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Lions Tax and Raffle Issues

Lions Tax and Raffle Issues. Lion Barry J . Boline, J.D . March 19, 2011. Issues for Today. What is a 501(c)(4)? What is a 501(c)(3)? What do we need to know about raffles?. Caveat.

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Lions Tax and Raffle Issues

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  1. Lions Tax and Raffle Issues Lion Barry J. Boline, J.D. March 19, 2011

  2. Issues for Today • What is a 501(c)(4)? • What is a 501(c)(3)? • What do we need to know about raffles?

  3. Caveat By the very nature of this limited discussion, we will be talking about generalities which may or may not apply in a given situation. This presentation should NOT be relied upon as legal advice. I would encourage you to contact an attorney or tax professional for your particular situation.

  4. What is §501(c)? • Internal Revenue Code § 501(c) • Tells us what type of entities don’t have to pay Federal Income Tax • Provides rules for keeping tax-exempt status • There are 24 different exemptions in §501(c) • We’ll deal with two • §501(c)(4) • §501(c)(3)

  5. §501(c)(4) • Local employee associations • Civic leagues and other organizations concerned with social welfare

  6. §501(c)(4) • A civic league can be exempt if: • Not organized for profit • Operated exclusively for promotion of social welfare • Must engage primarily in activities to promote the common good and general welfare of the people in the community • NOT: political campaigning • NOT: for recreation of members • NOT: carrying on business like a for-profit

  7. §501(c)(4) • LCI received 501(c)(4) status in December, 1940 • All Clubs under LCI umbrella also have same status

  8. Deductibility and §501(c)(4) • Donations NOT tax deductable • Required to notify contributors • Express, conspicuous statement • Required on all written, telephone, radio, of TV solicitation • Exception • Gross receipts under $100,000

  9. §501(c)(3) • Created and operated exclusively for exempt purposes • Upon dissolution, all assets go to another 501(c)(3) or the government

  10. §501(c)(3) • Exempt Purpose • Religious • Educational • Scientific • Testing for Public Safety • Literary • Athletic • Prevention of Cruelty to Children or Animals • Charitable

  11. §501(c)(3) • What is Charitable? • Relief of the poor, distressed and underprivileged • Advancement of religion, education or science • Building / maintaining public property • Lessening the burdens of government • Promotion of the social welfare through prevention of crime and discrimination or advancing the above

  12. §501(c)(3) • Donations are tax deductable • Possible special mailing rates • Right to issue tax exempt bonds • Possible right to avoid paying sales tax • No part of the net income can inure to the benefit of any member

  13. §501(c)(3) §501(c)(4) • Donations deductable • Rigid filing requirements • File very detailed 990 • Close scrutiny by IRS • Possible postage discount • Sales tax advantages • Specific project or purpose • Donations not deductable • Simpler to apply for • File less detailed 990 • Little IRS oversight • Varied projects §501(c)(3) v. §501(c)(4)

  14. §501(c)(3) v. §501(c)(4) • Why are Lions Clubs 501(c)(4)’s? • Not one good answer • LCI choose not to apply for (c)(3) status • Administrative v. Activity accounts • LCI (and clubs) may not have an exclusively “charitable purpose” under IRS definition • Increased filing requirements with (c)(3) • Much more governmental oversight

  15. Questions about 501(c)?

  16. Gambling in Wisconsin • Generally ILLEGAL under Federal law • State law allows certain specific types • Raffles • Class A and Class B • Calendar Raffles • Bingo • Other gambling-type fundraisers

  17. Raffles • Two general types of Raffles • Class A (Pre-event sale) • Class B (Same day sale)

  18. Class A Raffles • Pre-Printed Tickets • Must have required information on ticket • Pre-event sales • Typically two-part tickets

  19. Other Class A Rules • Sales start no more that 270 days before event • Face to Face sales only • Stubs cannot be mailed. (USPS says nothing can be mailed) • No internet sales • Maximum cost of $100 per ticket

  20. Other Class B Rules • Tickets must be the same form • “Bucket Raffles”, once illegal, now legal again with only one type of ticket • All Prizes must be awarded • Same money gets same number of tickets • No more than $10 per ticket

  21. How to Apply • Go to www.dos.state.wi.us keyword RAFFLE • Print out the application form (one for each Class, i.e. TWO applications) • Mail them in with $25 each • Renew annually

