Title 

Gaming for Florida Elks Lodges -

501(c)(8) Tax-Exempt Fraternal Organizations

Source

Adapted from an article written for the Fall 2021 edition of the Florida Elks News Magazine

Author

Richard Martin, PDD, Chairman of the FSEA Business Practices Committee

References    

IRS Notice 1335 Gaming Activities (October 2004)

IRS Publication 3079, Tax-Exempt Organizations and Gaming (Rev. 10-2018)   

Queen of Hearts Guide (March 2019)

Disclaimer

The Business Practices Committee of the Florida State Elks Association (FSEA) has prepared this information to assist all Florida Elks Lodges. The committee is neither responsible for nor empowered to be responsible for the establishment of such procedures. The committee acts as a resource to assist Florida Elks Lodges. You should always consult your Lodge’s tax and legal advisors before engaging in any endeavors or transactions to ensure compliance with all Federal, State, and Local Laws.

Why This Is Being Published

There are many questions about gaming in Elks Lodges, and now we are learning that the Internal Revenue Service (IRS) is examining gaming procedures during the IRS audits of Elks Lodges. The IRS is examining gaming procedures to ensure that all Unrelated Business Income (UBI) of the Lodge is being properly reported and taxed if taxable.

What Is Gaming

IRS Notice 1335 Gaming Activities (October 2004) lists gaming to include bingo, beano, raffles, lotteries, pull-tabs, scratch-offs, pari-mutuel betting, Calcutta wagering, pickle jars, punchboards, tip boards, tip jars, certain video games, and other games of chance. Suffice it to say, gaming includes ALL games of chance regardless of what name it is called.

As a 501(c)(8) Organization, Aren’t Elks Lodges Exempt from Paying Taxes?

The IRS has determined that an Elks Lodge is a 501(c)(8) Fraternal Organization. IRS Publication 3079 Tax-Exempt Organizations and Gaming, Chapter 1 – Gaming’s Impact on Tax-Exempt Status, Page 4, states that the exempt function of organizations classified under this section includes providing social and recreational activities for members and their bona fide guests. Thus, fraternal organizations may engage in gaming involving only members without jeopardizing their exempt status. Elks Lodges are cautioned against comparing Elks Lodges with other tax-exempt organizations such as the Veterans’ Organizations, as their tax-exempt status is different from ours.

Can Elks Lodge Gaming be Open to the Public?

Gaming open to the public does not further the exempt purposes of fraternal organizations. Elks Lodges whose primary activity is public gaming jeopardize their exempt status and their gaming income may also be subject to the tax on unrelated business income.  

Can “Bona Fide Guests” Participate in Gaming in an Elks Lodge?

Only Elks Members may participate in gaming in an Elks Lodge. IRS Publication 3079 Tax-Exempt Organizations and Gaming, Chapter 1 – Gaming’s Impact on Tax-Exempt Status, Top of Page 5, states that the term “bona fide guests” is generally defined as individuals whom the member invites and for whom the member pays. If, for example, a nonmember pays for his or her own wagers in gaming activities, he or she is a member of the public and not a guest, even though he or she may have entered the organization’s premises with a member. Also, if an organization requires only a nominal payment to join as a “member,” individuals making this payment to gain admission to the organization’s facilities or activities may not be considered members or bona fide guests.

Gaming Activity Workers

IRS Publication 3079 Tax-Exempt Organizations and Gaming, Chapter 5 – Workers Conducting Gaming Activities, will help Elks Lodges determine whether its gaming employees should be classified as employees, independent contractors, or volunteers. The Business Practices Committee strongly encourages Lodges to use only Elk volunteers (no compensated employees/bartenders) to conduct gaming. By using only unpaid volunteers, the income from gaming will not be considered an unrelated trade or business, and the income earned from it is not taxable as unrelated business income.

Can a Compensated Worker be a Volunteer?

Generally, if a worker is compensated in any manner, he or she will be either an employee or an independent contractor and cannot be classified as a volunteer.

Types of Compensation

IRS Publication 3079 Tax-Exempt Organizations and Gaming, Chapter 5 – Workers Conducting Gaming Activities, Page 7, states “Compensation” is interpreted broadly and may include payments to bartenders, waitresses, snack bar staff, maintenance workers, security, and other workers, as well as the tips these workers receive from patrons at a gaming session. Workers who obtain goods or services at a reduced price in return for their services may be considered compensated.

IRS Publication 3079 Tax-Exempt Organizations and Gaming, Chapter 5 – Workers Conducting Gaming Activities, Page 13, states tips that gaming activity workers receive from players, whether cash or non-cash, are taxable income. Tips paid to a worker in cash, checks or other cash equivalent (including charged tips) of more than $20 in a calendar month while working for any one employer are also wages subject to employment taxes.

Queen of Hearts

Specific to Queen of Hearts gaming, it is recommended that every Lodge review the Queen of Hearts Guide.

Maintaining Records

Elks Lodges that conduct gaming must maintain records of gross receipts from gaming, prize payouts and other related disbursements to substantiate information submitted on the exempt organization information return (Form 990 or 990-EZ) and the income tax return (Form 990-T) if one is required.

An organization must maintain records until the statute of limitations expires; generally, three years from the later of the filing or due date of a return.

More Information

IRS Form 1335  Publication 3079  Queen of Hearts Guide