Nonprofit Lottery Tax Exclusion

IRC §4421(2)(B)

Excludes drawings conducted by 501 or 521 exempt organizations from the definition of a taxable 'lottery' provided no proceeds inure to private individuals.

Eligibility

Must be an organization exempt from tax under section 501 or 521 and ensure net proceeds are used solely for the organization's exempt purposes.

Frequently Asked Questions

Who is eligible for the Nonprofit Lottery Tax Exclusion?

Must be an organization exempt from tax under section 501 or 521 and ensure net proceeds are used solely for the organization's exempt purposes.

How does the Nonprofit Lottery Tax Exclusion work?

Excludes drawings conducted by 501 or 521 exempt organizations from the definition of a taxable 'lottery' provided no proceeds inure to private individuals.

What law authorizes the Nonprofit Lottery Tax Exclusion?

The Nonprofit Lottery Tax Exclusion is authorized under IRC §4421(2)(B) of the Internal Revenue Code (Title 26, United States Code).

Statutory Text — IRC §4421

Source: Internal Revenue Code, Title 26, United States Code

§ 4421. Definitions For purposes of this chapter—(1) WagerThe term “wager” means—(A) any wager with respect to a sports event or a contest placed with a person engaged in the business of accepting such wagers, (B) any wager placed in a wagering pool with respect to a sports event or a contest, if such pool is conducted for profit, and (C) any wager placed in a lottery conducted for profit. (2) LotteryThe term “lottery” includes the numbers game, policy, and similar types of wagering. The term does not include—(A) any game of a type in which usually(i) the wagers are placed, (ii) the winners are determined, and (iii) the distribution of prizes or other property is made, in the presence of all persons placing wagers in such game, and (B) any drawing conducted by an organization exempt from tax under sections 501 and 521, if no part of the net proceeds derived from such drawing inures to the benefit of any private shareholder or individual. (Aug. 16, 1954, ch. 736, 68A Stat. 528.)

Legal Sources

US Code (Official) — 26 USC §4421 → Cornell Law Institute — 26 USC §4421 → Search IRS.gov for IRC §4421(2)(B) → Treasury Regulations (26 CFR) →

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