Gaming in Tax-Exempt Organizations

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Note - Any federal tax advice contained in this transcript is intended to apply to the specific situation described and should not be considered official guidance independent of the presentation. The tax advice and statements contained herein should not be relied upon for legal purposes without first consulting a tax professional. This transcript has been edited for technical accuracy and may differ slightly from the audio recording of the EOs and Gaming phone forum. This information is current as of July 18, 2012. Since changes may have occurred, no guarantees are made concerning the technical accuracy after that date.

Moderator: Welcome to the Exempt Organizations and Gaming Phone Forum. As a reminder, today's call is being recorded and I would now like to turn the conference over to your host for today, Melaney Partner, Director of Customer Education and Outreach. Please go ahead.

M. Partner: Great. Welcome, everyone, to the Phone Forum from Exempt Organizations on Gaming. Today, you'll be hearing from Jim Competti. He's an experienced revenue agent who has worked numerous issues involving exempt organizations that conduct our gaming activities, and Cheryl Teser, the National Gaming Coordinator for Exempt Organizations.

Many exempt organizations participate in gaming activities. This is normally a way to raise funds that can either cover the costs of running the organization or to support a worthy cause. Whatever the reason, an organization conducting any type of gaming should understand how the activity can impact its Federal tax-exempt status, as well as its tax and information reporting responsibilities. Cheryl and Jim will cover these issues today in our program.

Before we start, I would like to point out a couple of things. Everyone registered for this forum and will receive a certificate of completion by e-mail approximately one week after today's forum. You must attend the entire live forum to receive this certificate. Enrolled agents and registered tax return preparers are entitled to Continuing Professional Education Credit for this session. Other types of tax professionals should consult their licensing organization to see if this session qualifies for Continuing Professional Education Credit.

You should have received a reminder e-mail a few days ago with two attachments – the Publication 3079, which is a Tax-Exempt Organizations and Gaming Publication, which will be referred to throughout the presentation. You also received a PowerPoint, which will not be specifically referenced during the presentation but does give you a great outline of the information and resources for a later date.

As with all presentations, the comments expressed by our speakers should not be constructed as formal guidance from the IRS. For more information regarding exempt organizations, please visit our Exempt Organizations website at You can also get there by going to the main IRS webpage and clicking at the top left, Charities and Non-Profits tab.

While visiting our website, you might also want to subscribe to tour free electronic newsletter, the eUpdate. Our eUpdate is just a great publication that you'll hear a little bit more about later. The link for this newsletter is located on the left-hand navigation bar of the Charities page that I just described.

So, without further ado, I'd like to turn it over to Cheryl Teser and Jim Competti.

J. Competti: Good afternoon. Welcome to our telephone forum on the responsibilities of a tax-exempt organization conducting gaming. As officer of an exempt organization, you have a difficult and important job. You have to protect your organization's tax-exempt status by following the tax laws. This includes operating for exempt purposes, maintaining proper records, filing the necessary forms, and paying taxes when required. Yes, tax-exempt organizations pay taxes.

To help you understand and fulfill these responsibilities, Cheryl and I will discuss six important topics for organizations that conduct gaming. They are, number one, impact of gaming on tax-exempt status; number two, internal controls and recordkeeping; number three, Form 990 filing requirements; number four, unrelated business income tax; number five, filing requirements for payments to individuals; and number six, wagering and excise taxes.

When you registered for the forum, we suggested that you order or download a copy of Publication 3079, Tax-Exempt Organizations and Gaming. The IRS developed this publication for officers of exempt organizations that conduct gaming. Please pull out this publication or bring it up on your computer. We will refer to it throughout our discussion today.

We'll begin with impact of gaming on your exempt status.

C. Teser: First, Jim, can you tell us what kind of tax-exempt organizations generally participate in gaming activities?

J. Competti: Organizations most likely to engage in gaming are 501(c)(3) organizations operated exclusively for charitable purposes; 501(c)(4) social welfare organizations; 501(c)(7) social clubs; 501(c)(8) and 501(c)(10) fraternal organizations; 501(c)(19) veterans' organizations.

