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Volunteer Legal Handbook
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D. Tax Laws and Other Government Regulation
The Federal government and, to a lesser extent, state governments, impose extensive regulations on nonprofit corporations and very extensive regulations on charitable corporations. This section of the Handbook addresses some of those regulations. But first, and because we are going to be dealing with the Internal Revenue Code pretty extensively here, we'll review some terminology.
NOTE: You can best understand these complex rules, and the tax rules in particular, by identifying the policies underlying them, and not thinking of them as revenue-generating statutes.
A nonprofit corporation is a corporation whose income is exempt from taxation in many cases. A charitable corporation is a special kind of nonprofit corporation, typically but not always operating under Internal Revenue Code §501(c)(3), as to whom donations are deductible from income by the donors.
According to the IRS, there are more than 500,000 charitable corporations listed in its database. Those charitable corporations raised some $144 billion in 1995, the last year for which I can find data. Obviously charitable corporations are a significant part of the economy and play a significant role in society.
For a variety of reasons, charitable corporations are much more closely regulated by the Internal Revenue Code than simple nonprofit corporations. These regulations typically impact a charitable corporation in several ways, including:
• Restrictions on ways in which charitable corporations can raise monies• Restrictions on the uses charitable corporations can make of their monies
• Reporting requirements and tax returns required to be filed
Each of these topics will be briefly examined.
Caution: This is an extremely complicated area of the law, with literally hundreds of statutes and thousands of regulations. Many of the statutes are new, so there isn't a lot of precedent. Proceed with extreme caution, and only with the advice of a qualified accountant or attorney.
One last word by way of introduction: there are charitable corporations, and then there are foundations, which are slightly different animals, and are subject to somewhat different rules. Foundations are discussed briefly later in this section.
2. Restrictions on fund-raising
One way that governments regulate charitable corporations is by restricting the ways in which they can generate monies for themselves. Classically, charitable corporations raise monies in one of two ways: soliciting monies, and in particular donations, or by engaging in business activities. Both forms of revenue generation are regulated.
Not all transfers and payments to charitable corporations are deductible. A volunteer engaged in fund-raising can expose himself and the nonprofit corporation to considerable liability to the IRS and the donor by innocently misrepresenting the deductibility of any particular "gift." To understand the rules for deductible donations, we'll first have to look at what a "donation" is.
(1) The requirement of a donationThe first requirement for a donation is that there be a donation. The IRS is pretty specific about this: there must not be something given in return for the donation, not even something as intangible as a chance to win a lottery, or a dinner, or a concert. To the extent there is something given in return, then the deductible donation is the difference between the value of the donation and the value of the thing received. If you received a concert ticket worth $10 in return for your $20 donation, then you have made a $10 donation.
(a) Written acknowledgement for gifts of $250 or moreSince 1994, gifts of $250 or more must have a written receipt from the nonprofit corporation to be deductible to the donor. The receipt must be "contemporaneous," which in this context means received by the donor before the due date for the donor's tax return. The receipt may be for each gift or may be an annual statement. The donated property must be described in reasonable detail. If there was a "quid pro quo" (see next section) for the donation, the value of the exchange must be estimated in good faith.
(b) Quid pro quo gifts
There's a lot of confusion about this. A "quid pro quo" donation is a payment or transfer made partly as a contribution and partly in consideration for goods or services provided by the donee to the donor. A charity that receives a quid pro quo contribution in excess of $75 must provide to the donor a written statement that contains:
i) General statementA general statement that the donor's deduction is limited to the excess of the cash or value contributed over the value of the goods or services provided by the donee.
ii) Good faith estimate
A good faith estimate of the value of the goods or services provided to the donor by the charity in return for the donor's donation.
iii) Form of disclosure
The disclosure must be in writing, and in a form and of a size that makes it likely to come to the attention of the donor. A disclosure statement in fine print inside a larger document will probably not satisfy this requirement.
iv) Exception for token goods or services
If the quid pro quo consists of token goods or services, then the donee is excused from these requirements. Two IRS determinations, Rev. Proc. 90-12 and Rev. Proc. 92-49, help a little in defining "token goods or services." There appear to be three different tests. Meeting any one of them is supposed to be a "safe harbor" from risk of sanction.
