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Raffle issues for nonprofit organizations

A recent question likely applies to many nonprofit organizations:

Does an American Express Gift Card qualify as cash as defined by the Texas Charitable Raffle Law?

Here’s the answer:

Gift cards can be a confusing area.  The IRS looks upon gift cards as cash, so an American Express Gift Card, in my opinion, would also be a prohibited raffle prize in Texas.  There are some schools of thought where other types of gift cards that must be used at a particular store are okay.  For example, a gift card that must be used at a particular grocery store or clothing store.  Even though these are easily sold over the internet, they are not quite as effortlessly converted to cash. Money is not permitted as a prize, and the definition of money is coins, paper currency or a negotiable instrument that represents and is readily convertible to coins or paper currency. However, the most conservative approach is to provide a noncash item as the raffle prize.

If you want to be absolutely certain your particular type of gift card is allowed, you can call the Texas Attorney General’s Consumer Protection & Public Health Regional Offices.  Their contact information is available at https://www.oag.state.tx.us/consumer/cpd_regionals.shtml

Qualifying to hold a raffle

The Charitable Raffle Enabling Act (January 1, 1990) states that qualified organizations may hold up to two raffles per calendar year. To qualify, your organization must have existed for at least three preceding years and be exempt from federal income tax – IRS Section 501(c). Other qualifiers:

–         Any organizational income must not be distributed to members, officers, or a governing body.

–         A substantial portion of activities must not be engaged in influencing legislation.

–         The organization doesn’t participate in political campaigns.

If the organization is primarily for religious purposes, it must be in existence in Texas for at least 10 years.

 

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