Are Paid Raffles Actually Legal? (w/Examples) + FAQs

Paid raffles operate in a legal gray area where most are illegal unless conducted by qualified nonprofit organizations under strict state and federal regulations. The core problem stems from 18 U.S.C. §§ 1301-1304, federal statutes that prohibit lotteries involving interstate commerce, mail, or broadcasting, creating immediate criminal exposure for unauthorized operators. These violations carry penalties of up to two years in federal prison for first offenses and five years for subsequent violations.

According to nonprofit compliance research, only 51% of organizations conducting raffles properly file required annual raffle reports, exposing thousands of charitable groups to regulatory penalties and criminal charges. This widespread noncompliance reveals a critical gap between legal requirements and actual practice in the fundraising sector.

What You Will Learn:

🎯 Federal and state laws that determine whether your raffle is legal or subjects you to criminal prosecution and fines up to $250,000

📋 Licensing and registration requirements in all 50 states, including which three states ban raffles entirely and how to obtain permits in your jurisdiction

💰 IRS reporting obligations for raffle prizes, including when you must withhold 24-28% of winnings and file Form W-2G to avoid federal tax penalties

⚖️ Real-world examples of legal versus illegal raffles, including prosecutions of individuals who faced felony charges for unauthorized lottery operations

✅ Step-by-step compliance strategies to structure your raffle legally, avoid common mistakes that trigger enforcement actions, and protect your organization from criminal liability

Understanding the Federal Legal Framework for Raffles

The United States Congress enacted comprehensive lottery prohibitions in Title 18 of the U.S. Code, Chapter 61, creating four primary federal restrictions that govern all raffles nationwide. These statutes form the foundation of raffle law because they prohibit interstate activity, which most modern raffles involve through mail, phone, or internet ticket sales. The federal framework applies before state law analysis because federal law takes precedence under the Supremacy Clause of the Constitution.

18 U.S.C. § 1301: Interstate Transportation

This statute prohibits bringing lottery tickets into the United States or using express companies or common carriers to transport lottery materials in interstate commerce. The law makes it illegal to knowingly deposit lottery tickets, certificates, or instruments with any carrier for interstate transportation. This creates immediate problems for raffles where tickets cross state lines, even if both states allow raffles individually.

The consequence of violating § 1301 includes a fine and imprisonment for up to two years for a first offense. For any subsequent offense, the statute mandates imprisonment for up to five years. These penalties apply to each separate transaction, meaning selling tickets to residents of multiple states could result in multiple counts.

18 U.S.C. § 1302: Mailing Lottery Materials

Section 1302 prohibits knowingly depositing in the mail any letter, package, postal card, or circular concerning any lottery or scheme offering prizes dependent on chance. This includes mailing actual raffle tickets, advertisements for raffles, or even lists of prize winners. The United States Postal Service enforces this provision, which creates a practical barrier for organizations wanting to mail tickets to supporters.

The statute exempts state-conducted lotteries and includes specific exceptions under 18 U.S.C. § 1307 for certain charitable gaming operations. However, the Department of Justice clarified that while it won’t enforce this provision against truthful advertisements of lawful gambling, the actual tickets and operational materials remain prohibited. Organizations that mail raffle materials face the same two-year (first offense) or five-year (subsequent offense) prison terms.

18 U.S.C. § 1953: Interstate Wagering Paraphernalia

This federal law makes it illegal to transport in interstate commerce any record, paraphernalia, ticket, certificate, or equipment designed for use in illegal gambling. The statute specifically requires that the gambling activity be illegal under the laws of the state where it is conducted. This creates a layered analysis: the activity must violate state law and cross state lines to trigger federal prosecution.

The consequence here is that even moving raffle equipment between states can constitute a federal crime. If your organization operates in multiple states or purchases supplies from out-of-state vendors, each transaction could potentially violate this statute if proper licenses are not obtained.

Federal Wire Act of 1961

The Interstate Wire Act prohibits using wire communication facilities to transmit bets or wagers in interstate commerce. Originally designed to combat organized crime, this law created uncertainty for online raffles for decades. In 2011, the Department of Justice issued an opinion stating the Wire Act applies only to sports betting, not other forms of gambling.

However, in 2018, DOJ reversed this position, creating chaos for state lotteries and online charitable gaming. A federal court in New Hampshire later ruled that the Wire Act applies only to sports betting, restoring the 2011 interpretation. This legal uncertainty means organizations conducting online raffles operate with some federal risk, even when state law permits the activity.

Unlawful Internet Gambling Enforcement Act (UIGEA)

The UIGEA of 2006 prohibits gambling businesses from knowingly accepting payments for bets or wagers that involve the internet and are unlawful under any federal or state law. This statute specifically targets payment processors, not the gambling operators themselves. The UIGEA does not create new gambling crimes but prevents financial institutions from processing payments for illegal gambling.

For nonprofit raffles, the UIGEA creates compliance obligations if tickets are sold online. Organizations must ensure their online raffle platform has reasonable procedures to block transactions from states where online raffles are illegal. Payment processors may refuse to work with raffle platforms that lack these safeguards, creating practical barriers to online fundraising.

State Law Determines Most Raffle Legality

While federal law creates boundaries, state law determines whether raffles are legal in daily practice. Each of the 50 states has complete authority to permit, regulate, or prohibit raffles within their borders. This state-by-state variation creates a complex legal landscape where a raffle legal in Texas may be a felony in Alabama.

Three States Prohibit All Raffles

Alabama, Hawaii, and Utah completely ban raffles with no exceptions for nonprofit organizations. These states have constitutional or statutory provisions that classify all lotteries as illegal gambling. Organizations in these states cannot conduct raffles under any circumstances, regardless of their charitable purpose or tax-exempt status.

In Alabama, state law considers raffles illegal lotteries under the state constitution. No statutory exemption exists for charitable organizations. The consequence of conducting a raffle in Alabama includes criminal charges for gambling offenses, which are misdemeanors or felonies depending on the amount of money involved.

Hawaii law makes gambling, including raffles, a misdemeanor criminal offense under Haw. Rev. Stat. § 712-1220. The only permissible alternative is a free drawing where participants receive entries through voluntary donations without any purchase requirement. Any element of consideration transforms the activity into an illegal lottery.