However, it is entirely clear that lottery tickets are always deemed to have a value equal to the amount paid to obtain them. That is, there is never a deduction for a purchase of lottery tickets.
If the charity intends the goods or services to qualify for this exception it should say so in writing. Suggested language: "Under IRS guidelines, the estimated value of the benefits you receive [describe the benefits] is not substantial. Therefore, the full amount of your payment is a deductible contribution."
(1) Value test
The fair market value of all benefits received by the donee is not more than two percent of the payment or $50, whichever is less.
(2) Logo items
When the donor's payment is $25 or more (adjusted for inflation), and the only benefits are token items (bookmarks, calendars, key chains, mugs, posters, t-shirts, etc.) bearing the organization's name or logo, and the aggregate cost (as opposed to fair market value) of all items is within the limits established for "low cost articles" under Internal Revenue Code §513(h)(2), which in 1992 was $6.30.
(3) Unsolicited merchandise
Where the charity distributes to donors free, unordered and unrequested items along with the statement that the recipient may keep the merchandise whether or not a contribution is made, and the aggregate cost of all items received during the year (as opposed to fair market value) is within the limits established for "low cost articles" under Internal Revenue Code §513(h)(2), which in 1992 was $6.30.
v) Effect of violations
A charity that fails to provide donors with disclosure statements as required, or that makes a disclosure that is incomplete or inaccurate, is subject to a penalty of $10 per contribution, to a maximum of $5,000 per event. While a "reasonable cause" exception is available as a defense, if the IRS concludes the behavior is intentional or repeated, it can seek to revoke the nonprofit corporation's §501(c)(3) status.
(c) Newsletters
In return for the payment of "dues," many nonprofit corporations give their "members" a periodic newsletter. Be careful here; a newsletter constitutes a "quid pro quo" and is subject to complex rules and limitations.
i) Newsletters not quid pro quoNewsletters will not constitute transfers with measurable value if they meet the following tests:
(1) Primary purpose
The primary purpose must be to inform members about the activities of the nonprofit corporation.
(2) Availability
The newsletter is primarily available only to members. (But note the inconsistency with the unsolicited gifts rule set out above.)
ii) Newsletters are quid pro quo
Any of the following activities with regard to a newsletter will transform it into a "non-token" good or service for which the nonprofit corporation must make a good faith estimate of value and report to the donor.
(1) Accepting advertising
If you accept payment for advertising. Free advertising for related activities is probably all right.
(2) Paying for articles
If the newsletter contains articles written for compensation.
(3) News stand sales
If the newsletter is sold from news stands, or is otherwise distributed commercially.
(4) Subscription distribution
If the newsletter is distributed to persons other than members by paid subscription.
(2) In-kind donations
In-kind donations of services from donors are not ordinarily deductible. The lawyer who provides free legal services to a nonprofit corporation is not permitted to deduct the value of those services. (There are narrow exceptions for accrual-based donors; consult a good certified public accountant before relying on the deductibility of in-kind services based on an accrual-based donor.) Contributions of goods are deductible to the extent of the fair market value of the donated goods, subject to exceptions for depreciated goods.
(3) Limits on charitable giving
It's not usually a problem, but there are arcane limits on the total dollar amount of tax deductible donations some kinds of donors can make in a year. Consult a good certified public accountant if you need more information.
A second way in which governments regulate charitable and even nonprofit corporations is by imposing a tax on revenues earned by the organization which are attributable to a business activity that, in the judgment of the government, is too remote from the organization's exempt purpose. This is an extremely complicated, extremely important area of nonprofit corporation law. Important nonprofit corporations in Alaska have been brought to ruin by IRS audits which have resulted in tax and penalties associated with "unrelated business income." Here is a very simple overview of this complex area of the law. Please consult with a qualified certified public accountant in evaluating your own nonprofit corporation.
