Raffles and Opportunity Drawings

Last Updated: April 24, 2026 9:33:48 AM PDT

Find information about holding a raffle or opportunity drawing.

If you’re planning a fundraiser that includes a raffle or opportunity drawing, it’s important to understand both California state law and federal tax requirements. These activities are highly regulated and require advance planning.

Based on guidance from the Office of the President, UC San Diego generally discourages holding raffles or opportunity drawings due to the complexity of compliance.

If you’re considering one, contact Gift Services early so we can help.

Key Differences: Opportunity Drawings vs. Raffles

Understanding the difference is critical. Many activities that are called “opportunity drawings” are actually raffles under the law.

Opportunity drawing (rarely qualify)

An opportunity drawing is only allowed if no purchase is required and all of the following are true:

Tickets are distributed freely and broadly
Tickets given away have the same opportunity to win as tickets given to someone who has made a donation.
Participants are not required to pay for an entry, and this is clearly stated

If any payment is required, it is not an opportunity drawing. It is a raffle.

Important Notes:

Even for valid opportunity drawings, prizes may still trigger IRS reporting and tax requirements.
Selling tickets and stating that you will give a ticket away for free “if asked” does not comply with these requirements and is really a raffle.
Ticket sales are not a charitable donation, as they represent the purchase of a chance to win, and are considered 100% benefit (aka quid pro quo).
You must state on the tickets that “ticket price is not tax deductible”.

Raffles

A raffle occurs when participants pay for a chance to win a prize.

Raffles must:

Be registered with the State of California in advance.
Must follow the 90/10 Rule (see below)
Require post event financial reporting
Must be conducted under the UC San Diego Foundation
Are regulated under California Penal Code (Penal Code section 320.5 and related regulations).

Raffle tickets are not tax-deductible, and IRS reporting and tax withholding may apply depending on prize value.

California State Law

Raffles are regulated as gambling under California law.

If you hold a raffle:

It must be conducted under the UC San Diego Foundation (not The Regents), which files an annual registration covering all raffles for the year.
It must be registered with the State of California at least 60 days in advance
A financial report is required after each raffle.
- Your department is responsible for preparing the report at the conclusion of the raffle. Gift & Foundation Accounting consolidates the reports to complete the annual raffle filing, which must be certified by the Foundation CFO.
- The report includes total proceeds, expenses and how they were paid, and required compliance certifications.
- Departments are responsible for understanding and meeting all legal requirements before holding a raffle.

The financial form, informative FAQ’s and other information about conducting raffles in California can be found at the State's website.

90/10 rule

California law requires that:

At least 90% of raffle proceeds must go to charitable purposes
No more than 10% can be used for prizes or expenses

This is difficult to meet unless most prizes are donated. For example, “50/50” raffles where half the proceeds are awarded as a prize do not comply with California law and are not allowed for charitable organizations.

Federal Income Tax Requirements

The IRS treats raffles and opportunity drawings as a form of lottery. This means there are both reporting and tax withholding requirements depending on the value of the prize.

Tax Deductibility

Raffle tickets are not charitable donations. They represent payment for a chance to win and are considered 100% quid pro quo. All tickets must clearly state: “Ticket price is not tax-deductible.”

IRS reporting

Reporting is required if the prize value is over $600 and the prize value exceeds 300 times the cost of a single ticket.

Example 1:

Jane Triton buys 1 raffle ticket for $20. Her ticket wins the raffle and gets a prize worth $1,000.

Test 1: The prize is over $600 in value
Test 2: 300 times her wager of $20 is $6,000, less $20 or $5980.

Must we obtain her tax ID information and report on her prize winnings to the IRS? No, because the value of her prize was less than 300 times the value of her wager.

Example 2:

Joe Triton buys 20 raffle tickets at $1 each for $20. He wins the raffle and gets a prize worth $1,000.

Test 1: The prize is over $600 in value
Test 2: Note: we only look at one wager because only one ticket won. So 300 times his wager of $1 is $300

Must we report on his prize winnings? Yes, because the value of his prize was more than $600 and more than 300 times the value of his wager.

If reporting is required, the winner must complete a tax identification form (IRS Form 5754, Form 5754 Instructions) before receiving the prize. Raffle materials should also inform participants that winnings may be subject to IRS reporting and withholding.

Any raffle or opportunity drawing brochures (distributed to patrons prior to a drawing) that describe the prizes and their value must also have language stating that the winner of the raffle prizes may be subject to gambling winnings reporting and income tax withholding.

Tax Withholding Requirements

If a prize is worth more than $5,000 (after subtracting the ticket price), federal tax rules require that taxes are handled before the winner receives the prize.

The key question is simple:
Who is paying the tax — the winner, or the Foundation?

Option 1: Winner pays the tax (most common)

The winner pays the required tax before receiving the prize.

Federal withholding rate: 24%
The Foundation collects the tax from the winner and sends it to the IRS

Example (cash prize):
A $1 ticket wins a $6,000 prize

Taxable amount: $5,999
Tax due (24%): $1,440
Winner receives: $4,560 after withholding

Example (non-cash prize):
If the prize is a trip valued at $6,000, the winner must pay $1,440 before receiving the prize.

Option 2: Foundation pays the tax on the winner's behalf

If the winner does not pay the tax, the Foundation may choose to pay it for them.

In this case, the tax payment is treated as additional income to the winner, which increases the total taxable amount.

Effective tax rate: approximately 31.6%

Example:
A $6,000 prize where the Foundation pays the tax

The tax is calculated on both the prize and the tax payment itself
Total tax cost is higher than 24% because of this “gross-up” effect

When the Foundation pays the tax for the winner, the Internal Revenue Service treats that payment as part of the prize. This increases the total value of the winnings, which increases the tax owed.

Taxes must be resolved before the prize is awarded
For non-cash prizes (like cars or trips), this often means collecting payment from the winner in advance
If this isn’t planned for, departments may need to cover the tax, which increases the total cost
A W-2G form must be completed for applicable winnings
Accurate fair market value must be documented for non-cash prizes

Plan ahead

Holding a raffle requires coordination, documentation, and strict compliance with state and federal law. If requirements are not met before the event, compliance obligations still apply after the fact. Departments may need to follow up with winners for tax forms or payments, which can create challenges for both staff and donors.

Before you move forward

We strongly recommend you:

Contact Gift Services early in your planning process
Review all compliance requirements
Consider alternative fundraising options