Answering Your Questions

Many nonprofit organizations and charities consider the use of raffles and other games of chance to raise funds. A sponsor donates a prize or prizes, volunteers and staff sell tickets, and almost all the proceeds go directly to the bottom line -- to support the nonprofit's operations and services. It can be a very efficient and popular way to support a cause.

What relatively few of these nonprofits understand is that there is a complex web of federal, state, and local laws, regulations, and ordinances that govern whether or how charitable lotteries may be conducted. The following list is not intended to be exhaustive, but rather a sample of the issues your organization should consider when planning a raffle or charitable lottery.

Federal Issues
First, raffle tickets and other entry fees to participate in games of chance are not deductible as charitable contributions. Why not? The IRS considers the chance to win a prize to be something of value received in exchange for a donation.

Second, there are severe limitations on use of the U.S. Mail in soliciting or distributing lottery tickets:

Section E670 describes nonprofit standard mail (formerly known as nonprofit bulk rate) requirements.

pe.usps.gov/archive/html/dmmarchive1209/E670.htm#Rdb11624

Reading Section 5, we don't find specific mention of lotteries or raffle tickets. However, interpreting sections 5.4 and the 5.6 particularly, it's difficult to see how furthering a lottery or raffle, even for charity, would be permissible.

EXCEPT, that a 2000 US Supreme Court ruling has made it difficult for the US Justice Department to enforce the restrictions on claritable lottery/raffle mailings.  See:

http://www.justice.gov/olc/18usc1302.htm.  However, the Justice Department may still prosecute under the USPS regulations when it believes a lottery or raffle is fraudulently or inappropriately administered.

So, it appears that the statutes are still on the books, but that they will only be enforced if the charity is found to be operating its raffle or lottery improperly or illegally.

State Issues
States differ in how and whether charitable lotteries & raffles are conducted -- what's legal in Ohio may be illegal in Kentucky, or vice versa. Generally speaking, few states outlaw all charitable gaming.

Some states only permit charitable lotteries when there is no requirement to purchase the chance to win a prize. [Most people will pay to enter a raffle for charity, so even in these states, raffles are viable fund raisers.]

Many states limit one or more of the following: maximum raffle ticket purchase price; maximum value of prize(s) to be awarded; type(s) of prizes that may be awarded; minimum number of tickets to be sold; records to be kept by the charity related to the raffle; and how the prize winner(s) are determined. Limitations vary from state to state.

Local Issues
Many cities, counties, and towns have ordinances requiring registration or other notification by the charity to the local government that a raffle fund raiser is in progress. If your raffle is spread across a state, or solicitation is being done in multiple counties and cities, you may have to register more than once.

Internet Issues
Using a web site or other Internet means to further a charitable lottery (raffle) may be construed by some states as charitable fund raising solicitation to its residents -- even when the nonprofit isn't targeting residents of a particular state. In theory, a South Dakota nonprofit may be violating Florida law by allowing Florida residents to see the raffle page on the organization's web site!

Summing Up
Raffles and charitable lotteries can be great ways to raise funds for your charity. However, check out all of the laws and regulations, including those in your state and local area(s), for the specific type of fund raiser you choose to pursue. All it takes is one disgruntled participant or one persistent local media reporter to say “Gotcha!” and ruin a well-intentioned fund raising effort -- not to mention your nonprofit's good name and reputation.