C.eser: Well, why does it matter what kind of 501(c) organization it is?

J. Competti: It's important to know which one because the roles for maintaining your tax-exempt status differ somewhat from each.

C. Teser: Okay. Then let's start with 501(c)(3) organizations, the largest category. Section 501(c)(3) organizations must be organized and operated exclusively for charitable purposes. A common misconception is that if a charitable organization uses the proceeds from gaming to further its charitable purposes the gaming is considered a charitable activity – not true. The conduct of the activity, not the proceeds raised from it, must further the organization's exempt purpose. There is nothing inherently charitable about gaming. It's no different than the conduct of any other unrelated trader or business carried on for profit.

Even so, a 501(c)(3) organization can conduct activities, including gaming, that do not further its exempt purpose as long as those activities are not a big part of its exempt activity. If a 501(c)(3) organization conducts a substantial activity that does not further its exempt purpose it will be in danger of losing its exempt status.

J. Competti: Let's look at an example. A section 501(c)(3) organization was formed to provided care and services to the elderly poor. To help pay for its purposes, the organization operated a Bingo and pull-tab operation conducted by volunteer members.

C. Teser: Wait a minute, Jim. You said the organization operated a Bingo and pull-tab operation. I think I know what Bingo but what's a pull-tab operation?

J. Competti: In a pull-tab game, sometimes called Instant Bingo, a person purchases a pre-printed card covered with tabs. The player pulls back a tab to reveal a pattern or set of numbers. He or she compares the patterns or numbers with those pre-printed on the back of the card. If there is a match, the player wins. These types of games have become very popular but they don't qualify for the same treatment as regular or traditional Bingo. We'll cover those differences a little bit later.

C. Teser: Hey, thanks for the clarification, Jim. Now, you were saying about the organization providing services to the elderly?

J. Competti: Yes. Let's get back to how gaming might affect an organization's tax-exempt status. This organization would qualify as a section 501(c)(3) organization as long as its gaming activity was not substantial compared to the activities it undertakes to serve the elderly. Even if the gaming operation was large, the organization could still maintain its exemption if it can show that the time and effort expended on conducting programs for the elderly comprised most of the organization's activity and the time spent conducting the gaming operation was not substantial.

Let's look at another example. A Section 501(c)(3) organization was formed to provide grants to local schools. To carry out its purposes the organization operated a Bingo and pull-tab operation. Instead of using volunteers, the organization employed a professional Bingo management company to conduct its gaming operations. The great bulk of the profits of the Bingo and the pull-tab games, over $150,000 let's say, went to the management company. Only a few small grants totaling $1,000 went to local schools.

The organization lost its tax-exempt status because it has a substantial non-exempt purpose – gaming – in relation to its exempt purpose of providing grants to schools. In a case like this, we would also examine whether the gaming program resulted in inurement or private benefits to individuals, which would also be grounds for revoking the organization's exempt status.

C. Teser: Now, let's look at home gaming impacts other types of exempt organizations. For example, there are several categories of organizations whose exempt function includes providing social or recreational activities for members and their bona fide guests. A bona fide guest is an individual invited to participate in an activity accompanied by a member and for whom all expenses are paid by the member. These include fraternal organizations described in Section 501(c)(8) and 501(c)(10), and veterans' organizations described in Section 501(c)(19).

Gaming activities including only members normally do not present any issues. They directly further exempt social and recreational purposes, but if these types of organizations sponsor gaming open to the general public it might create unrelated business income tax and might adversely affect their exempt status.

Let's take a look at the typical fraternal or veterans' organization that conducts gaming for members. Our typical club has house rules that allow only members to make purchases. Also, members must have a key card to get in, which helps prevent the general public from making purchases at the club. Therefore, the individuals patronizing the club and participating in the gaming include only regular members. In a case like this, the fraternal or veterans' organization's gaming furthers its tax-exempt social and recreational purposes.

