Charitable Gaming, Raffles, and Auctions: Compliance and Logistics With AI

Why Raffles and Casino Nights Are Regulated Revenue

Gambling law in the United States is primarily state law. Most states start from a general prohibition on gambling and then carve out exceptions, and charitable gaming is one of the most common carve-outs. The exception usually comes with conditions: the organization must be a qualified nonprofit, often with a minimum number of years in existence; it may need a license or permit for each event or for the year; prizes may be capped; only volunteers may run the game; proceeds must go to charitable purposes; and records or financial reports must be filed afterward. Some states regulate raffles through the attorney general's charities office, some through a gaming commission or lottery agency, some through the department of revenue, and some delegate licensing to counties or cities.

The activities themselves are treated differently. A traditional raffle, where tickets are sold and a winner is drawn, is the most widely permitted. A 50/50 drawing, where the prize is half the pot, is a raffle variant that some states address specifically. Bingo frequently has its own statute, its own licensing regime, and sometimes its own regulator. Casino or "Monte Carlo" nights, where guests play blackjack, roulette, or poker, are permitted in some states under strict conditions, permitted only when players use play money with no cash value, or prohibited outright. Pull-tabs, tip boards, and similar instant games are heavily regulated where they are allowed at all. An organization that treats all of these as one category called "fun fundraisers" is likely out of compliance with at least one of them.

Online sales add another layer. Many raffle statutes were written for paper tickets sold in person, and states have taken different approaches to digital sales: some allow them with conditions, some prohibit them, and many statutes simply never addressed the question. Vendor guides that survey state raffle laws, such as RallyUp's state-by-state overview, note that a raffle sold online across state lines generally has to be legal in every state where a ticket buyer is located, not only in the organization's home state. Federal tax-exempt status does not override any of this. A 501(c)(3) determination letter says nothing about whether you may run a raffle.

The consequences of getting it wrong range from a warning letter to fines, loss of the ability to hold future events, forfeiture of proceeds, and in serious cases criminal exposure for the people running the game. Just as damaging is the reputational cost when a local news story describes a beloved charity running an unlicensed gambling operation. The fix is usually simple and cheap, which is why it is worth an hour of a board member's time before the next event rather than after.

The Federal Layer: Publication 3079, Prizes, and Excise Tax

The IRS's main resource on this topic is Publication 3079, Tax-Exempt Organizations and Gaming. It is short, written for nonprofit staff and volunteers, and worth reading in full by whoever owns gaming compliance. It explains that gaming includes bingo, raffles, lotteries, pull-tabs, and similar games of chance, and it covers the federal obligations that follow: reporting and withholding on prizes, the wagering excise tax, unrelated business income tax, and information return reporting on Form 990. It also makes a point small organizations often miss: gaming that becomes a substantial part of an organization's activities can raise questions about whether the organization is still operating primarily for its exempt purpose.

Reporting and withholding on prizes

When a raffle prize is large enough, your organization becomes a payer of gambling winnings with information reporting obligations. For many years the reporting trigger for raffle and lottery prizes was winnings of $600 or more that were also at least 300 times the amount of the wager, which for a raffle is the ticket price. That has changed. The IRS Instructions for Forms W-2G and 5754 now state that the minimum threshold for payments made in calendar year 2026 is $2,000, adjusted for inflation in later years, while the requirement that winnings be at least 300 times the wager still applies. Check the instructions for the year of your drawing, because older guidance online, including many diocesan and association handouts, still cites $600.

Withholding is a separate test. Regular gambling withholding applies when the proceeds of a raffle prize, meaning the prize value minus the ticket price, exceed $5,000, and it applies to the entire proceeds at the rate set in the W-2G instructions, which has been 24 percent. Backup withholding can apply to smaller reportable prizes when the winner does not provide a taxpayer identification number. Withheld amounts are reported on Form 945. Noncash prizes are measured at fair market value, so a raffled car, vacation package, or piece of jewelry can trigger reporting and withholding even though no cash changes hands. In that case the winner generally has to pay the withholding to the organization before taking the prize, or the organization must account for it another way spelled out in the instructions. Plan for this before you announce a high-value prize, and collect a Form W-9 or equivalent information from winners at the time the prize is awarded, not weeks later.

