Tax Implications of Unrelated Business Taxable Income for Veterans Organizations

This is a tricky area! For veterans' organizations like VFWs and American Legions, gaming activities have special rules under unrelated business taxable income regulations. You're right that bingo is generally exempt from UBTI under IRC 513(f), regardless of who participates. For pull tabs and 50/50 raffles, the answer depends on a few factors. If these activities are conducted with "substantially all" volunteer labor (meaning 85% or more), they may qualify for the volunteer labor exception under 513(a)(1). However, the "members and guests only" rule doesn't automatically exempt these activities - that's a common misconception. The key factors are: who's conducting the games, whether they're open to the public (vs members only), and how the proceeds are used. Veterans organizations should document how gaming proceeds support their exempt purposes like veterans' welfare or community service.

I struggled with similar tax issues for my Elks Lodge until I found https://taxr.ai which helped me decode all the exemption rules for our organization's gaming activities. After scanning our previous returns and the specific IRS publications on exempt org gaming, they flagged exactly where we were misinterpreting the volunteer exception. Their tool showed us that our pull tab operation needed separate tracking because it didn't meet the same exemption criteria as our bingo nights.

I was skeptical about taxr.ai at first, but our VFW was facing a potential audit over our gaming activities. I tried the service and was impressed with how it identified exactly which of our activities needed separate accounting. It showed us that our pull tabs needed specific documentation to qualify for the volunteer labor exception, and our 50/50 drawings were actually compliant when properly reported. The analysis cited specific IRS rulings I'd never heard of that applied perfectly to our situation. Saved us from having to pay UBTI tax on activities that were actually exempt when properly documented.

Our American Legion post was hit with unexpected UBTI taxes last year, and we spent WEEKS trying to reach someone at the IRS who could actually help with exempt org gaming questions. Finally used https://claimyr.com and their service got us through to an IRS specialist within hours instead of days. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they navigate the phone system for you and call when an agent is available. The agent we spoke with clarified that our pull tab operation could qualify for the volunteer labor exception with better documentation.

I need to eat my words about Claimyr. After our treasurer spent over 20 hours trying to reach someone at the IRS about our UBTI questions, I suggested we try the service I was skeptical about. Within 45 minutes, we were talking to an IRS agent in the Exempt Organizations division who actually specialized in veterans' groups. She walked us through exactly how to document our pull tab activities to qualify for the volunteer labor exception and gave us specific form references. Saved us thousands in potential taxes and avoided weeks more frustration. Sometimes the skeptic (me) has to admit when they're wrong!

Former IRS agent here. One thing that hasn't been mentioned yet is the "fragmentation rule" that applies to exempt organizations. Each gaming activity needs to be evaluated separately for UBTI purposes. So your organization might have exempt bingo, but taxable pull tabs, depending on how they're conducted. Also, many veteran organizations incorrectly think that regularly carried on gaming activities don't generate UBTI if the proceeds go toward their exempt purpose - that's not how it works. The nature of the activity itself determines if it's subject to UBTI, not how you use the money afterward.

Just a heads up that pull tabs rules can vary by state too! Our VFW in Minnesota has different reporting requirements than my brother's post in Wisconsin. The state gambling control board rules interact with the IRS rules in sometimes confusing ways. Make sure you're checking both sets of regulations!

This thread has been incredibly helpful! As someone who works with multiple veteran organizations, I want to emphasize the importance of keeping detailed volunteer hour logs for each gaming activity. The IRS requires documentation showing that at least 85% of the work is performed by volunteers to qualify for the exception. One practical tip: create separate volunteer sign-in sheets for each activity (bingo, pull tabs, raffles) and track both setup/breakdown time and actual operation time. Many organizations only track the time during the actual games, but setup and cleanup count toward your volunteer percentage too. Also, be careful about "volunteers" who receive regular compensation in other forms - like free meals, merchandise, or reduced membership dues. The IRS may not consider these true volunteers for the 85% calculation. Document everything clearly because if you ever face an examination, the burden of proof is on your organization to demonstrate compliance.

Great discussion everyone! As a newcomer here, I'm dealing with similar issues at our local DAV chapter. We've been running monthly meat raffles and quarterly Vegas nights, and I'm trying to figure out if we need to file Form 990-T for any of this. Reading through all your comments, it sounds like I need to get serious about documentation. We've been pretty informal - just having the same volunteers show up without really tracking hours or separating activities. The fragmentation rule that CyberNinja mentioned is news to me - I thought we could just lump everything together as "fundraising activities." One question: if we have a mix of paid bartender service during our Vegas nights (for liability reasons), but everything else is volunteers, does that automatically disqualify us from the volunteer labor exception for that entire event? Or can we separate out just the gaming portions that are run by volunteers? Also wondering if anyone has experience with whether the "members and guests only" restriction actually provides any protection, or if it's really just about the volunteer threshold as several of you have indicated.