Utah prohibits all gambling under state law, including raffles for charitable purposes. The state constitution bans lotteries, and the legislature has not created exceptions for nonprofit fundraising. Organizations attempting raffles in Utah face prosecution under gambling statutes, with penalties including fines and potential imprisonment.

47 States Allow Raffles with Conditions

The remaining 47 states and the District of Columbia permit raffles but impose varying requirements related to organizational eligibility, licensing, prize limits, frequency restrictions, and reporting obligations. No two states have identical requirements, creating a compliance challenge for national organizations or those near state borders.

California Raffle Law: Strict 90/10 Rule

California permits raffles only for private, nonprofit organizations that have been qualified to conduct business in the state for at least one year before conducting a raffle. Penal Code section 320.5 creates the legal framework and imposes strict conditions that many organizations unknowingly violate.

Registration Requirement

Organizations must register with the California Attorney General’s Registry of Charitable Trusts before conducting any raffle activity. The registration requires submitting Form CT-NRP-1, a Franchise Tax Board entity status letter, and a $30 fee at least 60 days before the raffle. Organizations that fail to register commit a misdemeanor under California law.

The consequence of conducting an unregistered raffle includes criminal charges, confiscation of raffle proceeds, and potential loss of tax-exempt status. District attorneys and city attorneys have authority to prosecute violations, and many do so when complaints arise.

The 90/10 Rule

California’s unique requirement mandates that at least 90% of gross receipts from ticket sales must be used for beneficial or charitable purposes. This means prizes and expenses combined cannot exceed 10% of total revenue. This rule makes traditional 50/50 raffles illegal in California for most organizations.

The 90/10 rule creates practical challenges because organizations must accurately project ticket sales and prize costs. If actual sales fall short of projections, the organization may violate the 90/10 ratio even if it planned properly. The consequence includes potential misdemeanor charges and disqualification from conducting future raffles.

50/50 Major League Sports Exception

California created a narrow exception in Penal Code section 320.6 allowing 50/50 raffles only for foundations affiliated with major league sports teams. These foundations must register with the Bureau of Gambling Control, not the Attorney General’s office. This exception permits only electronic raffles at team stadiums and related facilities.

The sports team exception reflects legislative recognition that 50/50 raffles generate significant revenue. However, the restriction to major league affiliates excludes youth sports, amateur teams, and other nonprofits from using this fundraising method. Ordinary nonprofits that conduct 50/50 raffles in California violate state law, regardless of their charitable mission.

Prohibited Activities in California

California law specifically prohibits several raffle practices. Organizations cannot sell raffle tickets on the internet, though advertising raffles online remains permissible. No raffle tickets may be sold at racetracks, gambling establishments, or satellite wagering facilities. Gaming devices or electronic raffle systems are prohibited for standard raffles, though the major league sports exception allows approved electronic platforms.

These restrictions create enforcement challenges because many nonprofit board members assume online ticket sales are legal everywhere. The prohibition on internet sales stems from concerns about gambling expansion and difficulties enforcing age restrictions online. Organizations that ignore this rule face the same misdemeanor penalties as unregistered raffle operators.

Texas Raffle Law: Charitable Raffle Enabling Act

Texas takes a different approach through the Charitable Raffle Enabling Act, codified in Chapter 2002 of the Texas Occupations Code. Under Texas law, raffles are generally illegal gambling under Section 47.03(a)(5) of the Texas Penal Code. However, the Charitable Raffle Enabling Act creates a defense to prosecution for qualified organizations that follow all statutory requirements.

Qualified Organizations

Only specific types of organizations qualify to conduct raffles in Texas. Qualified religious societies must have existed for at least 10 years. Qualified nonprofit organizations need 501(c) tax-exempt status and must have existed for at least three years. Qualified volunteer fire departments and emergency medical services also qualify without minimum age requirements.

The consequence of conducting a raffle without qualifying is that the organization cannot use the Act as a defense to criminal prosecution. This means the organizers face criminal charges under Texas gambling laws, which classify most gambling as a Class A misdemeanor carrying up to one year in jail and fines up to $4,000.

Frequency and Timing Restrictions

Texas law limits qualified organizations to conducting only two raffles per calendar year. Organizations must set a specific date to award prizes before selling tickets. If the organization cannot award prizes on the scheduled date, it has 30 days to reschedule. Failure to award prizes within this timeframe requires refunding all ticket purchasers.

These timing requirements protect consumers from indefinite raffles that never award prizes. The consequence of violating timing rules is that the raffle loses protection under the Act, exposing organizers to criminal gambling charges.

Prize Restrictions

Texas law prohibits cash prizes except in limited reverse raffle situations. The value of a purchased prize cannot exceed $75,000, except residential dwellings may have a value up to $750,000. If a prize is donated with no consideration from the organization, its value may exceed these limits. Organizations must possess the prize or post a bond for its full value before selling tickets.

The no-cash-prize rule makes 50/50 raffles illegal in Texas under standard circumstances. Organizations that award cash prizes or exceed value limits cannot invoke the Act’s protection, subjecting them to gambling prosecution. Many Texas nonprofits unknowingly violate this provision by offering cash prizes without realizing they operate outside the law.

Ticket Requirements

Every raffle ticket must include specific printed information: the organization’s name and address, ticket price, description of prizes worth more than $10, and the date prizes will be awarded. Tickets must be sold at the printed price without discounts. Organizations cannot accept IOUs, create multiple ticket pools, or auction tickets above face value.

These disclosure requirements ensure transparency and prevent fraud. Tickets sold for amounts other than the printed price violate the Act, even if the purchaser willingly paid more. The consequence is loss of the Act’s protection and potential criminal liability.

Proceeds Usage

All proceeds from ticket sales must be spent for the charitable purposes of the qualified organization. The Texas Attorney General has opined that organizations may deduct reasonable, incidental, and necessary expenses before applying the net proceeds to charitable purposes. However, expenses must be directly connected to conducting the raffle.

Organizations cannot use raffle proceeds to pay salaries unrelated to the raffle, distribute profits to members, or fund non-charitable activities. Misuse of proceeds can trigger criminal prosecution for theft or fraud in addition to gambling charges, creating severe legal exposure for organizational leadership.

New York Raffle Law: Games of Chance Licensing

New York regulates raffles through the Games of Chance Licensing Law, which requires municipal approval and state registration for most charitable raffles. The New York State Gaming Commission oversees the regulatory framework, but licenses are issued at the local level by municipal clerks.