The wagering excise tax

Federal law imposes an excise tax on certain wagers, reported on Form 730, and an occupational tax on people who accept them. Exempt status does not automatically exempt an organization. For most small charities, though, the important points are the exclusions. Publication 3079 explains that drawings conducted by exempt organizations are generally excluded from the wagering tax as long as no part of the net proceeds benefits any private shareholder or individual, and games where all wagers are placed, winners determined, and prizes paid in the presence of all participants, such as traditional bingo, are also excluded. Pull-tabs, tip boards, and certain other instant games can be taxable wagers. If you run anything other than a straightforward drawing or in-person bingo, have your tax preparer confirm whether Form 730 applies.

Reporting gaming on Form 990

Organizations that file Form 990 or 990-EZ report gaming and fundraising event income separately from contributions. According to the Instructions for Schedule G, Part III of Schedule G is required when gross income from gaming exceeds $15,000, and Part II is required when fundraising event gross income and contributions together exceed $15,000. Schedule G asks for gross receipts, prizes, expenses, whether the gaming was conducted by volunteers, the states where it was conducted, and whether the organization was licensed. If you cannot answer those questions from your records at year end, your preparer cannot either. Our guide to preparing Form 990 with AI covers how to organize the underlying data.

Auctions: Fair Market Value and the $75 Disclosure Rule

Auctions are not games of chance, but they carry federal obligations that many organizations overlook. When someone buys an item at a charity auction, the purchase is partly a payment for goods or services and partly, perhaps, a gift. According to the IRS page on charity auctions, a buyer may deduct only the amount paid above the item's fair market value, and must be able to show they knew the item was worth less than what they paid. A catalog or bid sheet that lists a good-faith estimate of each item's value gives buyers that knowledge and supports their deduction. Without one, a buyer who pays $1,200 for a weekend at a lake house has no reliable way to know whether any of it is deductible.

The charity has its own obligation. Under the quid pro quo contribution rules, when a donor makes a payment of more than $75 that is partly a contribution and partly in exchange for goods or services, the organization must provide a written disclosure statement. The statement must tell the donor that the deductible amount is limited to the excess of the payment over the value of what they received, and it must give a good-faith estimate of that value. The requirement turns on the total payment, not the deductible portion, so a $100 winning bid on an item worth $40 still requires disclosure. The IRS can impose a penalty of $10 per contribution, capped at $5,000 per fundraising event or mailing, unless the failure was due to reasonable cause. Separately, any single contribution of $250 or more requires a contemporaneous written acknowledgment for the donor to claim a deduction, as the IRS explains on its substantiation and disclosure page.

The same logic applies to ticketed events. If a gala ticket costs $250 and the dinner is worth $85, the receipt should say so. Raffle tickets are different: the IRS generally treats the purchase of a raffle ticket as a payment for a chance to win, not a charitable contribution, so raffle ticket receipts and marketing should never suggest the ticket price is deductible. That one sentence, often printed carelessly on raffle flyers, is among the most common errors small nonprofits make.

The people who donate the items

Auction item donors have different rules. The IRS charity auctions page explains that when someone donates property that the charity sells, the donor's deduction is generally limited to their tax basis rather than fair market value, because selling the item is an unrelated use. Donated services, such as a dentist's offer of free cleanings or an attorney's will preparation, are not deductible as contributions at all, though out-of-pocket costs may be. Your acknowledgment letters to item donors should describe what was given without placing a value on it, which is the donor's responsibility. Our guides to in-kind gift valuation and donor tax receipts go deeper on both sides of this, and if donors offer unusual items such as vehicles, real estate, or securities for an auction, your gift acceptance policy for unusual assets should decide whether you take them at all.

Finally, check your state's sales tax treatment of auction purchases. Some states require charities to collect sales tax on auction sales of tangible goods, some exempt occasional charity sales, and the rules for services and experiences differ. This is another question for your state department of revenue, not a language model.