  22. Calendar Raffles • Must have a Class A license • Must get Calendar pre-approved • Send sample to Department of Gaming • They will respond within ten days • All of the Class A rules apply

  23. Bingo • Much more heavily regulated than raffles • See www.doa.state.wi.us for more info

  24. Other Charitable Gaming • Pull Tabs • Private games are being supplied illegally or under a loophole in Wisconsin law • In recent years, the department has referred 13 cases to local district attorneys for prosecution for SALE of pull tabs --The Associated Press ,November 20, 2008

  25. Pull Tabs • Only Wisconsin Lottery pull tabs are legal • Any other pull tabs not produced by the Wisconsin Lottery are not legal in Wisconsin

  26. Other Charitable Gaming • Casino Nights • Games such as Las Vegas nights where participants make a payment or donation in order to gamble with play money, and then use the play money at the end of the evening to bid on prizes . . . • constitute ILLEGAL lotteries under Wisconsin law. The law does not exempt benevolent or nonprofit organizations.

  27. Other Charitable Gaming • All other promotions in Wisconsin are illegal if: • They involve a prize • They involve giving up something ($$$) • They involve chance

  28. So, the Only Legal Gaming in Wisconsin is: • Class A and B Raffles (with license) • Calendar Raffles (with Class A license) • Bingo (with license) • Certain Crane games (with license) with prizes under $5 each • Pull Tabs produced by and sold on behalf of the Wisconsin Lottery

  29. Additional Resources Two informative websites: www.doa.state.wi.us www. datcp.state.wi.us This PowerPoint presentation can be downloaded at www. Lionbarry.net – look for the DG Presentations button on the left hand side

  30. Questions???

  31. Thank You

  32. Other issues not covered but still interesting

  33. Bingo • Any service organization may apply for a bingo license • Fee is $10.00 for each bingo occasion plus an annual license fee of $5.00 • Additional occupational fee of 1%-2% of gross receipts, payable semi-annually

  34. Bingo Rules • All organizations conducting bingo games must be licensed by the Wisconsin Division of Gaming • Every bingo occasion held must be listed on the license • Every bingo organization must maintain a separate “bingo checking account”

  35. Bingo Rules • Each organization must file financial bingo occasion reports twice each year • Twice a year, each licensed organization must pay an occupational tax on proceeds • Every organization conducting bingo must have a Seller’s Permit and collect sales tax from the players

  36. Bingo Rules • A comprehensive bookkeeping system must be utilized and all records kept for at least four years • All profits from operations must be used for proper and legitimate expenditures • All bingo supplies and equipment must be purchased from a licensed supplier

  37. Bingo Rules • Only bingo workers who have no record of criminal activity can assist in the conduct of bingo • Location where bingo held cannot be owned or operated by anyone with a criminal record, or gambling offense

  38. More 501(c)(3) information • If you have specific questions, please speak with a local attorney (it’s a great way to make a contact that may turn into a member) or search for information at the LCI website at www.lionsclubs.org. • LCI can steer you toward a company that will help you prepare a 501(c) (3) at a reasonable price.

  39. Does your club need to be a §501(c)(3)? • No • Cost* far outweighs the benefit of tax deductibility and possible sales tax benefit for most Lions Clubs *Document prep, accounting requirements, formation requirements, increased regulation

  40. Does your club need to have a §501(c)(3)? • Maybe • If you: • Have a special, charitable, ongoing project where you: expect to collect and spend money, can separate the project from the club, and will use the benefit of tax deductibility

  41. Does your club need to have a §501(c)(3)? • Specific Examples: • Wisconsin Lions Eye Bank • Grafton Lions Park • Windsor Heights Lions Food Bank • Foundations (like LCIF or WLF, but local)

  42. Individual Lions Club Foundation • Donations are tax deductable to donor • Must be a separate corporation • Must have its own Board of Directors • Must have its own checking account • Must file its own 990 • Must use all funds for stated purpose of foundation, i.e. funds can go from the club to the foundation, but not back again

  43. How to get §501(c)(3) determination • File Articles of Incorporation with the DFI • File Form SS-4 to get EIN • File Form 1023 with the IRS • Respond to letter from the IRS • Get IRS determination letter granting status • Document prep time – 30 to 40 hours • Time to get determination – 9 months

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