public
the following summaries and also Publication 557, charity. Certain types of organizations – schools, hospitals
Tax-Exempt Status for Your Organization.
* A private shareholder or individual is a person having a personal and pri-
vate interest in the activities of the organization.
6 Chapter 1 - Gaming’s Impact on Tax-Exempt Status
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CHAPTER 1
and churches, among others – are specifically listed in the these types of organizations. Thus, an organization
Code as public charities. Many organizations, however, must exempt under sections 501(c)(5) or 501(c)(6) may
show and maintain a broad base of financial support from jeopardize its exemption if gaming becomes the
the general public in order to be classified as public chari- organization’s primary activity, and the gaming in-
ties. If these organizations receive too much of their finan- come may also be subject to the tax on unrelated
cial support from a limited number of sources or from an business income. See Chapter 2.
unrelated trade or business, such as gaming, they may fail
the “public support” test and be classified as private foun- Section 501(c)(7), 501(c)(8) and 501(c)(10) –
dations. Private foundations may have to cease gaming to Social Clubs and Fraternal Organizations
avoid an excise tax on unrelated business enterprises. The exempt function of organizations classified un-
der these sections includes providing social and
For more information about foundation classification, the recreational activities for members and their bona
public support tests for certain public charities, and the spe- fide guests. †Thus, social clubs and fraternal organi-
cial tax rules that apply to private foundations, see Publica- zations may engage in gaming involving only mem-
tion 557, Tax-Exempt Status for Your Organization. bers without jeopardizing their exempt status.
Section 501(c)(4) – Social Welfare Organizations Gaming open to the general public does not further
Section 501(c)(4) organizations promote social welfare. the exempt purposes of social clubs or fraternal
These types of organizations are sometimes called civic organizations. Section 501(c)(7), 501(c)(8) and
leagues. They operate primarily to further the common good 501(c)(10) organizations whose primary activity is
and general welfare of the people of a community through public gaming jeopardize their exempt status and
civic betterment and social improvements. No part of a sec- the gaming income may also be subject to the tax
tion 501(c)(4)’s net earnings may be used to benefit any on unrelated business income. See Chapter 2.
private shareholder or individual. An organization puts its ex-
empt status in jeopardy when gaming revenue is diverted for Section 501(c)(7) social clubs endanger their ex-
private purposes. Examples of social welfare organizations empt status when receipts from nonmembers –
include civic leagues, volunteer fire companies and home- including those from gaming activities – exceed a
owners’ associations. certain amount. A social club may receive no more
than 35% of its gross annual receipts (including
Gaming is considered both a business and a recreational investment income) from sources outside of its
activity; it does not ordinarily promote social welfare. For ex- membership. Within that 35%, no more than 15%
ample, Rev. Rul. 66-150 holds that a 501(c)(4) organization of gross receipts can come from the public’s use of
whose primary activity was to operate a social facility (includ- club facilities or services. If those limits are exceed-
ing a bar, restaurant, and game room) is not exempt. There- ed, the club’s exempt status may be in jeopardy.
fore, a section 501(c)(4) organization whose primary activity
is gaming may jeopardize its exempt status. Section 501(c)(19) – Veterans’ Organizations
This subsection describes posts or organizations of
In very limited situations, however, a social activity such as past or present members of the U.S. Armed Forces.
gaming may be considered a social welfare activity. The vol- To qualify, at least 75% of the members must be
unteer fire company described in Rev. Rul. 74-361, provided past or present members of the U.S. Armed Forces
a club room for both on and off duty members of the depart- and at least 97.5% of all members must be past
ment when they were not otherwise engaged in fire calls. or present members of the U.S. Armed Forces,
The facility was not open to the general public. Access to the cadets (including only students in college or uni-
social club served to increase camaraderie of the firefighters versity ROTC programs or at armed services acad-
and encouraged better performance of the department, thus emies) or spouses, widows, widowers, ancestors
promoting social welfare. or lineal descendants of past or present members
of the U.S. Armed Forces or of cadets. In addition
A social welfare organization having a primary purpose other to these membership requirements, a veterans’ or-
than gaming will not ordinarily jeopardize its tax-exempt sta- ganization must be operated for one or more of the
tus by conducting gaming, but its gaming income may be following purposes:
subject to the tax on unrelated business income. See Chap-
ter 2. • To promote the social welfare of the com-
munity.
Section 501(c)(5) and 501(c)(6) – Labor and
Agricultural Organizations and Business Leagues • To assist disabled and needy war veterans
Section 501(c)(5) describes labor, agricultural, and horticul- and members of the U.S. Armed Forces
tural organizations. They have the objective of bettering the and their dependents and the widows and
conditions of workers, improving the grade of products, and/
or developing a higher degree of efficiency in a particular † For section 501(c)(7), 501(c)(8), 501(c)(10) and 501(c)(19)
occupation. 501(c)(6) organizations are devoted to the im- organizations, the term “bona fide guests” is generally defined
as individuals whom the member invites and for whom the
provement of conditions of one or more lines of business. member pays. If, for example, a nonmember pays for his or her
Like section 501(c)(3) and section 501(c)(4) organizations, own wagers in gaming activities, he or she is considered to be
inurement of any part of the net earnings of a section 501(c) a member of the general public and not a guest, even though
(5) or section 501(c)(6) organization to the benefit of any he or she may have entered the organization’s premises with a
member. Also, if an organization requires only a nominal payment
private shareholder or individual jeopardizes its exemption. to join as a “member,” individuals making such a payment to gain
admission to the organization’s facilities or activities may not be
Gaming does not further the exempt purposes of any of considered members or bona fide guests.
Chapter 1 - Gaming’s Impact on Tax-Exempt Status 7
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orphans of deceased veterans. nizations.
• To provide entertainment, care, and assis- Section 527 – Political Organizations
tance to hospitalized veterans or members A political organization exempt under section 527 of the
CHAPTER 1 of the U.S. Armed Forces. Code is organized and operated primarily for the purpose
of directly or indirectly accepting contributions or making
• To carry on programs to perpetuate the
expenditures to influence or attempt to influence the selec-
memory of deceased veterans and mem-
tion, nomination, election, or appointment of an individual to
bers of the Armed Forces and to comfort
a federal, state, or local public office.
their survivors.
Generally, political organization income (including contribu-
• To conduct programs for religious, chari-
tions and proceeds from political fundraising or entertain-
table, scientific, literary, or educational pur-
ment events) is not subject to tax under the Code, as long as
poses.
the income results from events that are political in nature and
• To sponsor or participate in activities of a not carried on in the ordinary course of a trade or business.
patriotic nature. One factor that indicates an event is “political” is the extent
to which it is related to a political activity aside from the need
• To provide insurance benefits for its mem- of the organization for income or funds.
bers or dependents of its members or both.
Political organizations often conduct raffles to raise funds. In
• To provide social and recreational activities
for its members. general, the proceeds from a raffle are taxable unless they
(Note: Some older veterans’ organizations hold ex- result from a political fundraising or entertainment event.
emption as 501(c)(4) social welfare organizations.) Where there is no evidence that the sale of raffle tickets is
closely related to a political event, the IRS will generally con-
Gaming that is limited to members and bona fide clude that revenue is taxable income.
guests furthers a 501(c)(19) veterans’ organiza-
tion’s social and recreational purposes. However, Income from bingo is also exempt function income for politi-
if a 501(c)(19) organization permits the general cal organizations, provided it is segregated for use for an ex-
public to participate in its social and recreational empt (political) function. To be exempt, the game from which
activities – including gaming – the activity does not the income is derived must meet the requirements for the
further an exempt function. statutory bingo exclusion described in Chapter 2.
Veterans’ organizations may endanger their exempt
status if a social or recreational activity open to
the public becomes a primary activity of the orga-
nization. If a social or recreational activity (such as
gaming) that is open to the public is not the primary
purpose of a veterans’ organization, exemption will
not be jeopardized, but the gaming income may be
subject to the tax on unrelated business income.
See Chapter 2.
In addition, inurement of any part of the net earnings
of a section 501(c)(19) organization to the benefit
of any private shareholder or individual jeopardizes
its exemption.
For more information about veterans’ organizations,
see Publication 3386, Tax Guide – Veterans’ Orga-
8 Chapter 1 - Gaming’s Impact on Tax-Exempt Status
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activities will not ordinarily be treated as regularly
Gaming and Unrelated
carried on if they occur only occasionally or spo-
Business Income radically. For example, gaming conducted only at
an annual fundraising event is not regularly carried
An exempt organization is not taxed on income from an activ-
on. On the other hand, gaming that occurs weekly
ity that is substantially related to its exempt purposes even
is considered to be regularly carried on. CHAPTER 2
if that activity is a trade or business. However, if an exempt
organization regularly carries on a trade or business that is Third, gaming is generally not an exempt activ-
not substantially related to its exempt purpose, except that ity. As discussed in Chapter 1, whether gaming is
the trade or business provides funds to carry out that pur- substantially related to an organization’s exempt
pose, income from such an unrelated trade or business may purposes will depend on the classification of the
be subject to tax. As explained in Chapter 1, gaming is often exempt organization.
considered unrelated to exempt purposes.
Even if a gaming activity meets the three conditions
This Chapter provides an overview of the unrelated business above, there are some other UBI exceptions that
income (UBI) tax and the exclusions from that tax. See Pub- may apply. These include:
lication 598, Tax on Unrelated Business Income of Exempt
Organizations, for a more in-depth discussion of the unre- • Certain bingo games;
lated business income tax and additional information regard- • Activities conducted with substantially all
ing filing requirements and computing unrelated business volunteer labor;
income.
• Qualified public entertainment activities;
The following three conditions must be met before an activity and
may be classified as an unrelated trade or business:‡
• Games of chance conducted in North Da-
• First, the activity must be considered a trade or kota.
business;
These exceptions are explained below in more de-
• Second, the activity must be regularly carried on; tail. In addition to these exceptions, gaming does
and not generate taxable income when it actually fur-
• Third, the activity must not be substantially related thers the exempt purposes for which an organiza-
to the organization’s exempt purpose. (The fact that tion exists. This can be the case for membership
the activity generates income for the organization to organizations (generally, section 501(c)(7), 501(c)
spend on its charitable programs does not make (8), 501(c)(10) and 501(c)(19) organizations), as
the activity related to the organization’s exempt pur- explained in Chapter 1.
pose.) Bingo
Does gaming generate UBI? Let’s look at each of the three Certain bingo games are not included in the term
parts of the definition in relation to gaming. “unrelated trade or business.” In order to qualify for
this statutory bingo exclusion, a game must:
First, gaming is generally considered a “trade or business” if
it generates revenue. • Meet the definition of bingo under the
Code and Regulations;
Second, gaming is considered “regularly carried on” if it is
conducted with a frequency and continuity similar to compa- • Not violate state or local law where it is
rable activities of a non-exempt organization and if pursued played; and
in a manner similar to commercial gaming activities. Gaming • Be played in a jurisdiction where bingo
games are not regularly carried on by for-
‡ Social clubs exempt under section 501(c)(7) are treated differently under
the UBI tax rules. See the separate discussion on Unrelated Business profit organizations.
Income Tax and Section 501(c)(7) Social Clubs below.