Building the Auction: Catalogs, Valuations, Bid Sheets, and Receipts

Auction logistics are where AI saves the most time with the least risk, because the work is mostly structured writing and organizing. Start with intake. Most auctions collect items through a donation form, emails, and handwritten notes from board members. Ask an AI tool to design a single intake form that captures what you will need later: donor name and contact, a full description, restrictions and expiration dates, how the donor arrived at any value they suggest, any supporting documentation, and pickup or delivery details. Getting complete information at intake prevents the scramble the week before the event.

Catalog descriptions

With intake data in a spreadsheet, AI can draft consistent, appealing catalog descriptions in your organization's voice, group items into packages and categories, suggest which items belong in the live auction versus the silent auction, and produce versions for the printed catalog, bid sheets, an online bidding platform, and social media teasers. Ask it to include restrictions and expiration dates in every description, because a buyer who discovers after the event that a restaurant certificate excludes weekends is a stewardship problem. Review every description for accuracy, since models embellish, and remove any claim the donor did not make.

Estimating and documenting fair market value

The value printed in the catalog should be a good-faith estimate of what the item would cost in an ordinary retail transaction, not what the donor hopes it will raise. AI can help you build a consistent method: for retail goods, the regular retail price; for gift certificates, the face value; for experiences, the price of a comparable package available to the public; for unique items such as a lunch with a local celebrity or a behind-the-scenes tour, a reasoned estimate that may be modest or even zero if the experience is not normally sold. AI with web search can find comparable prices quickly. What matters is that you write down how each value was reached and who approved it. A short valuation log, with the source or comparable for each item, protects both the organization and your buyers.

Be especially careful with values the donor supplies. Donors sometimes inflate values, sometimes in good faith. The catalog value is your organization's estimate, and it is reasonable to ask for a receipt or comparable before publishing a high figure. For anything unusual or high value, such as art, jewelry, or a vacation property, consider asking someone with relevant expertise to review the estimate.

Bid sheets, receipts, and disclosure language

AI can draft bid sheet templates that show the item number, description, fair market value, starting bid, minimum increments, and any buy-it-now price, along with standard terms such as payment deadlines and no returns. It can draft a buyer receipt template that pulls the amount paid and the item's value from your spreadsheet and computes the potentially deductible excess, and it can draft the quid pro quo disclosure paragraph in plain language. Have your tax preparer or counsel approve the final disclosure wording once and reuse it, rather than regenerating it for each event. The same applies to item donor acknowledgment letters, raffle ticket language that makes clear the purchase is not deductible, and the event's rules of play.

Post-Event Reconciliation and Reporting

The event is not over when the last guest leaves. Within a few days, someone needs to reconcile what was sold to what was collected, confirm every winning bidder has paid and received their item, send buyer receipts and item donor acknowledgments, file any state post-event report, issue any required W-2Gs, and record the results in a way that will make sense to your bookkeeper and tax preparer months later. This is the step most often left half-done, and it is where AI can save a tired volunteer team many hours.

Start by exporting everything into one place: ticket stub logs, count sheets, the bank deposit, online platform reports, bid sheet results, the checkout log, and expense receipts. An AI tool can help you build a reconciliation spreadsheet that matches tickets sold to cash counted for each seller, matches auction winners to payments received, flags unpaid items and discrepancies, separates gross receipts from prizes and direct expenses by activity, and totals the figures your state report and Schedule G will ask for. Our article on using AI inside spreadsheets covers how to have a model write and explain the formulas. Review the formulas and spot-check totals by hand, because a single misapplied range can quietly misstate the results.

AI can then draft the follow-up communications: thank-you messages to buyers with their receipts, acknowledgment letters to item donors, a note to winning bidders who have not yet paid, and a short summary for the board showing what each activity raised net of prizes and expenses. That last document is more useful than it sounds. Over several years, a simple net-by-activity summary shows which games and auction categories are worth the volunteer effort and which are not, which is the kind of evidence boards rarely have when deciding whether to keep a long-running fundraiser.

Keep a complete event file: the license or permit, the state checklist and its source documents, the valuation log, tickets and drawing records, count sheets, the reconciliation, copies of receipts and W-2Gs, and the state report. If your organization is ever audited or questioned by a regulator, this file is the answer. If you are preparing for a financial audit, our guide to audit preparation with AI describes the kind of documentation trail auditors expect.