On the other hand, what about the fraternal or veterans' organization that has a commercial liquor license and permits members of the general public to make general purchases from the bar or participate in the gaming? If income from these non-members exceeds 50% of the total income, the organization might lose its character as a fraternal or veterans' organization, which could adversely affect its exempt status.

Purchases by the general public would also raise unrelated business income issues. You can read more about this in Chapter 1 of Publication 3079.

J. Competti: Our second topic is internal controls and recordkeeping. As you know, organizations conducting gaming can generate large amounts of cash. We're talking folding money. The cash passes through many hands, which could result in numerous abuses. Thus, every organization should be actively involved in overseeing and controlling each facet of its gaming activity to ensure funds are not diverted to private individuals or for private purposes – in a word, stolen.

Oversight involves not only supervising the gaming operation but also choosing a location to hold the games and reviewing and approving leases if applicable. Officers of exempt organizations need to get involved in conducting the gaming operation. For instance, there should be two individuals selling pull-tabs and monitoring the control numbers to ensure that unauthorized pull-tabs are not being used by individuals claiming to be winners.

C. Teser: Jim, can you give us an idea of how a well-run Bingo operation might separate and segregate workers' duties to maximize internal control?

J. Competti: Sure, Cheryl. Our listeners can follow along on Page 14 of Publication 3079 or make a note to check it out later. Note, the people I'm about the list are different individuals. First, the game manager or operator has overall control over the execution of the games, including payouts and recording transactions on a daily sheet. A cashier, who is a different person from the gaming operator, receives all cash and records serial numbers of games sold. A cash controller prepares the inventory and the paid out reports. This person also independently counts cash receipts and compares the cash on hand to the reports.

An inventory controller reviews the daily sheets received from the operator to determine the inventory used and profit. A check writer is responsible for making all payments related to the gaming expenses. The organization's board of directors or trustees reviews and compares the Bingo reports or daily sheets with the previous reports for consistency.

The board should monitor the Bingo game to ensure that internal controls are functioning properly. These internal controls and recordkeeping procedures are critical to ensure that all funds are accounted for. Without detailed internal control procedures and records, how would you know if employees are properly accounting for funds?

C. Teser: Good point, Jim. Do you have an example about how poor internal controls of gaming activities could work against an organization?

J. Competti: I thought you'd never ask. Let's consider a hypothetical organization that employs a manager to run its bar and gaming operation. The manager controls all aspects of the operation, including hiring of workers and recordkeeping. The organization's officers believe that the manager is doing an outstanding job since the organization purchases about $50,000 worth of pull-tab supplies and generates an annual gross profit after prizes of $150,000.

Now, let's say the IRS decides to audit this hypothetical organization. As a routine part of most audits of organizations conducting pull-tab games, we will obtain the records of the pull-tab game manufacturer who sells to the organization. What if in our hypothetical example the IRS discovered that the manufacturer's suggested profits for the pull-tab games the organization bought were $400,000. Remember, the manager was reporting a nice annual profit of $150,000 but that's nowhere near what the game manufacturer projected.

Believe it or not, we have encountered situations similar to this. You can imagine how surprised organizations' officers are when we show them proof of pull-tab profits unaccounted for by the manager. Needless to say, many organizations tell us that they plan to promptly implement internal control procedures to ensure that their games earn what they're supposed to.

For a good overview of internal control procedures and recordkeeping, look at Chapter 3 of Publication 3079. This chapter explains the recordkeeping responsibilities of a tax-exempt organization with regard to gaming income, payouts, and expenses and provides an example of an internal control system and suggested recordkeeping methods.

In general, we have found that organizations have problems with internal control and recordkeeping when they don't completely reconcile the profits of each pull-tab game sold and often allow the Bingo operator or club manager to record only an overall net profit for the gaming activity. That may have been what was happening in my hypothetical example. The manager only provided officers with a weekly summary sheet reporting a net pull-tab profit instead of a detailed, itemized list of all revenue and expenses for each pull-tab game sold.

