A donor purchased $300 worth of raffle tickets and now wants a letter for a tax deduction. What do we do?
The purchase of a lottery ticket from a charity is not deductible as a charitable contribution for federal income tax purposes. The IRS has ruled that the tickets are worth the chance to win the prize and there is no element of gift in the purchase. Therefore, you may want to thank the purchaser for the payment, but indicate that it was for lottery tickets and was not deductible.
The more devilish question is whether the lottery is legal? In most states, there are only limited exceptions to the basic rule that gambling is illegal unless run or licensed by the state. A lot of charities openly sponsor gambling that is not in compliance with the limitations. Fortunately for the charities, these rules appear to be among the least enforced rules in the world (as long as the charity is deemed legitimate).
We received an invitation very recently to a charitable “Casino Night” in honor of a prominent state legislator that appears to be in violation of our state law, but is not at all unusual. A couple of years ago, we advised a client that the charity’s lottery was illegal and were told they weren’t worried. They said their best ticket salesman was an Assistant District Attorney in the office that would be responsible for any prosecution.
State Charitable Solicitation Statutes: Everything You Wanted to Know But Were Afraid to Ask
Charities that seek contributions nationally must typically register in 39 states and the District of Columbia before starting to solicit. Furthermore, for-profit fundraisers are also required to register and file their contracts and other documentation with many states. Since many states are increasing their enforcement efforts to ensure that charities and fundraisers are complying with initial and annual registration requirements, it's important that charities and fundraisers abide by these statutes.
Program materials include an extensive review of the statutes and their provisions, plus a copy of the Uniform Registration Statement for multi-state filings. Purchasers will receive an e-mail receipt that includes a link that will take them to the product download. The download is a pdf file. Learn More
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