Chapter 2 - Gaming and Unrelated Business Income 9
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CHAPTER 2
Bingo is defined in the Code and Regulations as a Example: Church Z, a tax-exempt organization, conducts
game of chance played with cards that are generally weekly bingo games in State O. State and local laws in
printed with five rows of five squares each. Partici- State O expressly provide that bingo games may be con-
pants place markers over randomly called numbers ducted by tax-exempt organizations. Bingo games are not
on the cards in an attempt to form a pre-selected conducted in State O by any for-profit businesses. Because
pattern such as a horizontal, vertical, or diagonal Z’s bingo games are not conducted in violation of state or
line, or all four corners. The first participant to form local law and are not the type of activity ordinarily carried out
the pre-selected pattern wins the game. In addition, on a commercial basis in State O, Z’s bingo games do not
for a game to meet the legal definition of bingo, wa- constitute an unrelated trade or business.
gers must be placed, winners must be determined,
and prizes or other property must be distributed in Because of the statutory bingo exclusion, an exempt orga-
the presence of all persons placing wagers in that nization may conduct games meeting the exclusion to raise
game. funds, and the activity will not generate unrelated business
income subject to taxation. (The exception does not apply to
A wagering game that does not meet the definition 501(c)(7) social clubs. See below.)
of bingo under the Code and Regulations does not
qualify for the exclusion regardless of its name. For Volunteer Labor
example: Does your organization use volunteers to conduct its gam-
ing? Even if gaming is not limited to bingo games that meet
• Satellite and Internet bingo do not qualify the above bingo exclusion, it will not be considered an un-
because these games are conducted in related trade or business – and the income earned from it
many different places simultaneously, and will not be taxed – if substantially all of the work is per-
those placing wagers are not all present formed by volunteers. Although “substantially all” is not de-
when the wagers are placed, the winners fined in this context, an unofficial guideline borrowed from
are determined, and the prizes are distrib- other areas of exempt organization law is 85%. That is, if at
uted. least 85% of the work (as measured by the number of hours
worked), absent other factors, is carried on by people who
• “Instant Bingo,” “Mini Bingos,” and similar work without pay and no more than 15% of the work is car-
pull-tab or scratch-off games do not qualify. ried on by people who are compensated. Few cases strictly
In these games, a player places a wager by apply the 85% test. Instead, “substantially all” is to be ap-
purchasing a card containing pre-printed plied in a general manner.
numbers or a pattern covered by tabs or
film. By uncovering the numbers or pattern, Example: A volunteer fire company regularly holds a slot
the player discovers whether the card is a machine night that is open to the public. Holding public slot
winner. Unlike bingo meeting the exclusion, machine nights on a regular basis may, given the facts and
the winners of these games are pre-deter- circumstances of a particular case, be considered unrelated
mined. trade or business. However, because the work at the slot
machine night was performed by unpaid volunteers, the in-
The bingo exclusion applies only if the game is legal come from the wagering is not taxable as unrelated business
under the laws of the jurisdiction where it is con- income.
ducted. The fact that a jurisdiction’s law prohibit-
ing bingo is rarely enforced or is widely disregarded
does not make the conduct of bingo legal for this
purpose. Tip: If you intend to rely on the volunteer labor
exclusion to exclude gaming from unrelated
The bingo exclusion applies only if for-profit orga- trade or business, you should maintain accurate
nizations cannot regularly carry on bingo games in records reflecting the number of hours worked
any part of the same jurisdiction. Jurisdiction is nor- by compensated and volunteer workers.
mally the entire state; however, in certain situations,
local jurisdiction will control.
10 Chapter 2 - Gaming and Unrelated Business Income
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“Compensation” is interpreted broadly and may include • In conjunction with an international, nation-
payments to bartenders, waitresses, snack bar staff, main- al, state, regional, or local fair or exposition;
tenance workers, security, and other workers, as well as the
tips such workers receive from patrons at the gaming ses- • In accordance with provisions of state law
sion. A worker who obtains goods or services at a reduced that permit only qualifying organizations (or
an agency, instrumentality, or political sub-
price in return for his services may be considered to be com- CHAPTER 2
pensated. division of the state) to conduct the activ-
ity; or
Example: ABC Organization operates a private school and
sponsors gaming to raise revenue for the school. Parents • In accordance with provisions of state law
who work at the gaming session are given a tuition reduction that permit a qualifying organization to be
of $50 for each week they work. This reduction of tuition is granted a license to conduct the activity
compensation to the parents; they are not working as “vol- for 20 days or less on payment to the state
unteers.” of a lower percentage of the revenue from
the licensed activity than is required from
Compensation may also include non-monetary benefits such non-qualifying organizations.
as free drinks or food if such items are more than a mere gra-
tuity and are intended to be compensation for the workers’ Example: Organization X, a 501(c)(5) agricultural
services. On the other hand, a worker who receives merely organization, conducts harness racing at an agricul-
insignificant monetary or non-monetary benefits is consid- tural fair in State L pursuant to a state law that per-
ered a volunteer, not a compensated worker. Determining mits the organization to conduct parimutuel betting
whether a benefit is insignificant requires consideration not in connection with the races. Income from wagers
only of the value of the benefit but also: placed is excluded from the tax on unrelated busi-
ness income.
• The quantity and quality of the work performed;
Games of Chance Conducted in North
• The cost to the organization of providing the benefit; Dakota
and Most games of chance conducted by exempt orga-
nizations in North Dakota are not unrelated trades
• The connection between the benefit received and or businesses if conducting the games does not
the performance of services. violate any state or local law. See section 311 of
Note that the volunteer labor exclusion is in addition to the the Deficit Reduction Act of 1984, as amended by
bingo exclusion discussed above. Thus, if gaming satisfies section 1834 of the Tax Reform Act of 1986.
the bingo exclusion, the bingo income is not taxed even Unrelated Business Income Tax and Section
if workers are paid, as long as state or local law does not 501(c)(7) Social Clubs
prohibit payment. Many jurisdictions, however, require as Most types of exempt organizations pay tax on
a condition of receiving a gaming license that exempt orga- their unrelated business taxable income. A section
nizations conduct their gaming activities with all volunteer 501(c)(7) social club, on the other hand, must pay
labor. If an exempt organization violates such a requirement tax on its gross income except that portion that is
by compensating its bingo game workers, then the bingo ex- considered exempt function income.
ception would not apply if such payment rendered the game
illegal under state law. The exempt function income of a social club is, gen-
erally, its gross income from dues, fees, and charg-
Compensation includes tips. If tipping is allowed, the excep- es received from members in return for providing
tion for volunteer labor may not apply. Many jurisdictions recreational and social facilities or services to those
strictly prohibit tipping at gaming venues. When the orga- members, their dependents, or guests. Because
nization conducts bingo, the bingo exclusion may not be gaming is recreational and social, the income a so-
applicable if tipping occurs in violation of the jurisdiction’s cial club receives from gaming activities limited to
prohibition. its members is considered exempt function income
Qualified Public Entertainment and is not subject to tax. On the other hand, income
Income from qualified public entertainment activities is also received from gaming activities open to nonmem-
excluded from the definition of unrelated business income. A bers is part of the social club’s gross income that is
“public entertainment activity” is one traditionally conducted subject to the unrelated business income tax.
at a fair or exposition promoting agriculture and education, Social clubs do not qualify for any of the exclusions
including any activity whose purpose is designed to attract explained above. Even if a social club conducts a
the public to fairs or expositions or to promote the breeding bingo game that would fall within the bingo exclu-
of animals or the development of products or equipment. sion or uses only volunteers to conduct all of its
A “qualifying organization” is an organization exempt under gaming, if the general public participates, the in-
section 501(c)(3), section 501(c)(4), or section 501(c)(5) come will be taxable. In addition, the nonmember
that regularly conducts an agricultural and educational fair or income, if a large enough percentage of the social
exposition as one of its substantial exempt purposes. club’s overall income, may jeopardize its exempt
To be excluded from the term “unrelated trade or business,” a status.
public entertainment activity must be conducted by a qualify-
ing organization:
Chapter 2 - Gaming and Unrelated Business Income 11
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Determining Whether Gaming Generates UBI
– Flow Chart
The UBI rules and exceptions are complex and can
be confusing. At the end of this chapter is a “flow
chart” designed to help you assess whether your
gaming – or other – activity creates UBI for your
organization. Exhibit A is for all organizations except
501(c)(7) social clubs. Please note that the flow
chart is intended to serve only as a summary of the
unrelated business income rules and exclusions.
See Publication 598, Tax on Unrelated Business
CHAPTER 2
Income of Exempt Organizations, for a complete
explanation.
Reporting UBI and Paying Tax
When gross UBI (gross receipts minus cost of
good sold) equals or exceeds $1,000, an organi-
zation must file Form 990-T, Exempt Organization
Business Income Tax Return. If an organization’s
total anticipated tax for the year equals or exceeds
$500, it must pay quarterly estimated tax. Form
990-W, Estimated Tax on Unrelated Business Tax-
able Income for Tax-Exempt Organizations, may be
helpful in computing the tax. However, do not send
this form to the IRS. Failure to pay estimated taxes
as required or to file the appropriate forms may sub-
ject the organization to penalties.
If you find that you are unable to file Form 990-T
by the original due date, you can request an exten-
sion of time by filing Form 8868, Application for
Extension of Time To File an Exempt Organization
Return, by that original due date. If you are a cor-
poration, you may request an automatic 6-month
extension. If you are a trust, you may request an
automatic 3-month extension and, if necessary, an
additional 3-month extension that will be granted at
the IRS’s discretion.
You must pay any unrelated business income tax
due by the original due date for filing Form 990-T.
No extension for paying the tax will be given. Do
not send the payment with Form 990-T. You must
deposit the tax by EFTPS.
12 Chapter 2 - Gaming and Unrelated Business Income
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Is It Unrelated Business Taxable Income (UBTI)? (Does Not Apply to 501(c)(7) Organizations)
NO
Is gaming a trade or
business?
YES
NO
EXHIBIT A
Is gaming regularly
carried on?
YES
YES
Is gaming substantially
related to exempt
purpose?
NO
YES Income is not
UBTI
Does gaming meet
bingo exception?
NO
YES
Is gaming conducted
with substantially all
volunteer labor?
NO
YES
Is gaming a game of
chance conducted in
North Dakota?
NO
YES
Is gaming a qualified public
entertainment activity conducted
by a 501(c)(3), 501(c)(4) or
501(c)5 organization?
NO Income is
UBTI
Exhibit A - Is It Unrelated Business Taxable Income? 13
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to ensure that funds are not diverted to private individuals or
Maintaining Records
for private purposes.
Recordkeeping
An exempt organization must maintain complete Effective oversight is more than simply choosing a location
books and records so that it can meet its report- to hold the gaming and approving the lease or other arrange-
ing responsibilities and determine any tax liabilities ments with the gaming operator. The exempt organization
it may have. Exempt organizations must keep the should maintain active involvement in the conduct of the
same types of books and records that other busi- games themselves.
nesses maintain. These include cash receipt and Here is an example of appropriate oversight for a bingo op-
disbursement journals, accounts payable journals, eration that conducts multiple sessions per week:
general ledgers, detailed source documents, and
copies of any federal tax returns filed. See Publi- • A gaming manager/operator controls the execution
cation 583, Starting a Business and Keeping Re- of the games, including payouts, and records trans-
cords, for general information about tax recordkeep- actions on a “daily sheet.”
ing requirements.