I have seen gaming revenue increase dramatically once organizations began recording the gross receipts, prizes, and expenses for each game by serial number. These pull-tab reconciliation records can have a direct effect on your organization's bottom line.

C. Teser: Please turn to Chapter 4 at Page 15 of Publication 3079 and we'll start our third topic, Form 990 filing requirements. The Form 990, Return of Organization Exempt from Income Tax, is really a series of returns and they are unique in the world of IRS returns for three reasons.

First,the main purpose of the return is not to report and pay taxes but to provide information on your organization's programs and activities. We call From 990 an information return, not a tax return.

Second, almost all of the information reported on the return is open to public inspection. In fact, the Internal Revenue Code requires an organization to permit inspection of certain parts of the return when someone asks.

The third unique characteristic of the Form 990 is that many state agencies that regulate exempt organizations have chosen to use it to satisfy their filing requirements rather than develop their own form. Right now, nearly 40 states require exempt organizations to file Form 990 or Form 990 EZ.

Let's start by talking about what exactly gets filed and who should file it. Most exempt organizations generally file either the Form 990, the Form 990EZ short form, or the 990N electronic notice or ePostcard. An exempt organization's annual exempt receipts and assets are used to determine which of the three versions of the Form 990 it is required to file.

For calendar year ending December 31, 2011 and the returns filed in 2012 and later the following filing thresholds apply. If your organization has gross receipts less than $50,000 you would file Form 990N. If your organization has gross receipts greater than $50,000 and less than $200,000 and total assets less than $500,000 you can file the Form 990EZ, the short form. If your organization has gross receipts greater than or equal to $200,000 and total assets greater than or equal to $500,000 you must file the long Form 990.

Most organizations conducting gaming file Form 990 or 990EZ unless they have less than $50,000 in gross receipts. Since gaming generates large amounts of cash, it doesn't take much to reach that level, even for small organizations. For example, 50-member fraternal and veterans' organizations conducting a weekly public Bingo game generally meet that threshold and file either the Form 990 or the EZ, and remember you compute your organization's gross receipts before deducting any prizes, payouts, or other expenses.

Unfortunately, the IRS has found that according to established baselines in certain states the rate of fraternal and veterans' organizations that do not file is as high as 30%. Failure to file Form 990 is one of the major reasons the IRS audits an exempt organization conducting gaming.

J. Competti: Well, Cheryl, how does the IRS know that an exempt organization had gross receipts over $50,000 and was required to file the Form 990 or 990EZ instead of the ePostcard?

C. Teser: Now you're asking the good questions, Jim. The IRS can obtain information from a number of sources. State liquor control agencies maintain lists of liquor licenses. State agencies regulating gaming have financial information on the Bingo and pull-tab operators and group exemption holders have information about their subordinates. In one IRS project, we matched financial reports from gaming operators filed with state regulators with our master list of Form 990 or 990EZ filers.

If it looks like an organization exceeded the gross receipts threshold throughout its gaming activity but didn't file with IRS, we contacted the organization to secure the delinquent returns. In many cases, we've sent out field agents to conduct complete examinations of these organizations. Organizations that fail to timely file are subject to a penalty of $20 per day for failure to file up to the lessor of $10,000 or 5% of the organization's gross receipts.

An additional penalty may be imposed at the same rate and maximum of $10,000 on the individual responsible for failure to file and if an organization's annual gross receipts exceed $1 million the penalty per return is $100 a day up to a maximum of $50,000. Penalties can be abated if the exempt organization or individual establishes reasonable cause.

Since tax year 2007 failing to file returns carries even more dire consequences because by operation of law an exempt organization will lose its tax-exempt status if it fails to file Form 990 for three consecutive years. If your organization's gross income from gaming exceeds $15,000 you will also be required to complete and attached Schedule G, supplemental information regarding fundraising or gaming activities, to your Form 990 or Form 990EZ.