(1) General ruleAny nonprofit corporation may be subject to a tax on its "unrelated business income" if it regularly carries on a business that is "unrelated" to its exempt purpose. If the unrelated business activities are more than insubstantial, the nonprofit corporation may lose its tax exempt status.
(2) Unrelated trade or business
This is a trade or business that the nonprofit corporation regularly carries on which is not substantially related to the nonprofit corporation's exempt purposes. Note that activities which generate income used by the nonprofit corporation for its purposes may still be an "unrelated trade or business;" it's the manner in which the monies are earned and not the use made of them that triggers the tax.
(a) "Regularly carried on"An activity will be deemed "regularly carried on" if the activity is conducted with the frequency and continuity comparable to the commercial activities of for profit corporations.
(b) "Substantially related"
An activity is "substantially related" &endash; and therefore not "unrelated" &endash; to the nonprofit corporation's exempt purpose if the activity contributes to the nonprofit corporation's exempt purposes other than through the production of income. The need for the funds generated by the activity does not of itself make the activity "substantially related."
i) Specific examples of "substantially related" activitiesThe IRS has provided some examples which it deems are "substantially related." Note that an activity may be "substantially related" and still fail other tests...
(1) Work performed by volunteers
An activity will not be treated as an unrelated trade or business if substantially all of the work is carried on by volunteers.
(2) Carried on for the benefit of members
An activity will not be treated as an unrelated trade or business if it is carried on primarily for the benefit of members, students, patients, officers or employees.
(3) Selling donated merchandise
An activity will not be treated as an unrelated trade or business if it consists of selling merchandise, substantially all of which has been donated.
(4) Distribution of low-cost articles
An activity will not be treated as an unrelated trade or business if it relates to the distribution of low-cost articles (see the discussion at pages 34-35) in connection with charitable activities.
(5) Certain gambling activities
An activity will not be treated as an unrelated trade or business if the business consists of a legal bingo game, in a state where bingo games "are not ordinarily conducted on a commercial basis."
There is an ongoing dispute with the IRS about "pull-tabs" and the taxability to nonprofit corporations of income generated by "pull-tab" operations. You should obtain advice from a qualified certified public accountant regarding this issue.
(3) Exclusion of certain income
The IRS excludes certain kinds of unrelated business income from unrelated business income tax. That is, even though the monies may be "unrelated business income" they are still excluded from the tax imposed upon "unrelated business income." For the exclusion to operate, and for the unrelated business income to escape taxation, the income must not result from "debt financing."
(a) Kinds of unrelated business income excluded from taxAssuming the income is not "debt financed," the following kinds of income are excluded from the unrelated business income tax.
i) Securities loans and annuitiesDividends, interest, and payments with regard to certain securities, loans and annuities are excluded from the unrelated business income tax.
ii) Royalties
Royalties paid for intellectual property rights &endash; patents, trademarks, copyrights &endash; are excluded from the unrelated business income tax. If a donor gave your nonprofit corporation a patent, the royalties generated by the patent wouldn't be taxable.
iii) Rental income
Rental income from real property is in many cases excluded from the unrelated business income tax. Please note there is no similar exclusion for personal property.
iv) Capital gains
Gain from the sale of capital assets is excluded from the unrelated business income tax. If a donor gave your nonprofit corporation a depreciated asset &endash; a computer &endash; which your nonprofit corporation subsequently sold for more than your donor's basis, your nonprofit corporation would not pay income tax.
(b) "Debt financing"
The exclusions set out above are not available if the activity generating the income is financed in substantial part by borrowed money. For example, rental income is taxable as unrelated business income if your nonprofit corporation owes money under a mortgage secured in the rented property.