• A cashier – a different person from the gaming man-
Publication 4221-PC, Compliance Guide for ager/operator – receives funds and records serial
501(c)(3) Public Charities, or Publication 4221- numbers of games sold.
NC, Compliance Guide for Tax Exempt Organi-
• A third person serves as cash controller and pre-
zations (other than 501(c)(3) Public Charities
pares inventory/paid out reports, independently
and Private Foundations), contain information on
counts cash receipts, and matches the cash to the
recordkeeping requirements that apply specifi-
reports prepared by the gaming manager/operator.
cally to exempt organizations. Revenue Procedure
He or she also prepares and makes the bank de-
71—17, available on the IRS website at IRS.gov,
posit.
CHAPTER 3
explains the recordkeeping required of 501(c)(7) • A fourth person serves as inventory controller and
social clubs to document member vs. nonmember reviews the daily sheets received from the gaming
income. Fraternal organizations (section 501(c)(8) manager/operator to determine inventory usage
and 501(c)(10)) and veterans organizations (sec- and profit achieved. The inventory controller may
tion 501(c)(19)) should also maintain complete re- also receive the bank statement directly and ensure
cords of member and nonmember income. that all deposits stated on the daily sheet appear
on it.
Organizations that conduct gaming must maintain
records of gross receipts from gaming, prize pay- • A fifth person writes the checks to pay gaming ex-
outs, and other related disbursements to substan- penses.
tiate information submitted on the exempt organi-
zation information return (Form 990 or 990-EZ), • The organization’s board of directors reviews and
and the income tax return (Form 990-T), if one is compares bingo reports or daily sheets with previ-
required. ous reports for consistency. The board monitors the
games to ensure internal controls are functioning
In general, an organization must maintain records properly.
until the statute of limitations expires; generally
three years from the later of the filing or due date If an organization also sells pull-tabs at its bingo sessions or
of a return. Employment tax returns should be kept conducts other forms of gaming, it will want to implement
for four years after the due date of the return, or four additional controls, such as verifying that the gaming opera-
years from the date when the organization paid the tor reports all receipts.
tax, if the payment date was later than the due date. State and local laws may require additional recordkeeping
Effective Gaming Controls and reporting and impose specific internal controls over
Gaming can generate substantial amounts of in- gaming. Contact the appropriate agencies to determine the
come. Much of it is cash that passes through many state and local rules that may apply.
hands at each gaming session. Exempt organiza-
tions should carefully oversee and control gaming
14 Chapter 3 - Maintaining Records
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Gaming Activities, to your Form 990 or Form 990-
Exempt Organizations
EZ. (For details on the threshold amounts triggering
Reporting Requirements filing of Schedule G, see the instructions for Form
990 or Form 990-EZ available on the Charities &
The Code requires most exempt organizations to file an an-
Non-Profits section of the IRS’s website at www.
nual information return showing gross receipts and disburse-
irs.gov/Charities-&-Non-Profits.)
ments and other information the IRS needs to administer the
tax laws. Form 990, Return of Organization Exempt from In- Part III of Schedule G requires specific information
come Tax, or Form 990-EZ, Short Form Return of Organiza- about your organization’s gaming activities. To be
tion Exempt from Income Tax, are the standard forms used able to complete this part, for each tax year you will
to make this report. (See the Charities & Non-Profits sec- need to know:
tion of the IRS website at www.irs.gov/Charities-&-Non-
Profits for the filing thresholds for each of these forms.) • Gross revenues from bingo, pull-tabs/in-
stant bingo, and other types of gaming;
Most small tax-exempt organizations whose annual gross
receipts are normally $50,000 or less may meet their • Cash and non-cash prizes paid for each
filing requirements by submitting on-line Form 990-N, also type of gaming;
known as the e-Postcard, unless they choose to file a com- • Rent or costs of facilities and other direct
plete Form 990 or Form 990-EZ instead. (See the Charities gaming expenses;
& Non-Profits section of the IRS website at www.irs.gov/
Charities-&-Non-Profits for guidance on filing an e-Post- • Percentage of your organization’s games
card.) operated in your own facilities and in out-
side facilities;
For a gaming organization, gross receipts includes all
amounts wagered in games, not just the net proceeds after • Percentage of volunteer labor for each
winning wagers have been paid out. Therefore, most orga- type of gaming;
nizations conducting gaming will have gross receipts well
above the Form 990-N filing threshold. • States in which you operated gaming ac- CHAPTER 4
tivities and the states in which your organi-
Note: If an organization eligible to file an e-Postcard choos- zation holds gaming licenses;
es to file a Form 990 or 990-EZ instead, it must file a com-
• Revocation, suspension or termination of
plete return, including all required sections and schedules.
any of your organization’s gaming licenses;
Churches and certain other religious organizations are ex-
• Amount of mandatory charitable distribu-
cepted from filing either an annual return or an e-Postcard.
tions from gaming proceeds required un-
If you are required to file an annual return or e-Postcard, you der state law, or the amount of proceeds
must file it by the15th day of the 5th month after your ac- spent on your organization’s own exempt
counting period ends. If your accounting period coincides activities;
with the calendar year, file your return or e-Postcard by May
• Names and addresses of the gaming man-
15th following the close of the tax year.
ager and the person who prepares your
You can get an automatic 3-month extension of time for fil- gaming/special events books and records;
ing a Form 990 return by filing Form 8868, Application for and
Extension of Time To File an Exempt Organization Return,
• Information about third parties with which
by the original due date of the return. You can request an
your organization has contracts to receive
additional 3-month extension by filing another Form 8868
gaming revenue.
before the first extension expires. A second extension will be
granted at the IRS’s discretion. You cannot get an extension For detailed information about filing requirements
of the due date for filing an e-Postcard. for Forms 990, 990-EZ or 990-N see the instruc-
tions for Form 990 or 990-EZ on the IRS website.
If you are required to file an information return or e-Postcard,
The instructions include an explanation of the public
and you fail to do so for three consecutive years, your ex-
inspection rules for these forms mentioned earlier
empt status is automatically terminated by law.
in this chapter. The website also will have a current
You must make a copy of your Form 990 or 990-EZ annual version of Schedule G and its instructions.
information returns available for public inspection during nor-
mal business hours at your principal office and at regional or
district offices. A return must be made available for a period
of three years from the date it was required to be filed. Most
organizations are not required to disclose the names and
addresses of any contributors reported on Schedule B of
the return.
Schedule G, Form 990 or Form 990-EZ
If your organization’s revenue from gaming exceeds a certain
amount, you will be required to complete and attach Sched-
ule G, Supplemental Information Regarding Fundraising or
Chapter 4 - Exempt Organizations’ Reporting Requirements 15
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CHAPTER 4
16 Chapter 4 - Exempt Organizations’ Reporting Requirements
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the person your employee.
Workers Conducting
For more information on how to determine whether
Gaming Activities
a worker is an employee or independent contractor,
It is Saturday night, and your lodge is hosting its weekly see Publication 15-A, Employer’s Supplemental
bingo game for members and their guests. During the game, Tax Guide. Then, if you are still unsure whether the
Mr. P tends the bar and Ms. J calls the numbers. The lodge person you are paying is an employee or indepen-
pays Ms. J $10 an hour for calling numbers. Mr. P, though dent contractor, you can ask the IRS for a ruling by
not paid for tending bar, does receive tips from bingo pa- filing Form SS-8, Determination of Worker Status
trons. You probably know that you should withhold income, for Purposes of Federal Employment Taxes and In-
social security, and Medicare taxes from Ms. J’s wages and come Tax Withholding.
send these taxes and the employer share of social security
and Medicare taxes to the IRS, as well as report the wages Types of Compensation
and tax to both Ms. J and the Social Security Administration All pay that you give to an employee for services
(SSA) on Form W-2, Wage and Tax Statement. But did you performed is considered wages and is subject to
also know that you may have reporting and withholding re- federal employment taxes unless an exception ap-
quirements for Mr. P’s tip income? plies. The pay may be in cash or in other forms. It
includes salaries, bonuses, commissions and fringe
This chapter, first, will help your organization classify wheth- benefits. How you measure or make the payments
er its gaming activity workers are employees, independent does not matter.
contractors or volunteers. (You will have important, different
compliance requirements for each type of worker.) Second, If your organization uses a method other than cash
it will examine compensation: Is your organization compen- or a readily negotiable instrument (a check) to pay
sating its gaming workers and if so, how, and how much? its workers, you are paying them “in kind.” Pay-
(Just a “tip” here: Mr. P’s tips do count as compensation!) ments in kind may be in the form of goods, lodg-
Third, we’ll look at how to make sure that your organization ing, food, clothing, or services. Generally, the fair
does not inadvertently turn its gaming “volunteers” into com- market value of such payments at the time that they
pensated employees. are provided is subject to employment taxes; see
below.
Finally, we will do a quick survey of your organization’s re-
porting and withholding responsibilities for any compensat- Tips gaming activity workers receive from players,
ed employees and independent contractors. (These require- whether cash or non-cash, are taxable income.
ments apply to any workers your organization pays – not just Tips paid to a worker in cash, checks or other cash
equivalent (including charged tips) of more than
those employed in its gaming activities.) The chapter also $20 in a calendar month while working for any one CHAPTER 5
discusses the recordkeeping and reporting that employees
must do for tip income. employer are also wages subject to employment
taxes.
Employee, Independent Contractor or Volunteer?
A worker at your organization’s gaming activity is considered Volunteers and Gaming Activities
one of these: Exempt organizations often rely on uncompensated
workers when conducting gaming. In fact, many
• An employee – someone whose work your organi- states and localities require that exempt organiza-
zation has the right to control and direct. tions use all (or substantially all) volunteer labor to
conduct their games in order to qualify for a license.
• An independent contractor – someone your organi-
zation contracts with to provide a specific service or If a “volunteer” worker at a gaming activity is permit-
product. Your organization contracts with the per- ted to receive tips from players and the volunteer is
son for the end product or service and does not subject to the direction and control of the organiza-
have the right to supervise or direct how the inde- tion, he or she becomes a compensated employee.
pendent contractor does the work. The organization would have the same reporting
and withholding requirements for this person as
• A volunteer – someone who works for your orga-
for any other employee. (See below.) In addition,
nization for no compensation, either monetary or
by permitting the otherwise-volunteer worker to re-
non-monetary. Note that volunteers can be either
ceive tips, the organization may be violating state
employees or independent contractors under the
or local rules that require all volunteer labor for li-
common law test.
censed gaming organizations.
Generally, if a worker is compensated in any manner, he or
Exempt organizations often want to recognize and
she will be either an employee or an independent contractor.
thank their volunteers, and often do so with awards
As noted above, someone is your employee when you have
or gifts. In general, if these are non-cash items of
the right to control and direct that person’s work, not only as
nominal value, such as turkeys or hams around the
to the result to be accomplished but also as to the details
holidays, they would not constitute taxable wages.
and means by which that result is accomplished. In other
However, cash items, including gift certificates as
words, an employee is someone who is subject to your will
well as any other taxable fringe benefit, would be a
and control not only as to what shall be done but how it shall
payment of taxable compensation, and if the volun-
be done. You need not actually direct or control how the
teer is subject to the organization’s right to direct
person works; simply your right to do so is sufficient to make
and control, the amounts are wages. This is true
Chapter 5 - Workers Conducting Gaming Activities 17
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even if the organization receives donated gift cer- Withholding Income Tax – As an employer, you must
tificates, which it then passes on to its volunteers. withhold federal income tax from your employees’ wages.