Category System Based on Net Proceeds

New York divides raffles into categories based on anticipated net proceeds. Category 1A applies when net proceeds will meet or exceed $30,000 per calendar year. Category 1B covers raffles with net proceeds between $5,000 and $29,999. Category 2 applies to raffles with net proceeds under $5,000.

The category determines licensing requirements. Category 1A raffles require filing Forms GC-2, GC-2A, and GC-2B with the municipal clerk, obtaining a Games of Chance License on Form GC-5, and filing an annual Financial Statement of Raffle Operations on Form GC-7R. Organizations must also pay an additional license fee of 2% of net profits exceeding $30,000.

Category 1B raffles require filing Form GCVS-1 with the municipal clerk and Gaming Commission. If actual proceeds reach $30,000, the organization must immediately comply with Category 1A requirements. Category 2 raffles require no license or registration but must still comply with all conduct rules.

The consequence of misclassifying a raffle’s category includes operating without proper licenses, which violates state law. If an organization registers as Category 2 but generates $15,000 in net proceeds, it violated licensing requirements and could face penalties and license revocation.

Online Ticket Sales

New York permits online raffle ticket sales but requires organizations to complete and submit an Internet/Mobile Raffle Ticket Sales application regardless of raffle category. This application requires detailed information about the online platform, security measures, age verification processes, and geographic restrictions to prevent sales to ineligible purchasers.

The online sales approval process ensures consumer protection and prevents sales to minors or residents of states where online raffles are illegal. Organizations that sell tickets online without approval violate state law even if they obtained a standard raffle license.

Eligible Organizations

Only “authorized organizations” may conduct raffles in New York under GMU § 190-a. Authorized organizations include those organized for charitable, educational, religious, fraternal, or civic purposes. The organization must be domiciled in a municipality that has passed local legislation approving games of chance.

Organizations must have served their community for at least one year before applying for a raffle license. No organization formed primarily for conducting games of chance qualifies, and at least 75% of the organization’s activities must be devoted to purposes other than gambling.

The consequence of conducting a raffle without meeting eligibility requirements is that the raffle is illegal gambling under New York law. Organizers face criminal charges, and the organization loses the ability to obtain future licenses.

Florida Raffle Law: Qualified Nonprofit Requirement

Florida law prohibits most raffles under Florida Statute 849.09, which makes lotteries and raffles illegal as third-degree felonies. However, a narrow exemption exists for qualified nonprofit organizations that conduct drawings that meet specific statutory requirements.

Qualified Organization Definition

Qualified organizations under Florida law must be registered with the Department of Agriculture and Consumer Services. The organization must be formed for charitable, religious, educational, or civic purposes. Only organizations with 501(c)(3) status can conduct raffles, and they must follow detailed rules about prize disclosure, drawing procedures, and fund usage.

The consequence of conducting a raffle without qualifying as a nonprofit organization is prosecution under Section 849.09. Setting up, promoting, or conducting an illegal lottery is a third-degree felony, punishable by up to five years in prison and a $5,000 fine. Even ticket sellers face first-degree misdemeanor charges carrying up to 365 days in jail and a $1,000 fine.

50/50 Raffle Restrictions

Florida permits 50/50 raffles only for registered qualified nonprofits. The organization must hold a permit if tickets cost more than $5 or prizes exceed $5,000. Raffle proceeds must support the organization’s exempt purpose, not individual benefit or commercial operations.

Many Florida nonprofits unknowingly violate raffle laws by failing to register or by conducting 50/50 raffles outside the permitted framework. The consequence includes felony prosecution of organizers and potential civil liability to participants who paid for tickets to an illegal lottery.

Prohibited Activities

Florida law prohibits several raffle-related activities. Organizations cannot condition prize awards on voluntary donations, print false or misleading advertising, cancel a drawing after tickets are sold, or fail to notify winners promptly. Failure to award all offered prizes violates the statute, as does failing to disclose required information about the raffle.

These prohibited activities create strict liability. Organizations that cancel raffles or fail to award prizes face criminal charges for deceptive trade practices, classified as second-degree misdemeanors. Civil penalties of up to $1,000 per violation can be imposed in addition to criminal sanctions.

Federal Tax Reporting Requirements for Raffle Prizes

The Internal Revenue Service treats raffle winnings as taxable income subject to reporting and withholding requirements. Organizations that conduct raffles must understand their tax obligations to avoid significant penalties from the IRS.

Form W-2G Reporting Threshold

Organizations must file Form W-2G for every person who receives gambling winnings of $600 or more if the winnings are at least 300 times the amount of the wager. For example, if a person buys a $2 raffle ticket and wins $650, the organization must file Form W-2G because $648 (winnings minus wager) exceeds $600 and exceeds 300 times the $2 wager.

The form requires the winner’s name, address, and taxpayer identification number (Social Security number or ITIN). Organizations must provide Copy B and Copy C of Form W-2G to the winner and file Copy A with the IRS by January 31 of the year following the prize award.

The consequence of failing to file required Forms W-2G includes IRS penalties for failure to file information returns. Penalties start at $50 per form for unintentional failures but increase significantly for intentional disregard. Organizations that fail to file multiple forms face penalties totaling thousands of dollars.

Regular Gambling Withholding

Organizations must withhold federal income tax at 24% when raffle winnings exceed $5,000. The organization subtracts the wager amount from winnings to determine if the $5,000 threshold is met. For example, if a person buys a $10 ticket and wins $5,020, the organization must withhold $1,202.40 (24% of $5,010).

Withholding applies to cash prizes and the fair market value of non-cash prizes. If the prize is non-cash and exceeds $5,000, the winner must pay 25% of the value to the organization before claiming the prize. This creates practical problems when winners cannot afford the tax payment.

Organizations must deposit withheld amounts using Form 8109 or the Electronic Federal Tax Payment System. Withheld amounts must be reported on Form 945, Annual Return of Withheld Federal Income Tax, due January 31. Failure to withhold, deposit, or report creates severe penalties including trust fund recovery penalties against responsible individuals.

Backup Withholding

If a winner refuses to provide their Social Security number or taxpayer identification number, the organization must impose backup withholding at 24% (increased from 28% in 2018). This applies to prizes subject to Form W-2G reporting requirements. The organization pays the winner the reduced amount and remits the withheld portion to the IRS.

