IRS Publication 3079: Tax-Exempt Organizations and Gaming

IRS Publication 3079 is the federal guide for tax-exempt organizations that raise money through gaming, from bingo and raffles to pull-tabs, lotteries, and scratch-off cards. It explains when gaming income is taxable, when it isn’t, what to report and withhold when someone wins, which forms the organization has to file, and how gaming can put an exempt status at risk if it grows too large or is run the wrong way.¹ Publication 3079 covers only the federal rules. States and localities have their own licensing and regulatory requirements for charitable gaming, and those apply on top of anything in the publication.

Who the Publication Applies To

Publication 3079 speaks to organizations recognized as tax-exempt under Section 501(c). The most common are 501(c)(3) charities, but the guidance also reaches social welfare organizations, social clubs, fraternal societies, veterans’ organizations, and labor unions. The rules bend depending on the entity type: how much gaming an organization can run before its exemption is threatened is not the same for a public charity as it is for a social club.²

The activities in scope are the ones nonprofits typically use for fundraising: bingo, pull-tabs (sometimes called instant bingo or break-open tickets), raffles, lotteries, scratch-offs, and other games of chance.

When Gaming Income Is Taxable

Gaming income doesn’t get a pass because a nonprofit earned it. The IRS runs it through the same three-part test used for any potential unrelated business income. The income is taxable if the activity is a trade or business, is regularly carried on, and is not substantially related to the organization’s exempt purpose.³

Most gaming fails the third prong. A raffle raises money, but the raffle itself doesn’t educate anyone, relieve poverty, or advance whatever the organization was formed to do. Needing the funds doesn’t make the fundraising activity related to the exempt purpose.¹ Frequency matters too. A weekly poker night looks regularly carried on in a way that a single annual gala raffle usually does not; the IRS compares the frequency and continuity of the activity to how a commercial operator would run it.

When gaming income is unrelated business income, the taxable amount is the gross income from the activity minus the deductions directly connected to running it.⁴

Three Exceptions That Keep Gaming Tax-Free

Even gaming that meets the three-part test can escape tax under one of three statutory exceptions.

Volunteer Labor

If substantially all the work of running the gaming activity is performed by unpaid volunteers, the income is not treated as coming from an unrelated trade or business.³ This is the exception most small nonprofits rely on when board members and community helpers staff a bingo hall or raffle table. “Substantially all” doesn’t require that every worker be unpaid, but the organization needs to show that volunteers do the overwhelming majority of the work.

Organizations exempt under 501(c)(7) (social clubs), 501(c)(9) (voluntary employees’ beneficiary associations), and 501(c)(17) (supplemental unemployment benefit trusts) are subject to special income rules under Section 512(a)(3) that can override this exception.⁴

Bingo

Traditional bingo is excluded from unrelated business income when three conditions all hold: the game is played in the physical presence of everyone who placed a wager, commercial for-profit businesses don’t ordinarily conduct bingo in the area, and the game doesn’t violate state or local law.³ The “not ordinarily carried out on a commercial basis” piece is what trips organizations up in areas where for-profit bingo halls are common.

Qualified Public Entertainment Activities

Gaming run as part of a public fair, exposition, or similar event can qualify for a separate exclusion if the sponsoring organization is the type that ordinarily conducts such events. This one is narrower and generally reaches agricultural fairs, state fairs, and comparable community gatherings.³

Why a Professional Gaming Company Can Break the Exception

Hiring a professional gaming firm to run your casino night or manage a pull-tab operation is where a lot of nonprofits stumble. The volunteer labor exception is the most common shield against tax on gaming income, and it collapses the moment paid third-party staff take over the work. Once that happens, the income becomes taxable.

The IRS treats third-party arrangements as an audit concern, including setups where an exempt organization sponsors games at a for-profit venue staffed by that business’s employees.² Another arrangement the IRS watches for is one nonprofit making a “contribution” to another in exchange for workers described as “volunteers.” That kind of swap does not satisfy the exception.

Reporting and Withholding on Winners

An organization that pays gambling winnings must file Form W-2G (Certain Gambling Winnings) for each winner whose payout meets the applicable reporting threshold. Beginning in 2026, the minimum threshold for reporting on Form W-2G is $2,000, adjusted annually for inflation.⁵ Prior thresholds through 2025 were $600 for lotteries, raffles, and sweepstakes and $1,200 for bingo and slot machines. Specific thresholds still vary by game type, so check the current IRS instructions for the category involved.

Form W-2G goes to both the winner and the IRS. It reports the amount won, the type of wager, and any federal income tax withheld. To complete it, the organization needs the winner’s name, address, and taxpayer identification number (TIN).

Federal Income Tax Withholding

Withholding kicks in at a higher dollar level than reporting. For sweepstakes, wagering pools, and lotteries, the organization must withhold at a flat 24% when the winnings minus the wager exceed $5,000.⁶ The amount withheld is reported on Form W-2G and remitted to the IRS on the winner’s behalf.

Backup withholding at the same 24% rate applies in a different situation: when a winner fails to provide a valid TIN or gives one the IRS flags as incorrect.⁷ Collect TINs before prizes leave the building. Once the winner is out the door, recovering that information becomes hard.

Non-Cash Prizes

When the prize is a car, a trip, or other property, withholding is based on fair market value. If the FMV minus the wager exceeds $5,000, the organization must withhold 24% of that net amount. That creates an awkward moment at the event: either the winner pays the withholding out of pocket before receiving the prize, or the organization covers the tax and applies a higher grossed-up rate of 31.58%.⁵ Work through the logistics before the event, not while someone is waiting for keys.