Organizations should be aware that their methods To know how much tax to withhold, you should have a Form
of thanking or recognizing volunteers may create W-4 on file for each employee. Ask all new employees to
employment tax and reporting responsibilities. give you a signed Form W-4 when they start work. You can
provide Formulario W-4(SP), Certificado de Exención de
What if an organization permits an individual to help Retenciones del Empleado, in place of Form W-4, to your
out at a gaming activity and thereby “work off” a Spanish-speaking employees. Generally, a Form W-4 re-
program payment or fee that he or she would other- mains in effect until the employee gives you a new one.
wise have? These arrangements – whether “volun-
tary” or required – can also result in a worker having In some cases, where a serious under-withholding problem
wages subject to employment taxes. is found to exist for a particular employee, the IRS may issue
a notice (commonly referred to as a “lock-in letter”) to the
Example: Private school X, a
501(c)(3) organization, sponsors a
weekly bingo game to raise funds
for the school. Parents who work
at the bingo games are given a
tuition reduction of $100 for each
week they work.
The fair market value of the par-
ent’s or guardian’s work at the
weekly bingo game is $100 – the
amount of the tuition reduction. A
parent who works at the weekly
bingo game has compensation of
$100. If the parent is subject to
the organization’s right to direct
and control, the parent is an em-
ployee with wages of $100.
Your Organization’s
Reporting and Withholding
Responsibilities for
Employees
If your organization’s gaming work-
ers are employees, you are respon-
sible for withholding and paying
CHAPTER 5 employment taxes and filing and
furnishing the required employ-
ment tax forms and information re-
turns. This section provides a gen-
eral discussion about withholding
and reporting employment taxes. If
your organization has employees,
see Publication 15, (Circular E),
Employer’s Tax Guide, and the In-
structions for Forms W-2 and W-3
for the specific rules you will need
to follow. employer specifying the withholding rate (marital status) and
Soliciting a Social Security Number – An em- maximum number of withholding allowances permitted for a
ployer has a requirement to solicit an employee’s specific employee for purposes of calculating the required
social security number (SSN) at the time the em- withholding. The IRS will provide the employee with an op-
ployment begins. Because the employee is required portunity to dispute the determination before the employer
to furnish Form W-4, Employee’s Withholding Al- adjusts withholding based on the lock-in letter.
lowance Certificate, to the employer on commence- After the lock-in letter takes effect, the employer must dis-
ment of employment, Form W-4 may be used for regard any Form W-4 that results in less tax withheld, until
the initial solicitation of the employee’s SSN. See the IRS notifies the employer otherwise. However, the em-
Publication 1586, Reasonable Cause Regulations ployer must honor any Form W-4 that claims a withholding
and Requirements for Missing and Incorrect Name/ rate (marital status), withholding allowances, and any addi-
TINs, for more information regarding solicitation re- tional amount that results in more income tax withheld than
quirements when employees do not furnish their at the withholding rate and withholding allowances specified
SSNs. in the lock-in letter. Employers who use electronic Form W-4
systems must make sure the employee can not override the
18 Chapter 5 - Workers Conducting Gaming Activities
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lock-in letter to decrease withholding via an electronic Form the taxes.
W-4 system.
If the employer cannot collect all the social secu-
Withholding and Paying “FICA” Taxes – The Federal rity and Medicare taxes on the tips reported by an
Insurance Contributions Act (FICA) imposes taxes on both employee, the uncollected taxes must be reported
the employee and the employer. FICA taxes are composed on Form W-2. See Employee’s Responsibility
of two elements: old-age, survivor, and disability insurance for Tip Income, below, for more information. As
(OASDI, commonly known as social security) and hospital an exempt organization, you need not withhold or
insurance (Medicare). pay FICA taxes for an employee that you pay less
than $100 for the calendar year.
The social security tax rate is 12.4%, split equally between
employee and employer. The tax applies to wages up to a If income, social security, or Medicare taxes that
“wage base” limit. The wage base limit is the maximum wage are required to be withheld are not withheld or are
not paid, the organization is liable
for the taxes and certain individu-
als may be personally liable for
the amount of the employee taxes
as a trust fund recovery penalty.
Paying “FUTA” Taxes – Em-
ployers are subject to a federal
unemployment (FUTA) tax on the
total employment wages during
the calendar year. Only the em-
ployer pays FUTA tax. FUTA tax
is not collected from the employ-
ee’s wages.
Services performed in the employ
of a section 501(c)(3) organiza-
tion are excluded from the defini-
tion of “employment” for FUTA tax
purposes. Consequently, section
501(c)(3) organizations do not
pay FUTA tax on their employees’ CHAPTER 5
wages.
Services performed in the employ
of other types of exempt organi-
zations are excepted from the
definition of FUTA employment in
any calendar quarter in which the
remuneration earned for those
services is less than $50.
Application of these FUTA excep-
tions is based on the status of the
common law employer.
Filing Form 941, Employer’s
Quarterly Federal Tax Return
that is subject to the tax for the year. The wage base limit – Every employer liable for withheld income and
is generally adjusted annually; a chart listing the “Contribu- FICA taxes must report their liability. The report
tion and Benefit Base” for each year is available at www. is ordinarily made quarterly on Form 941, which
socialsecurity.gov. must be filed by the last day of the month follow-
ing the close of the calendar quarter. If, by that
The employee and employer each pay the Medicare tax rate date, you have made timely deposits (see below)
of 1.45% on wages, for a total of 2.9%. There is no wage in full payment of your taxes for the quarter, you
base limit for Medicare tax; all covered wages are subject to can take an additional ten days to file Form 941. If
Medicare tax. you discover an underpayment or overpayment er-
The employer collects the employee portion of the social ror on a previously filed Form 941, use Form 941-
security and Medicare taxes by deducting the tax from the X, Adjusted Employer’s QUARTERLY Federal Tax
employee’s wages at the time of each payment. For tipped Return or Claim for Refund, to make the correc-
employees, an employee’s regular pay may not be enough to tion. See Publication 15, (Circular E), Employer’s
withhold all the taxes owed on the regular pay plus reported Tax Guide, and the instructions for Form 941-X for
tips. If this happens, an employee can give the employer more information.
money until the close of the calendar year to pay the rest of
Chapter 5 - Workers Conducting Gaming Activities 19
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Filing Form 944, Employer’s Annual Federal Wage and Tax Statement, by January 31 of the year after
Tax Return – If, based on your Form 941 report- the year of payment. If employment ends before December
ing history, the IRS estimated that your liability for 31 and an employee asks for Form W-2, give the employee
FICA tax and withheld income tax for the year will Form W-2 within 30 days of the request or within 30 days of
be $1,000 or less, or you inform the IRS that you the final wage payment, whichever is later. The organization
expect your annual tax liability to be $1,000 or less, must file Form W-2 with the Social Security Administration
you may be notified to file an annual return on Form (SSA) by the last day of February of the year after the year of
944 instead of the quarterly Form 941. Form 944 is payment (March 31 if filing electronically). Paper Forms W-2
due by January 31 following the end of the calendar are transmitted to the SSA using Form W-3, Transmittal of
year of the return. If, by that date you have made Income and Tax Statements. See the instructions for Forms
timely deposits in full payment of your taxes for the W-2 and W-3 for more information.
calendar year, you can take an additional ten days
to file Form 944. If you discover an underpayment or If your employees give their consent, you may be able to fur-
overpayment error on a previously filed Form 944, nish Forms W-2 to your employees electronically. See Pub.
use Form 944-X, Adjusted Employer’s Annual Fed- 15-A, Employer’s Supplemental Tax Guide, for additional
eral Tax Return or Claim for Refund, to make the information.
correction. See Publication 15, (Circular E), Em- If you are required to file 250 or more Forms W-2, you must
ployer’s Tax Guide, and the instructions for Form file them electronically, unless the IRS granted you a waiver.
944-X for more information. You are encouraged to file electronically even if you are fil-
Filing Form 940, Employer’s Annual Federal ing fewer than 250 Forms W-2. The 250 threshold applies
Unemployment (FUTA) Tax Return – If you are separately to each type of form. Thus, for example, if a per-
liable for FUTA tax in any calendar year, you must son is required to file 200 returns on Form 1099-MISC and
file Form 940 by January 31 of the following year. If 350 returns on Form W-2 for a calendar year, the person is
you deposited all FUTA taxes for the year when due, not required to file Forms 1099-MISC electronically but is
you can take an additional 10 days to file the return. required to file Forms W-2 electronically.
Depositing FICA, FUTA, and Withheld Income Employee’s Responsibility for Tip Income
Taxes – If you report less than a $2,500 tax liabil- An employee who receives tips should keep a daily tip re-
ity for the quarter on Form 941 (or for the year on cord so that he or she can accurately report tips to the em-
Form 944), you may remit those taxes with the re- ployer and on his or her tax return. The daily tip record can
turn. Otherwise, you must deposit on a monthly or take the form of a tip diary such as that found in IRS Form
semiweekly schedule using the Electronic Federal 4070A, Employees Daily Record of Tips.
Tax Payment System (EFTPS). For more informa- Every employee who, while working for your organization, re-
tion about the deposit schedule you will be required ceives cash tips in any calendar month of at least $20 must
to follow, see “Depositing Taxes” in Publication 15, report those tips in a written statement by the 10th day of
(Circular E), Employer’s Tax Guide. For more in- the following month. To report, the employee may use Form
formation about the EFTPS or to enroll, visit www. 4070, Employee’s Report of Tips to Employer, or some oth-
CHAPTER 5 eftps.gov. er written statement containing the following information:
Note: There is a new exception for employers who • Employee’s name, address, and social security
file Form 941. Beginning January 2010, employers number;
who file Form 941 will not have to make deposits
during a quarter if their accumulated tax liability for • Employer’s name, business name (if different), and
either the current quarter or the prior quarter is less address;
than $2,500 and they fully pay the amount due with • The month for which the report is made; and
a timely filed return for the current quarter.
• The total tips received in that month.
Deposit income taxes withheld from wages and
FICA taxes separately from non-payroll withheld You may establish an electronic tip reporting system in lieu
income taxes (e.g., income tax withheld from gam- of receiving tip statements in paper form.
bling winnings).
An employee who fails to report tips that are required to be
FUTA taxes must be deposited by the last day of reported must pay the employee’s portion of the FICA tax on
the month following the end of any calendar quarter those tips by filing Form 4137, Social Security and Medicare
in which your undeposited tax liability is more than Tax on Unreported Tip Income, with the employee’s Form
$500. If your FUTA tax liability in any quarter (ex- 1040, U.S. Individual Income Tax Return. The employee is
cept the fourth) is $500 or less, carry it over to the also subject to a penalty equal to 50% of the employee’s
next quarter. If your liability for the fourth quarter is portion of the FICA tax on the unreported tips unless the
$500 or less, you can either deposit the amount by failure was due to reasonable cause and not due to willful
EFTPS or pay it with your Form 940 by January 31. neglect.