For example, if a winner refuses to provide a Social Security number for a $1,200 prize (purchased with a $2 ticket), the organization withholds $287.52 (24% of $1,198) and pays the winner only $912.48. If the organization mistakenly pays the full amount, it remains liable to the IRS for the $287.52 backup withholding amount.

Backup withholding protects the IRS from winners who might not report their gambling income. The consequence for organizations that fail to impose backup withholding is that the organization becomes liable for the tax amount, plus penalties and interest.

Form 945 Annual Return

Organizations that withhold federal income tax on raffle prizes must file Form 945 by January 31 of the year following the tax year. This form reports the total amount of non-payroll federal income tax withheld. Organizations must use a separate Form 945 for non-payroll withholding and cannot combine these amounts with payroll tax reporting on Form 941.

Failure to file Form 945 subjects the organization to penalties for failure to file tax returns. Penalties equal 5% of unpaid taxes for each month the return is late, up to 25% total. If the failure is fraudulent, penalties increase to 15% per month, up to 75% total.

Unrelated Business Income Tax on Raffle Revenue

The IRS considers raffle income potentially subject to Unrelated Business Income Tax (UBIT) for tax-exempt organizations. UBIT applies when three conditions are met: the income comes from a trade or business, the activity is regularly carried on, and the activity is not substantially related to the organization’s exempt purpose.

Trade or Business Requirement

The IRS explicitly states that gaming, including raffles, constitutes a trade or business. This means the first UBIT requirement is automatically met for all raffles. Organizations cannot argue that their raffle is not a business activity because the IRS treats all gaming as commercial in nature.

Regularly Carried On Analysis

Whether a raffle is “regularly carried on” depends on frequency and manner of conduct. A single annual raffle likely is not regularly carried on. However, monthly raffles or continuous raffles (such as progressive jackpot drawings) could be considered regularly carried on because they resemble commercial gambling operations in frequency and regularity.

The consequence of raffles being considered regularly carried on is that the income becomes subject to the second UBIT requirement. Organizations must then analyze whether the activity is substantially related to their exempt purpose.

Substantially Related Test

Most raffles fail the substantially related test because they do not directly accomplish the organization’s exempt purpose. The IRS does not consider fundraising itself to be substantially related. The fact that net proceeds support exempt activities does not make the raffle substantially related to those activities.

Raffle income becomes subject to UBIT at regular corporate tax rates when all three requirements are met. Organizations must file Form 990-T to report and pay tax on unrelated business income. Failure to file Form 990-T when required results in penalties and potential examination by the IRS.

Volunteer Labor Exception

The primary exception to UBIT for raffles is when “substantially all” of the work is performed by volunteers. The IRS has not formally defined “substantially all,” but unofficial guidance suggests 85% or more volunteer labor satisfies this requirement. Organizations must maintain detailed time records documenting volunteer versus paid labor to support this exception.

Labor includes all aspects of conducting the raffle: planning, ticket printing, sales, marketing, accounting, and drawing administration. If an organization pays an employee to manage the raffle or uses paid staff for significant raffle tasks, the volunteer exception may not apply. The consequence is that the organization owes UBIT on net raffle income, which can be substantial for successful raffles.

Three Common Raffle Scenarios and Their Legal Consequences

Understanding how raffle laws apply in practice requires examining specific scenarios nonprofits frequently encounter. These examples illustrate the relationship between organizational status, state law compliance, and legal outcomes.

Scenario 1: School PTA 50/50 Raffle at Basketball Game

This scenario demonstrates how the same fundraising activity produces dramatically different legal outcomes depending on location and compliance. The PTA members may have no criminal intent but face prosecution because they failed to understand state law requirements. In California, the only path to a legal 50/50 raffle requires affiliation with a major league sports team foundation, which excludes virtually all school PTAs.

Scenario 2: Church Holds Monthly Online Raffle for Building Fund

This common scenario reveals how well-intentioned churches violate multiple federal and state laws simultaneously. Monthly raffles create UBIT liability that many religious organizations never consider. The use of paid staff to manage the raffle eliminates the volunteer labor exception, requiring the church to file Form 990-T and pay tax on profits.

Scenario 3: Individual Attempts to Raffle Personal Home

This real 2024 example demonstrates that individuals cannot conduct raffles regardless of the prize value or charitable intent. Arizona regulators immediately identified the operation as illegal because no state permits private individuals to operate raffles for personal profit. The homeowner faced felony charges because Arizona, like most states, restricts raffles to qualified nonprofit organizations.

Common Mistakes Nonprofits Make with Raffles

Nonprofit organizations routinely violate raffle laws despite good intentions because they misunderstand requirements or rely on incorrect assumptions about legal gambling. These mistakes create criminal and civil liability that threatens organizational survival and personal freedom of board members.

Mistake 1: Conducting Raffles Without Proper Organizational Status

Many informal groups, such as youth sports teams or neighborhood associations, conduct raffles without qualifying as eligible organizations under state law. Most states require 501(c)(3) tax-exempt status or registration as a charitable organization. Organizations formed primarily for fundraising through gambling are explicitly disqualified in most states.

The consequence of operating without proper status is that the raffle is illegal gambling. Organizers face criminal prosecution for operating illegal lotteries, which are felonies in many states. Even if the organization uses proceeds for charitable purposes, lack of proper organizational status provides no defense to gambling charges.

Mistake 2: Failing to Obtain Required Licenses and Permits

Research indicates 51% of organizations conducting raffles fail to file required annual reports, suggesting widespread noncompliance with licensing requirements. Many nonprofits assume their tax-exempt status automatically authorizes raffles without understanding that separate gaming licenses are mandatory in most states.

Raffle licenses must be obtained before selling tickets or advertising the raffle. In many states, applications require submission 30-60 days before the event. Organizations that sell tickets before receiving license approval operate illegally, even if they eventually obtain the license.

The consequence includes monetary fines ranging from $50 to $10,000 depending on the state, license revocation preventing future raffles, and potential criminal misdemeanor charges against responsible parties. Some states impose daily fines for each day an unlicensed raffle operates, creating significant financial liability.

Mistake 3: Selling Tickets Online Without Authorization

Several states prohibit online ticket sales entirely, including California, Alabama, Indiana, Iowa, Kansas, Minnesota, New Jersey, Rhode Island, Utah, Washington, and Wisconsin. Organizations that sell tickets online in these states violate state gambling laws regardless of whether they obtained a standard raffle license.

