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Deductibility of Gambling Fund Transfers

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501(c)3 and 501(c)4 Festival Organizations

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Exempt 501(c)3 and 501(c)4 festival organizations may deduct gambling fund transfers on their Unrelated Business Income Tax (UBIT) return if they meet specific guidelines.

What are the guidelines?

If you are licensed to conduct lawful gambling, you may spend profits from gambling proceeds on lawful purpose expenditures (donations).

You may donate to yourself. These donations—in the form of transfers from your gambling account to your general account—are deductible as business expenses on your UBIT return under Internal Revenue Code, section 162. However, you are only allowed to deduct the amount of the transfers that were either:

  • Spent by the end of your fiscal year, using the cash basis of accounting
  • Incurred within your fiscal year, using the accrual basis of accounting

The transfer of funds from your gambling account to your general account is not deductible until you spend the funds to further your exempt purpose.

The transfer and the expense must occur in the same fiscal year to be deductible.

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