Filing Forms W-2, Wage and Tax State- For more information on an employee’s responsibilities with
ment and W-3, Transmittal of Income and respect to reporting tip income, see Publication 531, Re-
Tax Statement – Tax-exempt organizations must porting Tip Income.
furnish each employee with a copy of Form W-2,
If the taxes on an employee’s tips are greater than the regu-
20 Chapter 5 - Workers Conducting Gaming Activities
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lar pay from the employer, the employee can either pay the more information. If you are required to file 250 or
taxes when the employee files Form 1040 or the employee more Forms 1099-MISC, you must file them elec-
can give the employer money to be applied to the underwith- tronically, unless the IRS granted you a waiver. You
held taxes. The employer will report any uncollected FICA are encouraged to file electronically even if you are
taxes on Form W-2. If the employee waits to pay the taxes filing fewer than 250 Forms 1099-MISC.
with the employee’s Form 1040, the employee may be sub-
ject to a penalty for underpayment of estimated taxes. See Example: Organization Y pays Ted Oaks $100
Publication 505, Tax Withholding and Estimated Tax, for per week for 9 weeks to clean up the hall where
more information. bingo sessions are held. Mr. Oaks operates a jani-
torial service as a sole proprietorship, has the right
Your Organization’s Reporting Responsibilities for to hire and fire workers, and provides needed tools
Independent Contractors and supplies. Y does not have the right to direct
If your organization pays independent contractors – i.e., a and control Mr. Oaks. Therefore, Mr. Oaks is not a
compensated worker who is not your organization’s em- Y employee. Y must file Form 1099-MISC with the
ployee – it does not have to withhold or pay FICA taxes. IRS and furnish a copy of Form 1099-MISC to Mr.
However, you may be required to withhold 28% of any re- Oaks.
portable payments for federal income tax. This is referred to
as backup withholding, and applies when a payee refuses or For more details on the types of payments that must
neglects to provide a Taxpayer Identification Number (TIN) be reported on Form 1099-MISC, see the instruc-
or the IRS notifies the organization that the reported TIN tions for Form 1099-MISC.
is incorrect. See Publication 1281, Backup Withholding for
Missing and Incorrect Name/TIN(s). Whether your organi-
zation has made reportable payments may depend on the
amount paid during the year and whether an exception ap-
plies. See Form 1099-MISC below.
CHAPTER 5
Soliciting a TIN - Your organization should solicit an inde-
pendent contractor’s TIN before the independent contractor
provides services, and before you pay the person. You can
use Form W-9, Request for Taxpayer Identification Number
and Certification.
Formulario W-9(SP), Solicitud y Certificación del Número
de Identificación del Contribuyente, may be used in place of
Form W-9, for Spanish-speaking nonemployees. Form W-9
certifies the correct TIN and name of person receiving pay-
ments, and will help the organization verify whether it needs
to complete Form 1099-MISC with respect to a payment.
Form W-9 is not filed with the IRS, but kept in your organiza-
tion’s records.
Filing and Furnishing Form 1099-MISC, Miscella-
neous Income – Use Form 1099-MISC to report pay-
ments to independent contractors of $600 or more. Include
fees, salaries, commissions, prizes, and awards for services
performed as a nonemployee. Generally, payments to a
corporation are not required to be reported on Form 1099-
MISC. However, you must use Form 1099-MISC to report
payments of $600 or more for medical or health care ser-
vices provided by corporations, including professional cor-
porations. Forms 1099-MISC must be furnished to payees
by January 31 and filed with the IRS by February 28 (March
31 if filing electronically) for all payments made in the prior
calendar year. Paper Forms 1099-MISC are transmitted to
the IRS using Form 1096, Annual Summary and Transmit-
tal of U.S. Information Returns. You may furnish the copies
to the payees electronically. See the General Instructions
for Forms 1099, 1098, 3921, 3922, 5498, and W-2G for
Chapter 5 - Workers Conducting Gaming Activities 21
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the game of lotto, played with numbered balls or knobs, and
Reporting Winnings
cards also numbered.
and Withholding
You must report winnings from a keno game that are $1,500
Income Tax or more after deducting the amount of the wager. That is,
It’s Saturday night again, and your organization is you must reduce the amount of the winnings by the amount
hosting a bingo game meeting the statutory bingo of the wager in determining whether the $1,500 threshold
exclusion. Mr. S pays $5 for a bingo card and sits is met.
down to play. “B-I-N-G-O!!!” It’s Mr. S’s lucky night. Example: One of your gaming activities is keno. Ms. E
He wins the game and the jackpot of $1,200. In tax wagers $5 on keno and wins $1,500. The winnings are
terminology, the “wager” is $5 and the “winnings” less than $1,500 after deducting the amount of the wager
are $1,200. Did you know that your organization ($1,495), so you do not have to report Ms. E’s winnings.
must report Mr. S’s winnings to the IRS?
Bingo Games and Slot Machines: You must report winnings
Reportable Winnings from a bingo game or slot machine that are $1,200 or more
If you pay the winner or winners of a game more before deducting the amount of the wager.
than a certain amount, you must report the amount
and information about the winner(s) to the IRS. Example: You have a slot machine in the barroom of your
The threshold amount at which winnings become lodge. Ms. C feeds a quarter into the slot machine and wins
reportable depends on the type of game involved. $1,200. You must report Ms. C’s winnings because the win-
nings are $1,200 or more before deducting the amount of
Unless the winnings are from poker, keno, bingo, or the wager.
slot machines, you must report a payment of win-
nings, including raffle prizes, when the amount paid Poker Tournaments: If you sponsor a poker tournament, you
is: must report any winnings of more than $5,000 after deduct-
ing the wager (i.e., the entry or “buy-in” fee). You need not re-
• $600 or more, and port poker tournament winnings paid before March 4, 2008,
• At least 300 times the amount of the wa- or winnings that are $5,000 or less.
ger. Reporting Winnings
In determining whether the $600 threshold is met, Each time you pay reportable winnings, you must complete
you may reduce the winnings by the amount of the a Form W-2G, Certain Gambling Winnings, to report those
wager. winnings to the IRS and to the person receiving the winnings
(the “payee”). The payee should provide you with his or her
Example: Mr. G buys a $2 raffle ticket from your name, address, and taxpayer identification number (e.g., so-
organization. At the raffle, Mr. G’s number is drawn cial security number), and you should verify the information
and he wins $1,000. Because the winnings ($998) from the person’s driver’s license, social security card, voter
are greater than $600 and more than 300 times the registration card, or other proper identification.
amount of the wager, you must report Mr. G’s win-
nings to the IRS. If you use a paper form, you must file copy A of Form W-2G
with the IRS by February 28 following the calendar year in
Example: Mr. S buys a $2 pull-tab and wins $600. which you paid the winnings. Use Form 1096 to transmit
You may reduce the winnings by the amount of the paper Forms W-2G to the IRS. If you file electronically, you
wager, in which case the winnings are $598. You must file Form W-2G by March 31 following the calendar
do not have to report Mr. S’s winnings because the year in which you paid the winnings. If you complete 250 or
$600 threshold is not met. more Forms W-2G in a year, you cannot file the paper form;
CHAPTER 6 you must file electronically instead.
Keno Games: Keno is a gambling game, a variety of
Summary of Reportable Winnings
Type of Game Winnings Amount at Least: Reduced by Amount of Wager?
Bingo $1,200 No
Slot machines $1,200 No
Keno $1,500 Yes
Other wagering transactions (e.g., $600 and at least 300 times the
At option of payer
instant bingo, pull-tabs, raffles, etc.) wager
Poker tournaments $5,000.01 Yes
22 Chapter 6 - Reporting Winnings and Withholding Income Tax
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In addition to filing of Form W-2G with the IRS, you must Example: In 2013, your organization conducts a
give the winner copies B and C of Form W-2G by January raffle, and Mr. L purchases a $1 ticket. At the draw-
31 following the calendar year in which you paid the win- ing, Mr. L’s number is drawn and he wins $6,000.
nings. Because the proceeds from the wager are more
than $5,000 ($6,000 prize minus $1 ticket), you
Multiple Winners: When the payee is one of a group of two must withhold $1,500 ($5,999 x 25%) from the
or more winners, or is not the actual winner, he or she must winnings.
complete and sign a Form 5754, Statement by Person(s)
Receiving Gambling Winnings, and give it to you. The payee A non-cash prize, such as a car, with a fair mar-
enters his or her name, address, and taxpayer identification ket value exceeding $5,000 after deducting the
number in Part I. In Part II, the payee enters the name, ad- amount of the wager is also subject to withholding.
dress, and taxpayer identification number of each person The tax is computed and paid under either of the
entitled to the winnings, together with the amount won and following two methods:
the amount of any additional winnings from identical wagers.
You then prepare a separate Form W-2G for each winner • The winner pays the withholding tax to the
listed in Part II of Form 5754. organization conducting the gaming activ-
ity. In this case, the withholding amount is
For more information on how to complete and file Form 28% of the fair market value of the non-
W-2G, see the Instructions for Forms W-2G and 5754 and cash item less the amount of the wager.
the General Instructions for Forms 1099, 1098, 5498, and
W-2G. • The organization pays the withholding tax
on behalf of the winner. In this case, the
Regular Income Tax Withholding withholding amount is 33.33% of the fair
Ms. V pays $10 for a ticket in your church raffle. As luck market value of the non-cash item less the
would have it, hers is the winning ticket. You pay Ms. V win- amount of the wager. (The withholding per-
nings of $6,000. You now know that you have to report the centage in this case is higher, because the
winnings to the IRS. But did you also know that you have to winner gets not only the value of the prize
withhold income tax from Ms. V’s winnings? but also the value of having the taxes paid
by the organization.)
You must withhold income tax from a payment of winnings
when the proceeds from the wager are more than $5,000 Signature of the Payee on Form W-2G: Any person
and the wager was placed in: who receives a payment of winnings from which
you are required to withhold tax must sign the Form
• A sweepstakes, wagering pool, lottery, raffle, or W-2G on which those winnings are reported. By
poker tournament; or, signing, the payee declares that no other person
• Any other wagering transaction, if such proceeds is entitled to any portion of the payment and that
are at least 300 times the amount wagered. the winnings are subject to regular gambling with-
holding.