Other states permit online sales only with specific approval or adherence to detailed requirements. New York requires a separate Internet/Mobile Raffle Ticket Sales application. Organizations that skip this application conduct illegal online gambling even if they hold a valid in-person raffle license.

The consequence includes prosecution for illegal internet gambling, which is a felony in some states. The organization faces license revocation and becomes ineligible for future licenses. Winners may sue to recover ticket purchases if they discover the raffle was illegal, creating civil liability in addition to criminal exposure.

Mistake 4: Mailing Raffle Tickets or Materials

Federal law explicitly prohibits mailing lottery tickets or materials to customers. Many nonprofits mail tickets to donors or members without realizing this violates 18 U.S.C. § 1302. The statute applies even if both the sender and recipient are located in states where raffles are legal.

The prohibition extends to mailing raffle advertisements, entry forms, or payment mechanisms. However, organizations can advertise the existence of a raffle in the mail if the advertisement does not provide entry mechanisms or request payment. This creates a fine distinction many organizations misunderstand.

The consequence of mailing raffle materials includes federal criminal prosecution with potential imprisonment up to two years for first offenses and five years for subsequent violations. Each piece of mail constitutes a separate offense, so mailing 100 tickets creates 100 separate federal crimes. The U.S. Postal Inspection Service investigates these violations and refers cases for prosecution.

Mistake 5: Violating Prize Value or Type Restrictions

States impose varying restrictions on permissible prizes. Texas prohibits cash prizes except in narrow circumstances, Connecticut prohibits all cash prizes, and Massachusetts may consider cash prizes illegal pooling. Many states cap prize values at specific amounts such as $40,000 or $75,000.

Organizations that award prohibited prizes or exceed value limits violate state gambling laws. The most common violation involves 50/50 raffles where half the proceeds become the cash prize. These raffles are illegal in most states except those with specific 50/50 exceptions for certain organizations.

The consequence is that organizations conducting raffles with prohibited prizes cannot claim protection under state charitable raffle exemptions. This exposes organizers to prosecution under general gambling statutes, which typically classify illegal gambling as felonies for amounts exceeding certain thresholds. Additionally, winners may be required to forfeit prizes obtained through illegal gambling.

Mistake 6: Inadequate Record Keeping

State law requires detailed records of raffle operations including ticket sales, purchaser information, prize descriptions, expenses, and revenues. California requires retaining records for five years. Organizations that conduct raffles as part of larger events must maintain separate accounting for raffle proceeds and expenses.

Many organizations fail to maintain adequate records or commingle raffle funds with general operating accounts. This makes it impossible to document compliance with restrictions such as California’s 90/10 rule or Texas’s requirement that all proceeds fund charitable purposes. Without proper records, organizations cannot prove compliance during audits or enforcement actions.

The consequence includes fines for record-keeping violations, license revocation, and inability to defend against allegations of illegal gambling or misuse of funds. Tax-exempt organizations that cannot document raffle income and expenses face challenges during IRS examinations, potentially resulting in UBIT assessments and penalties.

Mistake 7: Failing to Report and Withhold on Prizes

Organizations frequently fail to collect required tax information from winners or neglect to file Forms W-2G when required. Studies show organizations commonly misunderstand IRS reporting thresholds, believing they only apply to prizes exceeding certain amounts without understanding the 300-times-wager requirement.

The most critical failure involves withholding requirements for prizes exceeding $5,000. Organizations that pay winners without withholding 24% federal income tax become liable for the tax amount themselves, plus penalties and interest. This liability can devastate small nonprofits that awarded large prizes without understanding withholding obligations.

The consequence includes IRS penalties for failure to file information returns ($50-$290 per form), trust fund recovery penalties against responsible individuals for failure to withhold and remit taxes, and potential criminal prosecution for willful failure to collect or remit employment taxes.

Key Entities Involved in Raffle Regulation and Enforcement

Understanding who regulates and enforces raffle laws helps organizations identify resources and avoid violations. Multiple federal agencies, state regulators, and local authorities share jurisdiction over different aspects of raffle operations.

Internal Revenue Service (IRS)

The IRS regulates tax aspects of raffles including reporting of prizes on Form W-2G, collection and remittance of withholding taxes on Form 945, and assessment of Unrelated Business Income Tax on Form 990-T. The IRS provides guidance through Publication 3079 on tax-exempt organizations and gaming.

The IRS Criminal Investigation Division investigates willful failure to report gaming income, file required forms, or pay taxes. Organizations that deliberately avoid raffle tax obligations face criminal tax prosecution in addition to civil penalties. The IRS can also revoke tax-exempt status for organizations that operate primarily for gaming or violate substantive gambling laws.

Department of Justice

The DOJ enforces federal lottery statutes including 18 U.S.C. §§ 1301-1304 and the Wire Act. Federal prosecutors bring criminal cases against individuals and organizations that transport lottery materials interstate, mail raffle tickets, or use wire communications for illegal gambling. Most enforcement targets commercial gambling operations rather than small charitable raffles, but the department has authority to prosecute any violations.

The DOJ issued opinions in 2011 and 2018 regarding the Wire Act’s applicability to non-sports gambling, creating regulatory uncertainty for online raffles. Though federal courts have limited the Wire Act to sports betting, DOJ positions influence how U.S. Attorneys evaluate whether to prosecute specific cases.

United States Postal Inspection Service

The Postal Inspection Service investigates violations of 18 U.S.C. § 1302 prohibiting mailing lottery materials. Postal inspectors work with U.S. Attorneys to prosecute organizations that mail raffle tickets or related materials. The Service also enforces mail fraud statutes when raffles involve deceptive practices.

Organizations should assume that any raffle materials placed in the mail will be subject to federal postal lottery statutes. The Postal Inspection Service has authority to open and inspect mail suspected of containing lottery materials and can seek search warrants for further investigation.

State Gaming Commissions or Control Boards

Each state has a designated agency that regulates charitable gaming, though names vary. New York uses the Gaming Commission, California uses the Attorney General’s Registry of Charitable Trusts for most raffles and the Bureau of Gambling Control for 50/50 major league sports raffles. Nevada uses the Gaming Control Board.

