Nonprofit tax rules for auctions and gaming events

Auctions and games of chance often feel like approachable, morale-boosting ways to support a mission. Yet beneath the festivities lie complex state and local tax and reporting responsibilities. A nonprofit that overlooks permit requirements, misclassifies auction proceeds or mishandles donor acknowledgements risks compliance gaps and reputational harm.

At James Moore, we help nonprofits navigate these details with the same precision we bring to GAAP-level financial preparation—so events remain both joyful and compliant.

What is gaming, and how does it fit into nonprofit fundraising?

Gaming in the nonprofit context refers to any activity involving games of chance, including raffles, bingo, casino-style events, pull-tabs and similar formats. These activities frequently accompany gala auctions. While both are popular fundraising components, they carry separate compliance requirements. Gaming is often tightly regulated under state law, while auctions demand accurate tracking and donor communication.

At the federal level, the IRS may classify gaming activities as unrelated business income if they don’t meet certain statutory exceptions. For example, bingo games that meet specific IRS criteria are generally excluded from UBIT, and volunteer-staffed events may also qualify for exemptions. Nonprofits must assess each gaming activity against these rules to determine whether UBIT applies.

In practice, nonprofits generate significant revenue through these events. Yet many underestimate the tax consequences. The National Council of Nonprofits notes that games of chance may require licensing, separate bank accounts or result in UBIT if proceeds are substantial or ongoing.

Understanding this nuance is essential. The goal is to ensure every fundraiser-earned dollar rests on solid legal and financial footing.

Understanding auctions in a nonprofit setting

Whether live, silent or online, auction formats engage donors by showcasing unique items in a compelling way. However, this engagement must be grounded in precision when it comes to financial reporting.

The IRS requires nonprofits to record three distinct values for each donated auction item: the fair market value (the donor’s noncash contribution) and the final purchase price (event revenue). For instance, let’s say a charity holds an auction, and a signed baseball valued at $500 sells for $2,000:

• The charity records a $500 noncash contribution and an inventory (donated goods) asset when it receives the baseball.
• At the auction sale, the nonprofit records $1,500 as contribution revenue (the amount paid over fair market value) and $500 as special event revenue (the item’s fair market value.
• The charity recognizes a $500 noncash special event expense (cost of goods sold) and inventory asset reduction when releasing the donated good to the purchaser.

Maintaining these separate values ensures accurate donor acknowledgments and clear, defensible reporting on IRS Form 990, Schedule G.

(For nonprofits seeking expert guidance on handling these distinctions, our Nonprofit Tax services page offers more information about IRS Form 990 & nonprofit tax consulting.)

Why gaming and auctions need separate tracking and reporting

Auctions and gaming often appear side by side at fundraising events. But for compliance purposes, they must be tracked independently. This separation is required for both federal and state reporting.

From a federal perspective, IRS Form 990, Schedule G requires organizations to break out gaming proceeds from other fundraising events such as auctions. Failing to do so could distort your reported revenue streams and complicate unrelated business income calculations.

On the state level, raffles, bingo and other gaming activities often require event-specific permits, licensing and adherence to prize-reporting rules. In Florida, for example, charitable organizations offering raffles must follow the rules outlined by the Florida Department of Agriculture and Consumer Services. These requirements operate independently of any auction-related state sales tax obligations, which means compliance for one activity does not automatically cover the other.

Organizations that fail to track and report these revenue streams separately risk fines, license revocation and donor trust erosion. A compliance-focused approach ensures the revenue you generate is preserved for your mission and not lost to penalties.

State and local tax implications you can’t overlook

While federal reporting often dominates nonprofit planning, state and local tax obligations can be equally significant — particularly when your fundraising involves tangible goods or gaming.

In many states, the sale of tangible personal property (even for charitable purposes) may be subject to sales tax. Raffle ticket sales in Florida are not taxed, but auction items may be subject to sales tax if the event does not qualify for an exemption. These rules vary widely by state. In some, nonprofits can obtain event-specific sales tax permits or exemptions; in others, the same transactions may trigger tax collection and remittance requirements.

Because these differences can substantially affect your net proceeds, it’s critical to understand the taxability of each revenue stream before the event. This is especially true if your nonprofit operates in multiple states or sells auction items to out-of-state attendees. Our state and local tax services page provides further detail on navigating these varying rules.

State and local tax compliance is not simply about avoiding penalties. It also preserves the financial integrity of your fundraising activities and builds donor trust by ensuring all regulatory obligations are met.

Compliance tips for nonprofit gaming and auctions

Strong compliance begins with proactive research and accurate recordkeeping. Start by reviewing your state’s requirements for both gaming and fundraising sales through official sources such as the Attorney General’s office, Department of Revenue or Department of Agriculture. In Florida, the raffle guidelines published by the Florida Department of Agriculture and Consumer Services outline registration rules, disclosure requirements and prize distribution standards.

Equally important is tracking donated goods separately from event revenue for IRS purposes, ensuring your Form 990 accurately reflects each category. This segregation also simplifies sales tax determinations, since donated goods may have different tax treatment than purchased inventory.

Consulting with a CPA before your event can help assess potential sales tax liabilities, identify state-specific permitting requirements and confirm your reporting structure will hold up under audit. For further best practices, the National Council of Nonprofits offers a reliable overview of charitable gaming and auction compliance considerations nationwide.

A well-prepared compliance plan ensures you meet all obligations without sacrificing the creativity and donor engagement that make these events successful.

Protecting your nonprofit’s mission through compliant fundraising

Auctions and gaming activities can be powerful tools for engaging donors and generating revenue. Yet the value of these events depends on your ability to execute them in full compliance with federal, state, and local requirements. From properly documenting donated items to securing required gaming permits and remitting sales tax where applicable, every detail matters.

Working with an experienced advisor ensures your nonprofit can host compelling events while maintaining accurate records, avoiding costly penalties, and protecting the trust of your donors. Our nonprofit team at James Moore has decades of experience guiding nonprofits through these complex tax and reporting requirements. We provide proactive strategies so you can focus on your mission while knowing your fundraising activities are secure.

If you’re planning an auction or gaming-related fundraiser, contact a James Moore professional today to ensure every aspect of your event is structured for compliance and success.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.