(4) Reporting and tax on "unrelated business income"
Nonprofit corporations are required to report unrelated business income. There are stiff penalties for a failure to do so, and ultimately the risk that the exemption will be lost. Use Form 990-T to report unrelated business income.
c) State fund-raising solicitation issues
In 1993, the Alaska Legislature adopted laws regulating charitable solicitations, AS 45.68.010-120. The Alaska Department of Law is charged with enforcing the statute, but if you call there you'll get mostly an awkward silence. Here's a brief summary; there's a more extended discussion at section II(E)(6) at pages 73-75.
(1) General ruleA charitable organization must register with the Alaska Department of Law before soliciting monies. The form of the registration is prescribed by statute. The charitable organization must renew its registration annually on September 1. Material changes in the charitable corporation during the year must be reported to the Department of Law.
(a) ExceptionsThere are some significant exceptions from the registration requirement.
i) ChurchesA church or religious organization that is exempt from filing with the IRS under 26 U.S.C. §6033(a)(2)(A) is similarly exempt from these registration requirements.
ii) Political organizations
A few kinds of political organizations can qualify as charitable corporations. If a political organization files reports under state or federal elections laws it is exempt from the registration requirements.
iii) Very small charitable activities
Charitable organizations which will conduct fund-raising activities involving $5,000 or less and solicitation of 10 persons or less are exempt, although still subject to the record retention requirements below. AS 45.68.120(c).
(b) Records retention
Charitable organizations required to register or exempted are required to retain their records for five years in auditable form. AS 45.68.070.
(2) Paid solicitors
The laws are very tough on paid solicitors. They are required to complete a detailed application form and to post a bond before making charitable solicitations. They are required to have a written contract with the charitable corporation for whom they are raising funds, a copy of which must be filed with the Department of Law.
(a) DefinitionA "paid solicitor" is defined as a person who solicits charitable contributions in return for compensation. The definition includes persons who are employed by a paid solicitor. The term does not include attorneys or bona fide salaried officers, employees or volunteers of a charitable organization. Presumably, the compensation need not be based upon funds raised.
(b) Mandatory disclosures
There is a long list of mandatory disclosures a paid solicitor is required to make, including the true name of the individual making the solicitation, the true name of the charity, the true name of the paid solicitor, the form and amount of compensation the paid solicitor receives, and that a financial statement is available for the charity upon request. There are other mandatory disclosures.
(c) Written confirmation
The paid solicitor is required to mail written confirmation of a pledge within five days of the date it is received. The written confirmation must set out the mandatory disclosures as well.
(d) Criminal sanctions
It is a Class A misdemeanor for a paid solicitor to seek contributions in violation of AS 45.68.
(3) Practical effect and concerns
The practical effect of AS 45.68 is to make it difficult to impossible for paid solicitors to engage in fund-raising activities in Alaska. Boards of directors of nonprofit corporations will need to be extremely careful about their fund-raising activities to avoid becoming ensnarled in the "paid solicitor" rules.
Any organization that actively solicits donations at any significant level MUST register.
This section addresses issues of Alaska law only. Nonprofit corporations in other states do not need to worry about this section.
Gambling is generally illegal in Alaska. AS 11.66.200. However, certain kinds of gambling are legal, including pull-tabs, bingo and lotteries under certain narrow circumstances. Playing cards, dice, roulette wheels, coin-operated machines and the like are illegal. This section discusses when and how legal gambling may be conducted, and the idea of "charitable gaming" in general. Charitable gaming is regulated by the Division of Charitable Gaming in the Alaska Department of Revenue, and is referred to in this section as "the Division."
Charitable gaming is highly controversial on several levels. While some believe that it represents a benign, voluntary tax; others view it as taking advantage of the statistically impaired at best and government-facilitated addictive behavior at worst. The IRS from time to time has regarded charitable gaming proceeds as unrelated business income, and therefore subject to unrelated business income tax.
These moral issues are beyond the scope of this manual, but you should be aware they exist.
(1) The overall viewAlaska law allows "authorized games of chance" to be conducted by persons holding permits ("permittees") or by "operators" on behalf of persons holding permits or by "vendors" in the case of pull-tabs with the requirement that "net proceeds" be payable to "qualified organizations." See generally AS 05.15.010 et seq.