J. Competti: Let's move on to topic number four, unrelated business income tax. Although an organization may be exempt from income tax, an exempt organization is subject to tax on unrelated business income, or UBI for short. UBI is derived from a regularly carried on trade or business that is not substantially related to its exempt purposes. An exempt organization is required to file a Form 990T, Exempt Organization Business Income Tax Return, when the gross unrelated business income is more than $1,000.

Gaming can generate unrelated business income that is subject to tax, unless it meets specific exceptions outlined in the code. For example, remember when I said that regular or traditional and instant Bingo get treated differently? Well, here's one of those differences. Income from traditional Bingo is not treated as a source of unrelated business income because of a provision in the code. Income from instant Bingo doesn't qualify under this provision and is a source of UBI.

C. Teser: Jim, what do you mean by traditional Bingo?

J. Competti: Well, you know how to play Bingo, right? It's a game of chance played with cards that are generally printed with five rows of five squares each. Participants place markers over randomly drawn numbers on the card in an attempt to form a pre-selected pattern, such as a horizontal, vertical, or diagonal line or all four corners. The first participant to form the pre-selected pattern and shout, "Bingo!" wins the game.

C. Teser: Of course.

J. Competti: Well, the code says that in order for Bingo not to generate UBI a Bingo game must have wagers placed, winners determined, and prizes or other property distributed in the presence of all persons placing wagers in that game.

C. Teser: Oh, I get it. The pull-tabs or scratch off games don't qualify because winners of these kinds of games are not determined in the presence of all players placing wagers, which is one of the elements of the definition of traditional Bingo.

J. Competti: You've got it.

C. Teser: So, if a charity is raising funds through another form of gaming, let's say a casino night, where participants may play blackjack or poker then is the income subject to the unrelated business income tax?

J. Competti: Not necessarily. There is an exception for activities performed by volunteer labor. If the organization regularly holds a casino night to raise funds but substantially all of the work is done by volunteers, workers who receive no compensation, then the income is not unrelated business income and is not subject to tax.

C. Teser: Okay. Well, what if they pay the workers?

J. Competti: Then the income is likely subject to tax and if the gross income exceeds $1,000 the organization has to file a Form 990T.

C. Teser: Okay. This time I have an example. A fraternal or veterans' organization has a bar and gaming operation, which it hires employees to operate. The organization received income from poker machines in the club's bar, which is used by both members and non-members. As we mentioned earlier, for clubs exempt under 501(c)(8), 501(c)(10), or 501(c)(19), gaming among members is considered an exempt recreational activity so the poker machine income from the members and bona fide guests is not from an unrelated trade or business, but allowing non-members or the general public to use the club's poker machines is not a related activity.

Since the facility is run by paid workers, which knocks out the volunteer labor exception, any income from the non-member sources is subject to unrelated business income tax. You can refer to Publication 598, Tax on Unrelated Business Income of Exempt Organizations, for further discussion on the tax, including the filing requirements and how to compute unrelated business income tax, as well as in Chapter 2 of Publication 3079.

J. Competti: Cheryl, did you know that in addition to the Forms 990 and 990T filing requirements, organizations involved in gaming also are required to file information returns when they make payment to players for certain gaming prizes, to employees who work for the organization, or to independent contractors, such as cleaning personnel or a band? We'll hit all of this in our fifth topic, filing requirements for payments to individuals.

C. Teser: Fascinating, Jim. Please continue.

J. Competti: Probably fascinating only to us revenue agents, Cheryl, but important nonetheless. The first type of information return that we will discuss is for payments of prizes to players in a gaming operation. I'm talking about Form W2G here entitled Certain Gambling Winning. The organization issues a Form W2G to a player when the individual wins a prize within a minimum specific dollar amount in a gaming event. The requirement varies depending on the type of gaming activity and the amount of prize.

Let's look at three example. For traditional Bingo, if the amount of prize paid is equal to or greater than $1,200, a Form W2G is required. For pull-tabs and raffles, if the amount of prize paid is equal to or greater than $600 and at least 300 times the amount of the wager, a Form W2G is required. Lastly, for slot machines, if the amount of the prize paid is equal to or greater than $1,200 a Form W2G is required.

