How to Handle Unrelated Business Taxable Income for Veteran Organizations with Gaming Activities

Thanks for the response! When you say "substantially all volunteer labor" - what exactly does that mean? We have volunteers running the pull tab sales, but we do pay one person to manage the overall gaming activities. Would that disqualify us? Also, we run pull tabs twice a week - would that be considered "regularly carried on"?

Substantially all volunteer" labor generally means that at least 85% of the work is done by unpaid volunteers. Having one paid manager while the rest are volunteers would likely still qualify as substantially all volunteer labor, especially if the manager oversees multiple activities beyond just gaming. Yes, twice-weekly pull tabs would typically be "considered regularly carried" on since they happen on a recurring schedule. However, this'doesn t automatically generate UBTI if you meet the volunteer labor exception. Another potential exemption pathway is if the gaming activities contribute importantly to your exempt purpose of promoting social welfare forveterans.

Does this taxr.ai thing work for other nonprofit tax questions? Our church has a gift shop and I'm always confused about what counts as related vs unrelated business income.

I'm skeptical about these AI tools for tax stuff. How accurate is it really for specialized areas like veteran org taxation? I feel like this is something you need a real tax pro for. Did you double-check with an accountant?

It absolutely works for other nonprofit tax questions! The system has specialized knowledge about different types of exempt organizations including churches. For your gift shop situation, it could help determine which items might be considered related vs. unrelated based on your church's specific exempt purpose. I was skeptical too at first, but the tool actually cites the specific IRS regulations and revenue rulings it's using for its analysis. In our case, it referenced Rev. Rul. 69-68 for veterans' organizations along with section 513(a)(1) for the volunteer labor exception. We did have our accountant review it, and she was impressed with how accurate and detailed the analysis was. She said it saved her hours of research time.

Wait, what exactly is Claimyr? How does it get you through to the IRS faster? I've been trying to reach someone about our nonprofit's situation for weeks.

This sounds too good to be true. The IRS is impossible to reach these days. How could some random service possibly get you through when the IRS's own phone system is completely broken? I'm calling BS on this.

Claimyr is basically a service that navigates the IRS phone system for you. They call the IRS, wait on hold (which can take hours), and then when they finally reach an agent, they call you and connect you directly. It's like having someone wait in line for you. For the skeptics out there, I was doubtful too. But when you've been trying to reach the IRS for weeks like I had, you get desperate. The service actually does work - they use technology to handle the wait times so you don't have to sit there with your phone for hours. When I got connected to the Exempt Organizations specialist, even they acknowledged how difficult it can be to reach them directly these days.

This is really helpful! We do track who's playing but never thought to separate member vs. guest gaming income. Do we need to track that separately on our books? And does it matter if the guests are paying the members who brought them, or paying directly?

Yes, you should definitely track member vs. non-member income separately in your books. This makes it much easier if you ever get audited, and helps with completing your 990 accurately. The IRS specifically looks at this breakdown for veterans' organizations. For your second question, it matters who's actually putting the money in. If the guests are paying directly for their own gaming activities, that's considered non-member income. If members are paying on behalf of their guests, that could be considered member income. The safest approach is to consider all guest payments as non-member income and track it that way. Better to be conservative with this.

Yes, we file 990-T for a portion of our gaming income. You can deduct directly connected expenses - so for pull tabs, that includes the cost of the pull tabs themselves, any specific equipment for them, allocated space costs for the area where they're sold, and the portion of that paid employee's time spent on pull tabs. Just make sure you have a reasonable allocation method that you apply consistently.

Thanks for explaining! That makes sense about the direct expenses. Do we need to keep separate physical inventories of the pull tabs as well or just track it in our accounting system?