These agencies issue regulations interpreting state gambling statutes, process raffle license applications, conduct audits of raffle operations, and investigate complaints of violations. State gaming agencies have administrative authority to impose fines, suspend or revoke licenses, and issue cease and desist orders. They refer serious violations to state prosecutors for criminal charges.

State Attorneys General and District Attorneys

State and local prosecutors enforce criminal gambling laws within their jurisdictions. Attorneys general typically focus on statewide enforcement and large-scale violations, while district attorneys and city attorneys prosecute local illegal gambling operations. These prosecutors have broad discretion to charge gambling offenses as misdemeanors or felonies depending on the amount of money involved.

Prosecutors in Colorado collected $163,550 in fines from 2,332 raffle violations between 2018 and 2022, demonstrating active enforcement. California explicitly authorizes district attorneys and city attorneys to prosecute Penal Code section 320.5 violations, leading to local enforcement patterns that vary by jurisdiction.

Municipal Clerks (in Some States)

States like New York and New Jersey require raffle licenses to be obtained from municipal clerks in the municipality where the organization is domiciled or where the raffle will be conducted. Municipal clerks review applications, collect fees, issue licenses, receive financial reports, and forward documentation to state gaming commissions.

Organizations must understand which level of government issues licenses in their state. Applying to the wrong agency wastes time and may result in conducting an unlicensed raffle if the organization assumes approval was granted.

Dos and Don’ts for Conducting Legal Raffles

Organizations can protect themselves from legal liability by following clear guidelines that address the most common compliance issues.

DO Verify Organizational Eligibility

Confirm your organization’s exact legal status before planning any raffle. Obtain a copy of your IRS determination letter confirming 501(c)(3) or other qualifying tax-exempt status. Verify your organization has existed for the minimum time period required in your state, which ranges from one to ten years depending on organizational type.

Check your organization’s governing documents to ensure the group was not formed primarily for gaming purposes. Most states disqualify organizations where gaming comprises more than 25% of activities. Document that at least 75% of your organization’s time and resources support exempt purposes unrelated to raffles.

DO Obtain All Required Licenses and Permits

Research your state’s specific licensing requirements at least 60-90 days before planning to conduct a raffle. Contact your state’s gaming commission or attorney general’s office to request application forms and instructions. Many states provide detailed guides and FAQ documents that explain requirements step-by-step.

Submit complete applications with all required documentation including proof of tax-exempt status, organizational governing documents, financial statements, and detailed descriptions of the proposed raffle. Pay all required fees, which range from $0 to $600 depending on the state and raffle size. Wait for formal approval before selling any tickets or advertising the raffle.

DO Maintain Detailed Financial Records

Create a separate bank account for raffle proceeds to ensure clear accounting. Document every expense directly related to conducting the raffle including ticket printing, prize purchases, license fees, and advertising costs. Maintain records of all ticket sales including purchaser names, addresses, contact information, ticket numbers sold, and amounts paid.

Retain counterfoil tickets or electronic sales records for the time period required by state law, typically one month to five years depending on jurisdiction. Prepare accurate financial statements showing gross receipts, direct costs, and net proceeds. These records must be available for inspection by gaming regulators at any time.

DO Comply with Prize Restrictions

Review your state’s laws regarding permissible prizes before selecting what to award. If your state prohibits cash prizes, plan to award merchandise, gift certificates, or experiences instead of money. Verify that prize values fall within state-imposed limits, typically $40,000 to $75,000 for most prizes and up to $750,000 for residential dwellings in some states.

Obtain ownership or possession of all prizes before the drawing or post a bond for the full prize value. Do not promise prizes you have not secured, as failure to award promised prizes violates consumer protection laws and creates potential fraud liability.

DO Award Prizes as Scheduled

Conduct drawings exactly when advertised or within the grace period allowed by state law, typically 30 days. Exercise due diligence to locate winners including checking the phone number and address provided when tickets were purchased, sending certified mail notifications, and announcing winners through media channels used to advertise the raffle.

If a winner cannot be located after reasonable efforts, follow your state’s requirements for alternate prize distribution. Some states require awarding the prize to an alternate winner drawn from remaining tickets. Others require holding the prize for a specific period before declaring it forfeited. Award all prizes even if ticket sales fell short of projections that would cover prize costs.

DO File Required Tax Forms

Collect the winner’s name, address, and Social Security number or taxpayer identification number before releasing any prize meeting IRS reporting thresholds. File Form W-2G with the IRS and provide copies to winners by January 31 of the year following the prize award.

Withhold 24% federal income tax on prizes exceeding $5,000 and remit withheld amounts to the IRS using proper deposit procedures. If winners refuse to provide tax identification numbers, impose 24% backup withholding and pay the winner the reduced net amount. File Form 945 by January 31 to report all withheld federal income tax from raffle prizes.

DON’T Conduct Raffles in Prohibited States

Never attempt to conduct raffles in Alabama, Hawaii, or Utah, where all raffles are illegal regardless of organizational status. Organizations physically located in these states cannot conduct raffles anywhere. Organizations located elsewhere cannot sell tickets to residents of these states without violating state laws.

Research reciprocal restrictions in nearby states. Some states prohibit ticket sales to nonresidents or prohibit residents from purchasing tickets from out-of-state raffles. Attempting to circumvent these restrictions through online sales or mail creates additional federal law violations.

DON’T Sell Tickets Online Without Specific Authorization

Assume online ticket sales are prohibited unless you have confirmed authorization from your state gaming agency. California, Washington, Wisconsin, and numerous other states explicitly prohibit internet sales regardless of raffle license status. Even in states permitting online sales, obtain any required internet raffle approvals or permits before launching online ticket sales.

Use only licensed and approved online raffle platforms that have agreements with state gaming regulators. The platform must include age verification mechanisms, geographic restrictions preventing sales to ineligible purchasers, and secure payment processing. Unauthorized platforms expose organizations to prosecution even in states generally allowing online raffles.

DON’T Mail Raffle Tickets or Entry Forms

Never place actual raffle tickets in the U.S. mail or any commercial mail service. Do not mail entry forms that include payment mechanisms or return envelopes requesting payment. These activities violate federal law regardless of whether your state permits raffles or both parties are located in the same state.

You may mail advertisements announcing a raffle’s existence, describing prizes, and directing interested persons to purchase tickets at physical locations or through approved online platforms. The advertisement cannot include entry mechanisms, payment requests, or ticket distribution in the mailing itself.