“Backup” Withholding
You may be required to withhold 28% of gambling
Exceptions: winnings (including winnings from bingo, keno, slot CHAPTER 6
1. Do not withhold income tax on winnings from bingo,
keno, or slot machines no matter what the amount machines, and poker tournaments) for federal in-
of winnings. (However, see below.) come tax. This is referred to as backup withholding,
2. You need not withhold income tax on winnings from and applies when:
a poker tournament as long as you report the win- • The winner of reportable winnings does
nings on Form W-2G. not furnish a correct TIN;
• 25% has not been withheld; and
The “proceeds from a wager” are the difference between the • •The winnings are at least $600 and at
amount of the winnings and the amount of the wager. When least 300 times the wager (or the winnings
the winnings are in the form of a non-cash payment, such as are at least $1,200 from bingo or slot ma-
a car won at a raffle, the proceeds from the wager are the chines or $1,500 from keno or more than
difference between the fair market value of the item won and $5,000 from a poker tournament).
the amount of the wager. Example: Your organization has slot machines in
You must deduct and withhold tax from the winnings in an its barroom. Mr. B wins $1,200 at the slot machine.
amount equal to the product of the third lowest rate of tax Mr. B refuses to give you his taxpayer identification
applicable under section 1(c) of the Code (i.e., the rates ap- number. Because winnings of $1,200 or more from
plicable to unmarried individuals) and the amount subject to a slot machine are reportable winnings, you must
withholding. The applicable rate is 25% for 2003-2010 and report the winnings on Form W-2G. Slot machine
28% for 2011 and thereafter. The amount subject to with- winnings are not subject to regular withholding at
holding is the proceeds from the wager, as defined above. the 25% rate, but because Mr. B refuses to give
Withhold on the entire amount, not just on that portion great- you his taxpayer identification number so that you
er than $5,000. can properly complete the Form W-2G, you must
backup withhold $336. ($1,200 X 28%)
Chapter 6 - Reporting Winnings and Withholding Income Tax 23
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You will pay Mr. B $864 ($1,200 - $336) instead the amounts you report on your annual Form 945 must in-
of the entire amount of winnings. If you mistakenly clude the total amount of tax withheld from gaming winnings
pay Mr. B the entire $1,200, your organization will that you reported on all the Forms W-2G filed for the year.
be responsible for paying the backup withholding You must file Form 945 by January 31 following the close of
amount of $336. the reporting year. If you discover an underpayment or over-
payment error due to an administrative error on a previously
Backup withholding applies to the total amount of filed Form 945, use Form 945-X, Adjusted Annual Return of
the winnings reduced by the amount wagered, if the Withheld Federal Income Tax or Claim for Refund, to make
payer chooses to make that reduction. the correction. See Publication 15, (Circular E) Employer’s
Summary of Withholding Requirements
Backup Withholding At 28% If
Regular Withholding At 25% If
Type of Gaming Winner Does Not Provide TIN
Winnings Are:
and Winnings are:
Bingo N/A ≥ $1,200
Slot machines N/A ≥ $1,200
Keno N/A ≥ $1,500
Sweepstakes, wagering pools, lot-
> $5000 $600 to $5,000
teries, and raffles
Wagering transactions when win-
nings are at least 300 times the > $5,000 $600 to $5,000
amount wagered
N/A if winnings are reported on
Poker tournaments > $5,000
Form W-2G
Reporting Withheld Taxes Tax Guide and the instructions for Form 945-X for more in-
Report the amount of any taxes withheld from win- formation.
nings (whether at the regular or backup withhold- Depositing Non-Payroll Withheld Taxes
ing rate) in box 2 of the Form W-2G on which you If you report less than a $2,500 non-payroll tax liability for
report the winnings. the year, you may pay the tax with your annual timely-filed
Withholding Tax on Nonresident Aliens Form 945. If your non-payroll tax liability is $2,500 or great-
Generally, gambling winnings paid to a nonresident er, you must deposit those taxes on a monthly or semiweekly
alien are subject to withholding at 30% on the gross schedule using the Electronic Federal Tax Payment System
proceeds unless the income is exempted by treaty. (EFTPS). Be sure to deposit non-payroll withheld taxes
CHAPTER 6 But winnings of a nonresident alien from blackjack, separately from any payroll taxes for which your organization
baccarat, craps, roulette, or big-6 wheel are not may be liable.
subject to withholding and reporting. For more information about the deposit schedule you will be
The winnings and tax withheld are reported on required to follow, see “Depositing Taxes” in Publication 15,
Form 1042, Annual Withholding Tax Return for (Circular E), Employer’s Tax Guide. For more information
U.S. Source Income of Foreign Persons, and Form about the EFTPS or to enroll, visit www.eftps.gov.
1042-S, Foreign Person’s U.S. Source Income
Subject to Withholding. For more information, see
Publication 515, Withholding of Tax on Nonresi-
dent Aliens and Foreign Entities.
Annual Return of “Non-Payroll Withheld
Taxes”
Taxes withheld from gaming winnings are called
non-payroll withheld taxes. You must report the to-
tal amount of federal income tax you withhold from
such payments during the year on Form 945, An-
nual Return of Withheld Federal Income Tax. Non-
payroll payments include gaming winnings subject
to either regular or backup withholding. Therefore,
24 Chapter 6 - Reporting Winnings and Withholding Income Tax
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Wagering Tax
Gaming Excise Taxes
You are required to pay the wagering tax when you
Most gaming requires the participant to stake, or bet, some accept a wager from a bettor—
money for the chance of winning a prize, award, or jackpot.
The money a bettor places in a game is called the wager. If • On a sports event;
you are engaged in the business of accepting wagers, you • On a contest;
may be required to pay two separate excise taxes. These are
in addition to any unrelated business income tax that gaming • Participating in a wagering pool with re-
may generate. The excise taxes are: spect to a sports event or contest, if the
wagering pool is conducted for profit; or
• A tax on wagers (“wagering tax”); and
• Participating in a lottery conducted for
• An occupational tax on persons in the business of profit.
accepting wagers and on persons who receive wa-
gers on behalf of someone in the business of ac- (Some wagers are exempt – see the section “Wa-
cepting wagers (“occupational tax”). gers Exempt from Wagering Tax,” below.)
You are engaged in the business of accepting wagers for Conducted for Profit: A wagering pool or lottery is
an event or contest if, depending on the outcome, you are conducted for profit if it earns a direct profit, if it
assuming the risk of profit and loss. This is true regardless of is expected to generate an indirect profit such as
how few bets you accept or how infrequently you take them increased sales or attendance, or if the operator
CHAPTER 7
Chapter 7 - Gaming Excise Taxes 25
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takes a percentage of the contributions or charges presence of all persons placing wagers in such game is not
a fee to join the pool. subject to the wagering tax.
Wagers Subject to Wagering Tax Games of this type involve group play, and include bingo
Note: Any person or entity in the business of ac- meeting the statutory bingo exclusion (as described in
cepting wagers will be liable for the wagering ex- Chapter 2), keno, card games, dice games, and games in-
cise tax even if such a business is illegal in the state volving wheels of chance, such as roulette wheels.
where it is conducted. The categories of wagers to
which the tax applies are detailed below. Drawings Conducted By Exempt Organizations: A wager
placed in a drawing conducted by a tax-exempt organization
Sports Events: If you accept a wager placed on a is not considered a “wager placed in a lottery conducted for
sports event, you must pay the wagering tax on the profit” (and, thus, is not subject to the tax on wagers) so long
wager. It does not matter whether the sports event as no part of the net proceeds from such drawing “inures” to
is an amateur, scholastic, or professional event. Typ- the benefit of any private shareholder or individual.
ical sports events on which wagers are placed in-
clude horse, auto or dog racing; boxing or wrestling Drawing: A drawing is any physical drawing of a ticket or
matches; baseball, football or basketball games; use of a wheel or similar device by which the winner is con-
tennis or golf matches; or track meets. clusively determined by a number, letter, legend, or symbol
without reference to an outside event that is beyond the con-
Contests: You are responsible for paying the wa- trol of the operator.
gering tax if you accept a wager placed on a con-
test. A contest includes any kind of contest involv- Inures to the Benefit of Private Shareholders or Individuals:
ing speed, skill, endurance, popularity, politics, This phrase comes directly from the Code and describes a
strength, appearances, etc. Typical contests on circumstance where a drawing, defined above, benefits an
which wagers are placed include dance marathons, individual personally in some way. This could happen if, for
log-rolling contests, wood-chopping contests, spell- example, the drawing operator’s salary is unreasonable, or if
ing bees and beauty contests. he receives a percentage of the total wagers as compensa-
tion.
Wagering Pools: If you conduct a wagering pool for
profit and accept a wager placed in the wagering When the drawing is conducted by a membership organi-
pool, you must pay the wagering tax on the wager. zation, such as a social club, fraternal society, or veterans’
A wagering pool is any scheme or method where organization, the drawing could benefit the members if wa-
prizes are distributed to one or more winning bet- gers are accepted from nonmembers and used for oper-
tors based on the outcome of a sports event or con- ating expenses or to pay for member benefits or services.
test; or a combination of both. If, however, the wagering revenue is separately accounted
for and earmarked solely for charitable purposes, there is
Lotteries: If you conduct a lottery for profit, and ac- no inurement and no liability for wagering tax arises. And,
cept a wager placed in the lottery, you must pay if the wagers are accepted from members only, proceeds
the wagering tax on the wager. A lottery is a type of of a drawing may be used for the organization’s operations
wagering in which: without triggering the wagering tax.
• A prize is offered; Example: S, a social club exempt under section 501(c)(7),
sells lottery tickets. Only club members may purchase tick-
• Participants pay for the opportunity to win ets. The winners receive a portion of the proceeds from the
the prize; and, sale of the tickets. The remaining proceeds go to the gen-
• The prize is awarded by chance. eral funds of the club and are used to defray its operating
expenses or to offset losses incurred in the club’s activities,
A lottery also includes “numbers game” types of which are devoted exclusively to the pleasure and recreation
wagering in which the player pays a fixed amount of its members. Because the drawing is limited to members
and selects a number or combination of numbers. If and the net proceeds are used solely to meet the club’s op-
the selected number or numbers appear or are pub- erating expenses, none of the proceeds inure to the benefit
lished in the mutually understood manner, the lot- of any private shareholder or individual. Therefore, the club
tery operator pays the player a prize. Tip jars, raffles, is not engaged in the business of accepting wagers placed
pull-tabs, and similar games meet the definition of in a lottery conducted for profit, and is not liable for wager-
CHAPTER 7 wagers placed in a lottery. ing tax.
Wagers Exempt from Wagering Tax Example: B, a veterans’ organization exempt under sec-
There is no wagering tax on wagers placed in tion 501(c)(19), occasionally sells pull-tabs at bingo games
• Games when all participants are present; which are open to the general public. A portion of the pro-
ceeds from pull-tab sales are used to pay B’s operating and
• Drawings conducted by exempt organiza- administrative expenses, without which B would have to
tions; or increase its dues or other member contributions. Because
a portion of the net proceeds from the pull-tabs indirectly
• Games played on a coin-operated device. inures to the members, B is considered to be engaged in the
Games When All Are Present: A wager placed in a business of accepting wagers placed in a lottery conducted
game in which the wagers are placed, the winners for profit and is liable for wagering taxes.
are determined, and the prizes are distributed in the
26 Chapter 7 - Gaming Excise Taxes
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Example: Y, a section 501(c)(3) organization, sells pull- Occupational Tax
tabs. The organization uses net proceeds from pull-tab sales An annual occupational tax must be paid by—
to carry out its exempt purpose. There is no inurement or
private benefit to individuals, so the wagering tax does not • Any person or organization that is respon-
apply to the sales of the pull-tabs. sible for paying wagering tax; and,
Coin-Operated Device: There is no wagering tax on amounts • Any person who receives wagers on behalf
spent to operate coin-operated devices. Coin-operated de- of a person or organization that is respon-
vices include slot machines, pinball machines, and video ma- sible for paying wagering tax.
chines such as those that display poker hands. In other words, if you are in the business of accept-
Parimutuel Wagering: There is no wagering tax on wagers ing wagers and are required to pay wagering tax,
placed with or in a wagering pool conducted by a parimutuel then you and each of your employees or agents
enterprise licensed under state law. who receive wagers on your behalf must separately
pay an occupational tax. If your games meet any of
State-conducted Lotteries: There is no wagering tax on wa- the exemptions to the wagering tax shown above,
gers placed in lotteries, sweepstakes or wagering pools you will not be liable for the occupational tax.
conducted by a state, under state law where the wager is
place with the state or its authorized employees or agents. If you engage in illegal wagering, paying the occu-
pational tax does not shield you from any penalties
Rate of Wagering Tax or punishment under federal or state law.