For example, an exempt organization conducts a weekly Bingo game. It pays out $1,300 to someone for a single game. The organization must complete a Form W2G for the Bingo prize. You'll find a helpful chart at the bottom of Page 22 of Publication 3079, which describes when a W2G needs to be issued. You might also want to consult the current instructions for Form W2G to verify the filings threshold.

C. Teser: I understand that one of the biggest mistakes made by exempt organizations is failure to file the required returns for payments made to employees. Is that right, Jim?

J. Competti: Very true, Cheryl. Tax-exempt organizations are not exempt from employment tax requirements for their employees. We're talking about the Federal Insurance Contribution Act, FICA; the Federal Unemployment Tax Act, FUTA; and federal income tax withholding. All exempt organizations also are required to pay the employer's share of Social Security and Medicare taxes on the wages paid to the employees and to withhold the employee's share of Social Security and Medicare taxes and federal income tax from the employee's wages.

The only exception in this area for exempt organizations is that 501(c)(3) organizations are exempt from FUTA taxes. If an exempt organization compensates its gaming workers it is responsible for filing and paying employment taxes for employees. Generally, if your organization has the right to control the worker, he or she is an employee, it should be treated as such. In general, in an employer-employee relationship the employer has the right to tell an employee not only what to do but also how to do it. the fact that an employer has the right to control is the important thing rather than whether the employer actually exercises the control.

Other factors you should consider are, number one, does the organization or the worker provide the equipment used? Number two, did the worker have an opportunity to profit or suffer a loss? Number three, did the organization have the right to discharge the worker? Number four, the permanency of the relationship and number five, the relationship the parties thought they created.

C. Teser: Chapter 5 of Publication 3079 describes employment tax requirements and Page 20 describes some of the payroll filing requirements. Each employer is responsible for, one, furnishing the employee a copy of Form W2, Wage and Tax Statement, by January 31 of the year following the year of payment; two, filing form W2 with the Social Security Administration by February 28, that would be March 31 if filing electronically, of the year following the year of payment. You use Form W3, which is the transmittal of income tax statements, to transmit the Forms W2 to the Social Security Administration. Third, filing Form 941, which is the employer's quarterly federal tax return and finally filing Form 940, employer's annual federal unemployment, FUTA, tax return.

As a matter of fact, suspected underreporting or non-reporting of employees' wages is another important criterion for selecting exempt organizations for an IRS audit. Large fraternal and veterans' organizations can easily have annual payrolls of more than $200,000. If such an organization fails to properly report its employees' compensation or if it does not withhold and pay the required taxes, the consequences to the organization as the result of an audit can be both significant and costly.

Could you talk to us about requirements for independent contractors, Jim?

J. Competti: Sure. An independent contractor is self-employed and carries on an independent trade or business. An organization using the service of an independent contractor has some right to direct or instruct this type of worker but less than in the case of an employee. Instead of providing the worker with a Form W2, as you would an employee, you provide an independent contractor with a Form 1099 Miscellaneous. This form must be filed to report payments of $600 or more to persons not treated as employees for services performed in your trade or business. The $600 threshold applies to all payments made during the calendar year, not to any one payment.

Page 21 of Publication 3079 describes the filing requirements for workers not treated as employees. You should note that the deadlines for the Forms W2 and 1099 are identical. For example, let's consider Ted Oaks, who operates his own janitorial service. He is hired by an exempt organization to clean the Bingo hall where it holds a weekly Bingo game.

The organization pays Ted $100 per week. Because the exempt organization does not have the right to direct and control Mr. Oaks, he is not an employee. Instead, he's an independent contractor. The exempt organization should file a Form 1099 Miscellaneous for Ted as his reported compensation is $5,200 for the year, well over the $600 threshold.

C. Teser: Accountants and bands are other examples of independent contractors. If you use the same band a few times, a Form 1099 would be required if the total payments during the calendar year are over $600.