DON’T Use Raffle Proceeds for Non-Charitable Purposes

Direct all net proceeds after reasonable expenses to charitable purposes consistent with your organization’s exempt mission. Never distribute raffle proceeds to members, officers, or directors as personal compensation or bonuses. Do not use raffle income to pay salaries of individuals not directly involved in conducting the raffle.

Texas and many other states require all proceeds to support charitable purposes defined in state law. Misuse of raffle proceeds can trigger criminal charges for theft or fraud in addition to gambling violations and potential loss of tax-exempt status.

DON’T Accept Entry Fees or Create Purchase Requirements

Some nonprofits attempt to structure “free” raffles where participants pay an entry fee to attend an event where raffle tickets are distributed free. This creates the element of consideration because participants must pay to enter. Courts analyze the substance of transactions, not labels, so calling something “free” does not eliminate consideration if payment is required.

Ensure any free entry alternative is truly equivalent to purchased entries. If you offer one free entry for a request but sell bundles of 25 tickets for $100, the free alternative is not equivalent. Courts require free entry mechanisms to provide similar odds of winning as paid entries.

DON’T Rely on Verbal Advice or Assumptions

Many organizations rely on advice from board members who “ran a raffle years ago” or assumptions that “everyone does it this way.” Raffle laws change frequently, vary dramatically by state, and include numerous technical requirements that laypeople misunderstand. What was legal five years ago may now be prohibited.

Consult an attorney experienced in nonprofit law and gaming regulations before conducting any raffle. The cost of legal advice is minimal compared to potential criminal penalties, fines, license revocations, and civil liability from conducting illegal raffles. Gaming attorneys can review your specific state’s requirements and ensure full compliance.

Pros and Cons of Conducting Raffles for Fundraising

Organizations considering raffles as a fundraising strategy should evaluate both benefits and risks before proceeding.

PRO: High Return on Investment

Raffles generate significant revenue relative to costs because the prize is typically donated or purchased at cost while tickets are sold at markup. Studies show organizations report 300-400% return on actual spend for successful raffles. One organization reported raising $22,000 from a single raffle event. The profit margin often exceeds 80% when prizes are donated and volunteers conduct all work.

PRO: Broad Community Engagement

Raffles attract participants who might not make traditional donations because they receive entertainment value and a chance to win. Survey data shows 47% of online donors prefer raffles and sweepstakes among fundraising methods. This represents a distinct donor segment that can be cultivated for future traditional giving. Raffles create opportunities for organizations to connect with community members, collect contact information, and build mailing lists for future fundraising.

PRO: Unrestricted Revenue

Unlike grants or designated donations, raffle proceeds are unrestricted funds that organizations can allocate to any legitimate charitable purpose. Organizations are not required to commit raffle revenue to specific programs or report how funds are spent to ticket purchasers. This flexibility helps organizations fund operating expenses, infrastructure, equipment, or programs that struggle to attract restricted grants.

PRO: Repeatable and Scalable

Once an organization establishes systems for conducting compliant raffles, the process can be repeated regularly with minimal additional development work. Online raffles particularly benefit from automation of ticketing, marketing, and drawing processes. Organizations can scale raffles from small monthly events to major annual fundraisers without proportionally increasing staff time or expenses.

PRO: Volunteer-Based Reduces Costs

Because raffles can be operated entirely by volunteers, organizations avoid substantial labor costs that reduce net proceeds. The volunteer labor exception also eliminates Unrelated Business Income Tax liability when 85% or more of work is performed by unpaid volunteers. This tax savings can be substantial for organizations that regularly conduct raffles generating significant revenue.

CON: Complex Legal Compliance Requirements

Raffle laws vary dramatically by state and include numerous technical requirements that create compliance challenges. Organizations must research federal law, state gambling statutes, local regulations, and IRS tax rules. Failure to comply with any single requirement can result in criminal charges, fines, and organizational liability. The complexity deters many organizations from conducting raffles despite their fundraising potential.

CON: Criminal Liability Exposure

Conducting illegal raffles exposes organizational leaders to personal criminal prosecution. State gambling laws typically classify illegal lottery operations as felonies for substantial amounts, carrying potential imprisonment of one to five years. Board members and staff who authorize or conduct illegal raffles may face individual criminal charges even if they had no criminal intent or personal financial gain.

CON: Licensing Costs and Administrative Burden

Many states impose significant licensing costs ranging from $15 to $600 per raffle, with additional percentage fees on revenue exceeding certain thresholds. New York charges 2% of net proceeds above $30,000. Organizations must complete detailed applications, obtain municipal approvals, file financial reports, and maintain extensive records. This administrative burden consumes staff or volunteer time that could be directed to mission activities.

CON: Limited to Nonprofit Organizations

Individuals, partnerships, corporations, and other entities cannot legally conduct raffles for profit in any U.S. state. Even nonprofits must qualify under specific criteria including tax-exempt status, minimum operational periods, and restrictions on gaming as a primary activity. Organizations that do not qualify have no legal mechanism to conduct raffles, limiting this fundraising option to a narrow organizational subset.

CON: Unrelated Business Income Tax Risk

Raffles that fail the volunteer labor exception generate Unrelated Business Income Tax liability at corporate rates, currently 21% federal plus state rates where applicable. Organizations must file Form 990-T and pay estimated taxes quarterly. Many organizations discover UBIT liability only during IRS audits, resulting in back taxes, penalties, and interest. Professional tax advice is essential to structure raffles to qualify for the volunteer exception.

Comparison of Raffle Requirements Across Key States

This comparison reveals the extreme variation in raffle laws across states. An organization conducting a raffle legal in Ohio commits a crime if it sells tickets to Alabama residents. The 90/10 rule makes California uniquely restrictive, while Texas’s prohibition on cash prizes eliminates 50/50 raffles. Florida’s unclear position on online sales reflects the ambiguity many states maintain.

Federal Reporting and Enforcement Actions

Federal agencies actively enforce lottery statutes against commercial gambling operations and occasionally prosecute charitable raffles that clearly violate federal law. Understanding enforcement patterns helps organizations assess real-world risk levels.