All gambling winnings, including the fair market value of non-cash prizes, are taxable income to the winner regardless of whether they hit the W-2G reporting threshold.⁸

Forms the Organization Itself Must File

Form 990 or 990-EZ

Most exempt organizations file an annual information return, and gaming revenue, expenses, and net income are part of that return.⁹ A common and costly error is reporting gaming at net rather than gross. The IRS expects gross receipts before prizes and expenses, and getting this wrong can also affect whether other filing thresholds are triggered.²

Schedule G

If gross gaming income exceeds $15,000, Schedule G (Supplemental Information Regarding Fundraising or Gaming Activities) is attached to the Form 990 or 990-EZ.¹⁰ It calls for a detailed breakdown by activity of gross revenue, cash and non-cash prizes, and other direct expenses.

Form 990-T

When gaming produces $1,000 or more of gross unrelated business income, the organization files Form 990-T to compute and pay the tax.¹¹ This is separate from the annual information return. Organizations that expect to owe $500 or more in unrelated business income tax must also make quarterly estimated tax payments, generally due by the 15th day of the 4th, 6th, 9th, and 12th months of the tax year.¹² Missing an estimated payment adds underpayment penalties on top of the tax.

Records the IRS Expects You to Keep

Documentation is what turns an audit into a manageable review. At a minimum, keep:

Gross receipts by game and by date, including ticket sales and wager totals.
Prize payouts, with cash disbursements and fair market value of non-cash prizes backed by receipts or appraisals.
Operating expenses for supplies, equipment rental, venue fees, and any worker compensation.
Daily activity logs, session sheets for each game, and inventory records for pull-tabs and other consumable tickets, including reconciliation of unsold stock.
Winner information: names, addresses, TINs, and copies of issued W-2G forms.

Organizations relying on the volunteer labor exception should also document volunteer hours and the absence of compensation. If the IRS challenges the exception, the burden of proof sits with the organization.

When Gaming Can Threaten Exempt Status

A modest fundraising raffle won’t put anyone’s exemption in jeopardy. The problems start when gaming becomes a dominant activity, and the IRS applies different limits depending on the type of exempt organization:

501(c)(3) charities: Gaming cannot be the organization’s sole purpose. A charity whose only support comes from gaming treated as unrelated business income may be reclassified as a private foundation, which brings additional restrictions.²
501(c)(4) social welfare organizations and 501(c)(5) labor and agricultural organizations: If gaming becomes the primary activity, the exemption itself can be lost.²
501(c)(6) business leagues: These may not engage in any regular business of a kind ordinarily carried on for profit, gaming included.
501(c)(7) social clubs: Unrelated business income from non-members and the general public generally cannot exceed 15% of gross receipts on a regular basis.

The IRS also looks at how gaming is run. Games that violate state or local law, gaming conducted off-site or with the general public in ways inconsistent with the organization’s purpose, and gaming that is poorly managed all draw attention. Auditors specifically consider whether gaming receipts are large enough to affect foundation classification or exemption status.²

Penalties for Getting It Wrong

Excess Benefit Transactions

When gaming proceeds end up benefiting insiders instead of the organization, the intermediate sanctions rules apply. A disqualified person who receives an excess benefit faces an initial excise tax of 25% of the excess amount, and if the transaction isn’t corrected in time, an additional tax of 200% follows.¹³ Organization managers who knowingly participate face a separate penalty of 10% of the excess benefit, capped at $20,000 per transaction.¹⁴ The sums in gaming can be large, and cash-heavy operations without strong internal controls create real opportunities for diversion.

Automatic Loss of Exempt Status

An organization that fails to file its required annual return (Form 990, 990-EZ, 990-PF, or 990-N) for three consecutive years automatically loses its exemption. Revocation takes effect on the original due date of the third missed return.¹⁵ The revoked organization owes federal income tax on all income, cannot receive tax-deductible contributions, and is removed from the IRS list of recognized exempt organizations. There is no appeal from an automatic revocation. The only route back is to apply for reinstatement, even for organizations that never had to apply for exemption in the first place.

Gaming can accelerate that risk quietly. Organizations sometimes underreport gaming revenue or miss the point at which their gaming has crossed a filing threshold, and the result is a return that is either inaccurate or never filed at all.

1
Internal Revenue Service. Publication 3079 – Tax-Exempt Organizations and Gaming
2
Internal Revenue Service. Exempt Organization Gaming and Unrelated Business Taxable Income
3
Office of the Law Revision Counsel. 26 USC 513 – Unrelated Trade or Business
4
Office of the Law Revision Counsel. 26 USC 512 – Unrelated Business Taxable Income
5
Internal Revenue Service. Instructions for Forms W-2G and 5754 (01/2026)
6
Office of the Law Revision Counsel. 26 USC 3402 – Income Tax Collected at Source
7
Internal Revenue Service. Topic No. 307, Backup Withholding
8
Internal Revenue Service. Topic No. 419, Gambling Income and Losses
9
Office of the Law Revision Counsel. 26 USC 6033 – Returns by Exempt Organizations
10
Internal Revenue Service. Instructions for Schedule G (Form 990)
11
Internal Revenue Service. Instructions for Form 990-T (2025)
12
Internal Revenue Service. Publication 598, Tax on Unrelated Business Income of Exempt Organizations
13
Office of the Law Revision Counsel. 26 USC 4958 – Taxes on Excess Benefit Transactions
14
Internal Revenue Service. Intermediate Sanctions – Excise Taxes
15
Internal Revenue Service. Automatic Revocation of Exemption