Now, for our last topic, wagering and excise taxes on gaming activities. Exempt organizations need to be aware that the sponsorship of certain gaming activities may lead to the imposition of two types of wagering taxes – one, an excise tax imposed on the amount of the wager, and two, an occupational tax imposed on the persons engaged in receiving wagers. The facts and circumstances on the types of wagering conducted have a bearing on whether the wagers are subject to these taxes. For example, traditional Bingo games are specifically excluded from the application of wagering taxes because it is a game when all people are present.

However, pull-tabs or drawings meet the definition of taxable wagers placed in a lottery. The exempt organization conducting pull-tab games or drawings would be subject to wagering taxes equal to one quarter of 1% for state authorized or 2% if unauthorized of the amount of the wager if the net proceeds from the activity inure to the benefit of any private shareholder or individual. A properly operated 501(c)(3) organization would not be required to pay these taxes for any legal gaming activities it conducts because by definition the activities of the 501(c)(3) organization do not benefit private individuals. On the other hand, a properly operated fraternal or veterans' organization could very easily be subject to the wagering excise taxes.

Let's look at some examples. The Order of ABC, which is a fraternal organization under 501(c)(8), conducts a raffle to raise money. The raffle is open to public participation. The proceeds of the raffle go into the organization's general fund and are used to pay the operating expenses of the order. It is perfectly acceptable for a fraternal organization to supplement its general fund but because the order can keep its annual dues lower than it would if it didn't conduct the raffle its members benefit. Therefore, the wagering taxes would apply.

If, however, the fraternal organization does not allow the general public to purchase raffle tickets, we reach a different result. Where participation is limited to the organization's members the financial resources generated by the activity are merely shifted between members of the group. In this instance, the fraternal organization is not subject to wagering taxes, but here's a third scenario, one where wagering taxes do not apply.

A fraternal organization under 501(c)(8) sells pull-tab games. The net proceeds from these games go into a special charitable account on the books of the fraternal organization. It then makes distributions from that account to qualified charitable organizations to carry out their exempt purposes. The pull-tab sales in this case would not be subject to wagering taxes because the net proceeds from the gaming do not inure to the benefit of the organization's members. If your exempt organization conducts pull-tabs and drawings that are open to the public and the proceeds are used to pay for organizational expenses where inurements to members occurs, you should review Chapter 7 of Publication 3079 to determine the amount of your wagering and occupational taxes.

J. Competti: Cheryl, even though this has been an overview, we've covered a lot of information in a short amount of time. If our listeners want more information or help, where should they go?

C. Teser: Well, first, I recommend visiting our charities and non-profits page at for forms, publications, and general information on tax exempt organizations. Be sure to try out our web-based training program for 501(c)(3) organizations called It has a specific section on unrelated business income, which includes gaming activities and another on employment issues under the Existing Organizations tab.

You can also call 1-877-829-5500 toll-free if you need help with general questions about exempt organizations, forms, or activities or to verify an organization's tax-exempt status.

J. Competti: To wrap up, here again are the six topics we covered today. Number one, we discussed the potential impact of gaming on different types of tax-exempt organizations, including loss of exemption and tax liability. Number two, we talked about internal controls and recordkeeping and how good internal controls can help organizations maximize revenue from gaming.

Number three, we covered Form 990 filing requirements and pointed out that even a small amount of gaming activity might trigger a Form 990 filing requirement for an organization. Number four, we touched on situations where an organization conducting gaming might be liable for unrelated business income tax. Number five, we went over filing requirements for payments to individuals, and number six, we discussed two gaming excise taxes – a tax on wagering and an occupational tax on persons receiving wagers.

We hope today's phone forum on federal filing requirements for tax exempt organizations that conduct gaming activities was beneficial to you. Cheryl and I thank you for your attention. Now, I'll turn it over to Melanie.

M. Partner: Hello. Well, thank you Jim and Cheryl. I also want to thank everyone participating and for those that have had some technical difficulties, I greatly apologize for those. I know you were trying hard throughout the session and hopefully didn't cause you too much in the way of pains or getting into gaming information. The information, as you were told, will be taped and transcribed and it will be posted in the next few weeks on our page.