The tax rate depends on whether the wager is authorized
under the law of the state in which it is accepted, in other Amount of the Tax
words, on whether the wager is legal. The tax on legal wa- The amount of the occupational tax depends on
gers is 0.25% of the amount of the wager. The tax on unau- whether the wager is authorized, i.e., legal, under
thorized, or illegal, wagers is 2% of the amount of the wager. the laws of the state in which the wager is accept-
ed.
Example: Lodge Y, a fraternal beneficiary society exempt
under section 501(c)(8) sells pull-tabs at its bar to both • If the person or organization required to
members and nonmembers. The proceeds go to Y’s general pay the occupational tax accepts only au-
account to pay administrative and operating expenses. Y is thorized wagers, the amount of the tax is
liable for wagering tax because the proceeds from pull-tab $50 per year.
sales to nonmembers inure to the private benefit of Y’s mem- • If the person or organization required to
bers. The rate of tax is 0.25% because Y is licensed by the pay the occupational tax accepts any wa-
state to sell pull-tabs and the wager is legal under state law. ger that is not authorized, the amount of
The amount of the wager is the sum risked by the bettor, the tax is $500 per year.
including any charges incurred in placing the bet. If you Registering and Paying the Occupational Tax
charge the bettor for the wagering tax as a separate charge, Each person required to pay the occupational tax
the charge is not included in the amount of the wager. must register with the IRS by filing a return on Form
If you engage in illegal wagering, paying the wagering tax 11-C, Occupational Tax and Registration Return
does not shield you from any penalties or punishment under for Wagering. The occupational tax must be paid
federal or state law. when filing the return.
Monthly Return of Wagering Tax Initial Return: You must file the first return on Form
You must file a return on Form 730, Monthly Tax Return for 11-C and pay the occupational tax before you start
Wagers, for every month in which you accept a wager on accepting wagers. The tax for the year in which you
which you owe wagering tax. Use Form 730 to report the start accepting wagers is determined proportion-
gross amount of wagers accepted and to figure the tax on ately, from the first day of the month in which you CHAPTER 7
those wagers. begin accepting wagers to the following June 30.
For example, if you accept wagers for the first time
File the Form 730 by the last day of the month following the on April 14, you must pay a prorated tax for the
month for which you are reporting. For example, if you ac- period from April 1 to June 30. You would pay a tax
cepted wagers in April, you would report them on your Form that is 91/365ths of the annual tax.
730 due by May 31. Once you file a Form 730, you must
continue to file it every month, regardless of whether you Subsequent Returns: After your initial return, you
owe wagering tax, until you stop accepting wagers. If you must file subsequent returns on Form 11-C by July
stop accepting wagers, check the “final return” box on the 1 of each year to cover a one-year period beginning
last Form 730 you file. July 1 and ending June 30 of the following year. You
must pay the tax for the entire year, even if you ac-
Paying the Wagering Tax cept wagers for only a part of the year.
You can pay the wagering tax either electronically by using
the Electronic Federal Tax Payment System (EFTPS) or by Recordkeeping by the Organization for
mailing a check or money order with your Form 730. Include Wagering and Occupational Taxes
the payment voucher Form 730-V whenever you mail any Daily Record: You must keep a daily record show-
payment. ing the gross amount of all wagers on which wager-
ing tax is due. The record for each day’s operations
Chapter 7 - Gaming Excise Taxes 27
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must show: number.
• The gross amount of wagers accepted; Form 730 and Form 11-C: You must keep a copy of each
Form 730 and Form 11-C that you file.
• The gross amount of each class or type of
wager accepted on each separate event, You must keep each record at your principal place of busi-
contest, or other wagering medium; ness for at least three years from the due date of the return
to which the record pertains. The record must be available
• The gross amount, separately, of wagers- to the IRS at all times.
» Accepted directly by you or at your reg- Recordkeeping by Agents and Employees
istered place of business; and Every agent or employee of your organization that receives
» Accepted for you by your agents at any wagers on your behalf at any place other than your regis-
place other than your registered place tered place of business must keep a daily record of:
of business; and • The gross amount of wagers received;
• The gross amount of tax collected from or • The amount, if any, retained as a commission or as
charged to bettors as a separate item. compensation for receiving the wagers; and
Records of Agents and Employees: You must main- • The amount turned over to you.
tain a separate record of each agent or employee
receiving wagers on your behalf. Such record must Such records must be kept for a period of at least three
include the employee’s or agent’s name, address, years from the date the wager was received, and must be
periods of employment, and employer identification available to the IRS at all times.
CHAPTER 7
28 Chapter 7 - Gaming Excise Taxes
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Social Security, Medicare, and withheld income
General Tax Calendar
tax: File Form 941 for the fourth quarter of the previ-
for Organizations That ous calendar year. Deposit or pay any undeposited
tax. If your tax liability is less than $2,500, you can
Conduct Gaming (Calendar
pay it in full with a timely filed return. If you depos-
Year Filers) ited the tax for the quarter in full and on time, you
have until February 10 to file the return.
Certain small employers: File Form 944 to report
Note: This calendar does not account for Satur-
Social Security, Medicare and withheld income
days, Sundays, or legal holidays. If a due date
taxes for the previous calendar year. Deposit or pay
for performing any act for tax purposes falls on
any undeposited tax. If your tax liability is $2,500 or
a Saturday, Sunday, or legal holiday, it is de-
more the entire previous year but less than $2,500
layed until the next day that is not a Saturday,
for the fourth quarter of the previous year, deposit
Sunday, or legal holiday. See Publication 509,
any undeposited tax or pay it in full with a timely
Tax Calendar for [Year], for due dates adjusted
filed return.
to take account of the weekends and holidays
of the particular calendar year. Federal unemployment tax: File Form 940 for the
previous calendar year. If your undeposited tax is
$500 or less, you can either pay it with your return
Fiscal Year Filers: If you use a fiscal year as your accounting or deposit it. If it is more than $500, you must de-
period rather than a calendar year, change the dates in this posit it. If you deposited the tax for the year in full
calendar as follows: and on time, you have until February 10 to file the
return.
• File Form 990 or 990-EZ (or file Form 8868 to ap-
ply for an extension to file Form 990 or 990-EZ) by Wagering tax: File Form 730 and pay the tax on
the 15th day of the 5th month after your accounting wagers accepted during December.
period ends. By February 10
• File Form 990-T (or file Form 8868 to apply for an Employees who work for tips: If you received $20
extension to file Form 990-T) by the 15th day of the or more in tips during January, report them to your
5th month after your accounting period ends. employer. You can use Form 4070, Employee’s Re-
port of Tips to Employer.
• Pay estimated unrelated business income tax is
due by the 15th day of the 4th, 6th, 9th, and 12th February 15
months of your fiscal year. Social Security, Medicare, and withheld income
tax: If the monthly deposit rule applies, deposit the
The first quarter of a calendar year comprises January, Feb- tax for payments in January.
ruary, and March.
Nonpayroll withholding: If the monthly deposit rule
By January 10 applies, deposit the tax for payments in January.
Employees who work for tips: If you received $20 or more
in tips during December, report them to your employer. You By February 28
can use Form 4070, Employee’s Report of Tips to Employer. Payers of gambling winnings: If you use a paper
form, you must file Copy A of all Forms W-2G for
By January 15 winnings for the previous calendar year by Febru-
Social Security, Medicare and withheld income tax: If the ary 28 with the IRS. Use Form 1096, Annual Sum-
monthly deposit rule applies, deposit the tax for payments mary and Transmittal of U.S. Information Returns,
in December. to transmit paper Forms W-2G to the IRS. If you
file electronically, the due date is extended to March
Nonpayroll withholding: If the monthly deposit rule applies,
31.
deposit the tax for payments in December.
Payers of independent contractors: If you use a pa-
By January 3
per form, you must file Form 1099-MISC for pay-
Employers: Give your employees their copies of Form W-2
ments for the previous calendar year by February
for the previous year.
28 with the IRS. Use Form 1096, Annual Sum-
Payers of gambling winnings: If you either paid reportable mary and Transmittal of U.S. Information Returns, EXHIBIT B
gambling winnings or withheld income tax from gambling to transmit paper Forms 1099-MISC to the IRS. If
winnings the previous calendar year, give the winners their you file electronically, the due date is extended to
copies of Form W-2G. March 31.
Nonpayroll taxes: File Form 945 to report income tax with- By the Last Day of February (February 28 or
held the previous calendar year on all nonpayroll items, in- February 29 in leap years)
cluding backup withholding and withholding on gambling Employers: If you use a paper form, you must file
winnings. Deposit or pay any undeposited tax. If your tax li- Copy A of all Forms W-2 issued for the previous
ability is less than $2,500, you can pay it in full with a timely calendar year by the last day of February, with the
filed return. If you deposited the tax for the year in full and on Social Security Administration (SSA). Use Form
time, you have until February 10 to file the return. W-3, Transmittal of Wage and Tax Statements, to
Exhibit B - General Tax Calendar for Organizations That Conduct Gaming 29
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transmit paper Forms W-2 to the SSA. If you file gers accepted during March.
electronically, the due date is extended to March 31.
By May 10
Wagering tax: File Form 730 and pay the tax on wa- Employees who work for tips: If you received $20 or more in
gers accepted during January. tips during April, report them to your employer. You can use
Form 4070, Employee’s Report of Tips to Employer.
By March 10
Employees who work for tips: If you received $20 By May 15
or more in tips during February, report them to your Social Security, Medicare, and withheld income tax: If the
employer. You can use Form 4070, Employee’s Re- monthly deposit rule applies, deposit the tax for payments
port of Tips to Employer. in April.
By March 15 Nonpayroll withholding: If the monthly deposit rule applies,
Social Security, Medicare, and withheld income deposit the tax for payments in April.
tax: If the monthly deposit rule applies, deposit the
tax for payments in February. Exempt organization annual information return or notice:
File annual information return (Form 990 or 990-EZ) or e-
Nonpayroll withholding: If the monthly deposit rule Postcard (Form 990-N). If you want an automatic 3-month
applies, deposit the tax for payments in February. extension to file Form 990 or 990-EZ, file Form 8868. Then,
file Form 990 or 990-EZ by August 15.
By March 31
Electronic Filing of Forms 1099-MISC, W-2, and Unrelated business income tax return: File Form 990-T to
W-2G: File electronic Forms W-2 with the SSA. report your unrelated business income and unrelated busi-
For information on reporting Form W-2 information ness income tax liability for the previous calendar year, and
to the SSA electronically, visit the Social Security deposit any tax due in full. Corporations may request an au-
Administration’s web page at www.socialsecurity. tomatic 6-month extension to file Form 990-T by filing Form
gov/employer. File electronic Forms 1099-MISC 8868. Then, file Form 990-T by November 15. Trusts may
and W-2G with the IRS. For information on filing request an automatic 3-month extension to file Form 990-T
information returns electronically with the IRS, see by filing Form 8868. Then, file Form 990-T by August 15.
