Raffles

Rotary Clubs in California

Be sure to review the current California Raffle Laws: https://oag.ca.gov/charities/raffles
As of 2024, California DOJ has updated their Youtube videos on the rules for Raffles in California HERE

Rotary Clubs in other states

should review their state’s rules here: https://chance2win.org/us-online-legal-raffle/

Raffle Regulations for Rotary Clubs in California

This guidance ensures Rotary Clubs adhere to California’s strict raffle laws while maximizing their fundraising efforts for community programs.

1. Overview of Raffle Rules:

• Only nonprofits can conduct raffles in California.
• Raffles must be conducted by the charity’s employees or volunteers, with no involvement from external vendors.
• The primary purpose of raffles must be to support charitable programs within California.

2. Registration Requirements:

• Raffle registration must be submitted to the California Department of Justice’s Registry of Charitable Trusts 60 days before the event.
• Nonprofits must provide proof of:
  • Good standing with the Registry.
  • Being qualified to operate in California for at least a year.
  • Tax-exempt status via the Franchise Tax Board (link HERE).
• Registration involves completing the CT-NRP-1 form, detailing event dates and other organizational information.

3. Reporting Obligations:

• Nonprofits must submit an annual financial report (CT-NRP-2) by February 1 for all raffles held during the previous calendar year.
• The report must include total ticket sales, expenses, and details on how proceeds were used.

4. Financial Rules:

• At least 90% of raffle proceeds must support charitable purposes.
• A maximum of 10% can be used for operating expenses, with any excess covered by other funding sources.

5. Legal Compliance:

• Online sales of raffle tickets are strictly prohibited.
• Funds raised must not benefit individuals or entities outside of charitable purposes.
• Noncompliance, such as failing to file required reports or conducting an unregistered raffle, may result in fines, registration denial, or criminal prosecution.

6. Exceptions:

• Opportunity drawings (free raffles) are exempt if tickets are distributed indiscriminately, and no payment is required for entry.

7. Enforcement:

• Violations may lead to cease-and-desist orders, financial accountability demands, or legal action.

Resources:

• Visit the Attorney General’s website for forms, FAQs, and additional guidance: oag.ca.gov/charities/raffles.

IRS Reporting of Raffle Winners

The form to report to the IRS is W-2G. It is required if both of the following are true

1. The club pays a winner more than $600 in cash as the result of a raffle; AND
2. The winnings are at least 300 times the amount of the wager, after subtracting the wager.

Example: $1 ticket, winnings are $300. $300 minus $1 = $299 = not reportable.
Compare: $1 ticket, winnings are $350. $350 minus $1 = $349 = reportable.

Beware discount ticket pricing such as $1 each, 20 for $15. In this case, the wager is 75 cents, not a dollar, when computing the reportable winnings.

More information about IRS reporting is here:
http://www.irs.gov/instructions/iw2g/ar02.html

What’s The Downside? Can We Ignore These Rules?

NO! The law prohibiting unregistered raffles is Penal Code section 320.5, a criminal statute. Violations may be forwarded to the local district attorney, city attorney, or county counsel for investigation and possible prosecution. In addition, the Attorney General may take legal action under the provisions of the Nonprofit Corporation Law for breach of fiduciary duty or waste of charitable assets. Your club’s board of directors may be held personally responsible for violations of this law.

Links:

• More “Frequently Asked Questions” can be found on the California Attorney General website here: https://oag.ca.gov/sites/all/files/pdfs/charities/raffle/faqs_10_18_12.pdf
• California State regulations and information for raffles and fundraisers: https://oag.ca.gov/charities  Effective February 1, 2020
• Casino Nights have their own regulatory scheme and information on the AG website is here: https://oag.ca.gov/gambling/charitable