I want to leave you with a little bit more information regarding some additional education and outreach information, of course, all free. You did get a lot of information here today. Definitely keep the PowerPoint. Refer to it. You have the publication that was referred to several time. We've also referred to We're very proud and we try to keep that as up-to-date as easy to follow as possible and we do hope that you'll find it easy. If not, please let us know. I believe at the bottom of your reminder notice there was a mailbox – some of you with the technical difficulties were actually e-mailing us there, if you should need any further assistance.

Our customer education and outreach for exempt organization our mission is to help educate customers to understand their tax responsibilities. Today was just on gaming but we again cover every aspect and some of those again today, employment tax, etc. covered but did want to leave you with the pieces of information, particularly a website.

The other one that we're particularly proud of is our EO Update, Exempt Organizations Update. It's our newsletter. It's cutting edge new things immediately as they come out we issue an EO Update. We're not on any schedule because it's a just in time kind of a publication for those very hot kind of topics. Some of them we do have a little flexibility in a few days. I encourage each and every one of you if you have not signed up for it to please do so. Again, I mentioned it earlier, you can find it in our left nav and when you go into that the next page it allows you to subscribe at the bottom of that screen.

In addition to the phone forums, we also have webinars. We have one coming up on churches and other religious organizations on July 25. You can register from our website on the left side of the nav on our page, the Charities and Non-Profits tab. You will find a calendar of events.

There you will also find where we have our small and mid-size workshops. Those are eight-hour workshops that are provided as we host with the colleges and universities. It's kind of the basics on getting starting in an exempt organization. Some of you may be very familiar with that but if you bring on new staff, have interns, or the like you might want to encourage them to participate in that. There is usually a nominal fee, no more than $50. Sometimes it's free. Please check that schedule for the closest one in your particular neighborhood. If you should know of any college or university that may be interested in hosting one for us, they also can reach out to us through that mailbox that I mentioned earlier.

For larger organizations or conventions or meetings, we also entertain speaker requests. You can send us a request and someone will get back to you. It's through the mailbox so we want to make sure that you understand that that may be available to you too. We do have some criteria. We are looking for where we can reach out to a large number of associations at one time.

The other thing we're very proud of is our Stay Exempt. It is a very interactive kind of workshop mini-course that is available to you. It is located, again, on our left nav. We also can find it, of course, through the pages that I mentioned or the calendar of events and some of the other ones we listed.

Today there is some information and a little game that you can play on what you have learned through the gaming on the micro-site is what we call it. Again, there are courses, mini-courses, and such. It's broken off to new organizations, existing ones, and then the last tab, More Topics – some more detailed technical topics. I really encourage you to take a look at that.

Publications, you only got a touch of the one today. We have several more that are available.

Again, this airing when it's taped and transcribed will be posted on our IRS video portal. I mentioned that a church and other religious charity on July 25. That will also be posted on the IRS video portal. We have a Non-Profit tab. Presently, we have four other ones that are available if you would like to go and view it at your leisure. We have two starting your business. One is for 501(c)(3)s. One is for non-501(c)(3)s. We also have one on international issues and the one that was out on May 30. For those of you who might have missed it, it is for the disasters, charitable relief, making contributions, starting up an organization. All those types of topics around that can also be found at that IRS video portal. You can actually go to the search button and put that in, or you can reach it through our webinar and phone forum page.

I encourage you all to look back over the information because there will be a lot more information you'll be able to find also on Take the opportunity to sign up for EO Update so you can learn about programs like this one today, the upcoming one on July 25, and also view the ones that you may not have been able to make.

On behalf of myself and my staff, the speakers, we thank you very much for your participation today and we hope to hear and/or see you again very, very soon. Thank you very much.

Moderator: That does conclude our conference for today. Thank you for your participation and for using AT&T TeleConference Service. You may now disconnect.