Publication 1220, Specifications for Filing Forms
1098, 1099, 5498, and W-2G Electronically. By May 31
Wagering tax: File Form 730 and pay the tax on wagers ac-
Wagering tax: File Form 730 and pay the tax on wa- cepted during April.
gers accepted during February.
By June 10
The second quarter of a calendar year comprises Employees who work for tips: If you received $20 or more in
April, May, and June. tips during May, report them to your employer. You can use
By April 10 Form 4070, Employee’s Report of Tips to Employer.
Employees who work for tips: If you received $20
By June 15
or more in tips during March, report them to your
Social Security, Medicare, and withheld income tax: If the
employer. You can use Form 4070, Employee’s Re-
monthly deposit rule applies, deposit the tax for payments
port of Tips to Employer.
in May.
By April 15
Nonpayroll withholding: If the monthly deposit rule applies,
Social Security, Medicare, and withheld income
deposit the tax for payments in May.
tax: If the monthly deposit rule applies, deposit the
tax for payments in March. Unrelated business income tax: If total expected tax for the
year is $500 or more, deposit second installment of estimat-
Nonpayroll withholding: If the monthly deposit rule
ed tax. Use Form 990-W to figure your estimated tax liability.
applies, deposit the tax for payments in March.
Unrelated business income tax: If total expected tax By June 30
for the tax year is $500 or more, deposit the first Wagering tax: File Form 730 and pay the tax on wagers ac-
installment of estimated tax. Use Form 990-W to cepted during May.
figure your estimated tax liability.
The third quarter of a calendar year comprises July, August,
By April 30 and September.
Social Security, Medicare and withheld income tax:
File Form 941 for the first quarter of the calendar By July 1
year. Deposit or pay any undeposited tax. If your tax Occupational excise taxes: File Form 11-C to register and
liability is less than $2,500, you can pay it in full with pay the annual tax if you are in the business of taking wagers.
EXHIBIT B a timely filed return. If you deposited the tax for the
quarter in full and on time, you have until May 10 to By July 10
file the return. Employees who work for tips: If you received $20 or more in
Federal unemployment tax: Deposit the tax owed tips during June, report them to your employer. You can use
through March if more than $500. Form 4070, Employee’s Report of Tips to Employer.
Wagering tax: File Form 730 and pay the tax on wa-
30 Exhibit B - General Tax Calendar for Organizations That Conduct Gaming
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By July 15 If you deposited the tax for the quarter in full and
Social Security, Medicare, and withheld income tax: If the on time, you have until August 10 to file the return.
monthly deposit rule applies, deposit the tax for payments
in June. Certain small employers: Deposit any undepos-
ited tax if your tax liability is $2,500 or more for the
Nonpayroll withholding: If the monthly deposit rule applies, calendar year but less than $2,500 for the second
deposit the tax for payments in June. quarter.
Federal unemployment tax: Deposit the tax owed
By July 31
through June if more than $500.
Social Security, Medicare, and withheld income tax: File
Form 941 for the second quarter of the calendar year. De- Wagering tax: File Form 730 and pay the tax on
posit or pay any undeposited tax. If your tax liability is less wagers accepted during June.
than $2,500, you can pay it in full with a timely filed return.
EXHIBIT B
Exhibit B - General Tax Calendar for Organizations That Conduct Gaming 31
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By August 10 your tax liability is less than $2,500, you can pay it in full with
Employees who work for tips: If you received $20 a timely filed return. If you deposited the tax for the quarter
or more in tips during June, report them to your em- in full and on time, you have until November 10 to file the
ployer. You can use Form 4070, Employee’s Report return.
of Tips to Employer.
Certain small employers: Deposit any undeposited tax if
By August 15 your tax liability is $2,500 or more for the calendar year but
Social Security, Medicare, and withheld income less than $2,500 for the third quarter.
tax: If the monthly deposit rule applies, deposit the
tax for payments in July. Federal unemployment tax: Deposit the tax owed through
September if more than $500.
Nonpayroll withholding: If the monthly deposit rule
applies, deposit the tax for payments in July. Wagering tax: File Form 730 and pay the tax on wagers ac-
cepted during September.
Exempt organization annual information return: If
you requested an automatic 3-month extension to By November 10
file your annual information return, file Form 990 or Employees who work for tips: If you received
990-EZ, or file Form 8868 to request an additional $20 or more in tips during October,
(not automatic) 3-month extension. If an additional report them to your employer.
3-month extension is granted, file Form 990 or 990- You can use Form 4070,
EZ by November 15. Employee’s Report of
Tips to Employer.
By August 31
Wagering tax: File Form 730 and pay the tax on
wagers accepted during July.
By September 10
Employees who work for tips: If you received $20
or more in tips during August, report them to your
employer. You can use Form 4070, Employee’s Re-
port of Tips to Employer.
By September 15
Social Security, Medicare, and withheld income
tax: If the monthly deposit rule applies, deposit the
tax for payments in August.
Nonpayroll withholding: If the monthly deposit rule
applies, deposit the tax for payments in August.
Unrelated business income tax: If total expected
tax for the year is $500 or more, deposit third
installment of estimated tax. Use Form 990-W to
figure your estimated tax liability.
By September 30
Wagering tax: File Form 730 and pay the tax on
wagers accepted during August.
The fourth quarter of a calendar year comprises
October, November, and December.
By October 10
Employees who work for tips: If you received $20
or more in tips during September, report them to
your employer. You can use Form 4070, Employee’s
Report of Tips to Employer.
By October 15
Social Security, Medicare, and withheld income
tax: If the monthly deposit rule applies, deposit the
tax for payments in September.
EXHIBIT B Nonpayroll withholding: If the monthly deposit rule
applies, deposit the tax for payments in September.
By October 31
Social Security, Medicare, and withheld income
tax: File Form 941 for the third quarter of the cal-
endar year. Deposit or pay any undeposited tax. If
32 Exhibit B - General Tax Calendar for Organizations That Conduct Gaming
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By November 15 By November 30
Social Security, Medicare, and withheld income tax: If the Income tax withholding: Ask employees whose
monthly deposit rule applies, deposit the tax for payments withholding allowances will be different next calen-
in October. dar year to fill out a new Form W-4, Employee’s
Withholding Allowance Certificate.
Nonpayroll withholding: If the monthly deposit rule applies,
deposit the tax for payments in October. Wagering tax: File Form 730 and pay the tax on
wagers accepted during October.
Exempt organization annual information return: If you were
given an additional 3-month extension to file your annual in- By December 10
formation return, file Form 990 or 990-EZ. Employees who work for tips: If you received $20
or more in tips during November, report them to
Unrelated business income tax: If you requested an auto- your employer. You can use Form 4070, Employ-
matic 6-month extension to file your exempt organization ee’s Report of Tips to Employer.
business income tax return (corporations only), file Form
990-T. By December 15
Social Security, Medicare, and withheld income
tax: If the monthly deposit rule applies, deposit the
tax for payments in November.
Nonpayroll withholding: If the monthly deposit rule
applies, deposit the tax for payments in November.
Unrelated business income tax.: If total expected
tax for the year is $500 or more, deposit fourth in-
stallment of estimated tax. Use Form 990-W to fig-
ure your estimated tax liability.
December 31
Wagering tax: File Form 730 and pay the tax on
wagers accepted during November.
O
G
T
E X
EXHIBIT B
Exhibit B - General Tax Calendar for Organizations That Conduct Gaming 33
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Summary of Forms, Publications and Other
Resources for Organizations Conducting Gaming
Forms
Form 990, Return of Organization Exempt From Income Tax
Form 990-EZ, Short Form Return of Organization Exempt From Income Tax
Form 990-N, e-Postcard (electronic only)
Form 8868, Application for Extension of Time To File an Exempt Organization Return
Schedule G, Form 990 or Form 990-EZ, Supplemental Information Regarding Fundraising or Gaming Activities
(Form 990 or Form 990-EZ)
Form 990-T, Exempt Organization Business Income Tax Return
Form W-2G, Certain Gambling Winnings
Form 1096, Annual Summary and Transmittal of U.S. Information Returns
Form 5754, Statement by Person(s) Receiving Gambling Winnings
Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding
Form 945, Annual Return of Withheld Federal Income Tax
Form 730, Monthly Tax Return for Wagers
Form 730-V, Payment Voucher
Form 11-C, Occupational Tax and Registration Return for Wagering
Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax
Withholding
Form W-4, Employee’s Withholding Allowance Certificate
Form 941, Employer’s QUARTERLY Federal Tax Return
Form 944, Employer’s ANNUAL Federal Tax Return
Form 940, Employer’s Annual Federal Unemployment Tax Return
Form W-2, Wage and Tax Statement
Form W-3, Transmittal of Income and Tax Statements
Form 4070A, Employee’s Daily Record of Tips
Form 4070, Employee’s Report of Tips to Employer
Form 4137, Social Security and Medicare Tax on Unreported Tip Income
Form W-9, Request for Taxpayer Identification Number and Certification
Form 1099-MISC, Miscellaneous Income
EXHIBIT C
34 Exhibit C - Summary of Forms, Publications and Other Resources for Organizations Conducting Gaming
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Publications
Publication 557, Tax-Exempt Status for Your Organization
Publication 598, Tax on Unrelated Business Income of Exempt Organizations
Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
Publication 15, (Circular E), Employer’s Tax Guide
Publication 15-A, Employer’s Supplemental Tax Guide
Publication 531, Reporting Tip Income
Publication 583, Starting a Business and Keeping Records
Publication 4221-PC, Compliance Guide for 501(c)(3) Public Charities
Publication 4221-PF, Compliance Guide for 501(c)(3) Private Foundations
Publication 4221-NC, Compliance Guide for Tax Exempt Organizations (other than 501(c)(3) Public Charities
and Private Foundations)
Other Resources
IRS Tax-Exempt and Government Entities Customer Account Services: (877) 829-5500 (toll-free). This
department can answer your technical and procedural questions concerning charities and other non-profit
organizations.
Business and Specialty Tax Line: (800) 829-4933 (toll-free). For specific questions about employment taxes.
IRS Forms and Publications: (800) 829-3676 (toll-free) You can order tax forms and publications for delivery by U.
S. mail. Be aware that quantities are limited. Forms and publications may also be ordered through the IRS website;
see below.
IRS Main website: www.IRS.gov
Tax Information for Charities & Other Non-Profits: www.irs.gov/Charities-&-Non-Profits
Social Security Administration website: www.socialsecurity.gov/employer
IRS Forms and Publications: www.irs.gov/Forms-&-Pubs. You may download forms or publications or place an
order for current year items to be delivered by U.S. Mail.
EO Update: The IRS electronic newsletter with information for tax-exempt organizations and the practitioners who
represent them. To subscribe, go to www.irs.gov/Charities-&-Non-Profits and click on the “EO Newsletter”
link on the left side of the page.
Life Cycle of an Exempt Organization: To view, go to www.irs.gov/Charities-&-Non-Profits and click on the
“Life Cycle” link on the left side of the page.
Stay Exempt – Tax Basics for 501(c)(3) Organizations: A specialized educational website from the IRS Exempt EXHIBIT C
Organizations office. Go to www.StayExempt.irs.gov/.
Exhibit C - Summary of Forms, Publications and Other Resources for Organizations Conducting Gaming 35
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| Publication 3079 (Rev. 8-2013) Catalog Number 25706L Department of the Treasury Internal Revenue Service www.irs.gov |