Recent Federal Prosecutions

The Department of Justice prosecuted United States v. Santos where defendants operated an illegal lottery in Indiana from the 1970s until 1994. Santos was convicted of conspiracy to run an illegal gambling business under 18 U.S.C. § 1955, running an illegal gambling business, and money laundering. The case reached the Supreme Court on the money laundering charges, demonstrating that federal prosecutors pursue illegal lottery operations aggressively.

In 2023, federal authorities charged NBA players and coaches in gambling schemes that included illegal poker games run by organized crime families. While these cases involved sports betting and poker rather than raffles, they demonstrate that federal law enforcement prioritizes gambling cases involving significant money or organized crime connections.

IRS Enforcement of Tax Reporting

The IRS conducts examinations of tax-exempt organizations that include review of gaming activities. Between 2018 and 2022, state regulators in Colorado collected over $163,000 in fines for raffle violations, demonstrating active enforcement at the state level. Federal tax enforcement focuses on unreported gaming income, failure to file required Forms W-2G, and misclassification of gaming activities to avoid UBIT.

Organizations that fail to report prize payments on Form W-2G face automatic penalties of $50 to $290 per form depending on timing and intentionality. For organizations conducting large raffles with numerous prize winners, these penalties accumulate rapidly. The IRS also assesses trust fund recovery penalties against responsible individuals when organizations fail to withhold and remit required taxes on prizes.

State Enforcement Patterns

State attorneys general and district attorneys prosecute illegal raffles, particularly those involving large amounts of money or complaints from participants who believe they were defrauded. A Florida state attorney candidate was arrested in 2018 on two felonies for violating election laws and operating an illegal raffle at a fundraiser event. This case demonstrates that even political candidates and attorneys are prosecuted for illegal gambling.

In 2024, Arizona gaming regulators shut down a homeowner’s attempt to raffle a $1.3 million property, declaring it an illegal gambling operation and threatening felony prosecution. The speed and decisiveness of this enforcement action shows that states actively monitor for illegal raffles and respond quickly to violations.

State gaming commissions conduct routine audits of licensed raffle operators and investigate complaints from participants. Administrative enforcement actions include license suspension or revocation, monetary fines, and cease and desist orders. Serious violations are referred to prosecutors for criminal charges.

Frequently Asked Questions

Can a business or corporation conduct a raffle for profit?

No. Only qualified nonprofit organizations with tax-exempt status may legally conduct raffles in states that permit them. For-profit businesses conducting raffles face criminal prosecution for illegal gambling.

Do I need a separate license for each raffle I conduct?

It depends on state law. Some states like Texas require no licenses but limit frequency to two annual raffles. Others like New York issue annual licenses covering multiple raffles. Check your state’s specific requirements.

Can we mail raffle tickets to supporters?

No. Federal law under 18 U.S.C. § 1302 prohibits mailing lottery tickets. You may mail advertisements about raffles, but actual tickets or entry mechanisms cannot be sent through mail.

Is a 50/50 raffle legal anywhere?

Yes. Many states permit 50/50 raffles for qualified nonprofits, but several states including California (except major league sports affiliates), Texas, Connecticut, and Massachusetts prohibit or restrict them significantly.

Do raffle winners have to pay taxes on their prizes?

Yes. All raffle winnings are taxable income that must be reported on federal tax returns. Organizations must withhold 24% federal tax on prizes exceeding $5,000 and file Form W-2G for qualifying prizes.

Can we conduct our raffle online?

It depends on your state. At least 13 states prohibit online raffle ticket sales entirely. States permitting online sales typically require special authorization or approval beyond standard raffle licenses.

What happens if we don’t sell enough tickets to cover the prize?

You must award the prize anyway. State laws require awarding promised prizes regardless of ticket sales. Organizations cannot delay or cancel raffles after selling tickets, except within narrow grace periods.

Do church raffles need to follow the same rules?

Yes. Religious organizations receive no exemptions from raffle laws. Churches must qualify under applicable nonprofit requirements, obtain licenses, comply with prize restrictions, and file required tax forms.

Can we sell raffle tickets to people in other states?

Generally no. Interstate sales violate federal law under 18 U.S.C. § 1953 if the raffle is illegal in either state. Even if both states permit raffles, interstate sales create federal compliance issues.

How long must we keep raffle records?

State requirements vary from one month to five years depending on the document type. California requires five years for most records. Maintain detailed records including ticket stubs, financial statements, and winner documentation.

What’s the difference between a raffle and a sweepstakes?

Raffles require payment (consideration) to enter, making them gambling. Sweepstakes must offer free entry without purchase requirements. Most raffle laws don’t apply to sweepstakes because no consideration is exchanged.

Can board members purchase raffle tickets?

Yes. Most state laws don’t prohibit organizational members or board members from purchasing raffle tickets. However, some states prohibit board members from winning certain prizes. Check your state’s specific rules.

Do we pay taxes on raffle income?

Generally no if the raffle is conducted with substantially all volunteer labor. Otherwise, net income may be subject to Unrelated Business Income Tax at corporate rates requiring Form 990-T filing.

What are the penalties for conducting an illegal raffle?

Criminal penalties range from misdemeanors with fines up to $1,000 and one year in jail, to felonies with prison sentences of one to five years and fines up to $250,000 depending on state.

Can we give cash as a raffle prize?

It depends on state law. Texas and several other states prohibit cash prizes for most raffles. States permitting cash prizes still require compliance with all other licensing and reporting requirements.

Must we report small raffle prizes to the IRS?

No. Reporting requirements apply only when winnings minus the wager exceed $600 and are at least 300 times the wager amount. Small prizes below these thresholds require no IRS reporting.

Can we hold a raffle at a bar or restaurant?

State laws vary. Some permit raffles at leased premises, others require raffles on property owned by the nonprofit. Georgia specifically requires raffles on property owned or regularly used by the nonprofit.

What is a reverse raffle?

A reverse raffle draws losing tickets first, with the last remaining ticket winning. Texas permits cash prizes for reverse raffles under specific conditions. Other states regulate reverse raffles the same as traditional raffles.

Do Native American tribes follow the same raffle laws?

No. Tribal gaming operates under the Indian Gaming Regulatory Act and tribal-state compacts. Tribes have sovereignty over gaming on tribal lands, creating different legal requirements than state raffles.

Can we accept credit card payments for raffle tickets?

Yes, if your state permits the method of sale (in-person or online). However, the Unlawful Internet Gambling Enforcement Act requires payment processors to verify raffles are legal before processing transactions.