(2) Charitable gaming
A pretty misleading term, it refers to gambling that is lawful because the proceeds go to a municipality (a city or borough) or to a "qualified organization." A municipality is not a charity, and a "qualified organization" need not be a charity, as discussed below.
(a) Authorized games of chanceBasically, authorized games of chance &endash; legal gambling &endash; are pull-tabs, bingo and lotteries. The lotteries may be disguised: ice classics (guess the date and time the ice goes out on a river or lake), rain classics (guess the total amount of rain that will fall in a certain length of time), salmon classics (guess when the first salmon will return to a given spot), fishing derbies (catch the biggest fish), goose classics (guess when the first migrating goose will return to a given locale) and many other variations. Certain kinds of pure lotteries and raffles are also authorized.
Note that so-called "Monte Carlo" gaming is not authorized. In an Attorney General's Opinion issued November 15, 1995, the Department of Law stated that such events were illegal gambling, and not permitted under the charitable gaming statutes. The regulation authorizing "Monte Carlo" activities has been repealed.
(b) Qualified organizations
By AS 05.15.690(36):
A bona fide civic or service organization or a bona fide religious, charitable, fraternal, veterans, labor, political (until January 1, 1997), or educational organization, police or fire department and company, dog mushers' association, outboard motor association, or fishing derby or nonprofit trade association in the state that operates without profits to its members and that has been in existence continually for a period of three years immediately before applying for the license or permit; the organization may be a firm, corporation, company, association, or partnership.Plainly, some "qualified organizations" are a long ways from charitable organizations. A "qualified organization" may be a charitable corporation but it doesn't have to be.
i) Political organizationAn organization or club organized under or formally affiliated with a political party as defined at AS 15.60.010.
ii) Labor organizations
An organization, not for pecuniary profit, constituted wholly or partly to bargain collectively or deal with employers, including the state or its political subdivisions, concerning grievances, terms or conditions of employment or other mutual aid or protection in connection with employees.
iii) Others
See generally the definitions at AS 05.15.690(1)-(44).
(3) Permittees
A permitee is a municipality or qualified organization that has obtained a permit to conduct charitable gaming. To obtain a permit the municipality or qualified organization must submit an application and the appropriate filing fee. The amount of the fee is based upon gross revenues in the previous year.
(a) Multiple-beneficiary permitsTwo to six beneficiaries may apply for a multiple-beneficiary permit; effectively, they may share in a permit.
(b) Local prohibition - going "dry"
A municipality may conduct a "local option" election to determine whether or not charitable gaming will be permitted in the municipality. The election results are binding and prevent the Charitable Gaming Division from issuing charitable gaming permits in or within five miles of the boundaries of the municipality.
(c) Municipal protest
A municipality may protest the issuance of a specific charitable gaming permit, but the grounds for the protest are limited to the restrictions imposed by law, and a permit may be issued despite the municipal protest.
(d) Reporting requirements
A permittee is required to designate a "member in charge" and an "alternate member in charge." There are modest testing requirements imposed upon these persons. The member in charge (or the alternates) is responsible for the performance by the permittee and, if there is one, the operator, of the various duties imposed upon those persons by the law.
(4) Operators
An operator is a person who conducts charitable gambling on behalf of a permittee. That is, the permittee doesn't run the pull-tab, bingo or lottery, but instead hires someone to do it for them. Operators are regulated to a greater extent than are the permittees themselves. An operator can operate permits for more than one permittee. However, a permittee cannot contract with more than one operator for the same kind of activity.
(a) Municipalities may prohibit operatorsA municipality may prohibit an operator or a vendor (see below) from conducting activities within the municipality.
(b) License
An operator is required to obtain a license from the Division. The license process is controlled by regulations. 15 AAC 160.030. The license application must be accompanied by an annual fee of $500.
(c) Bonding
An operator must post a bond for $25,000 for each permit under which the operator conducts business to a maximum of $100,000. The bond has to have a term that extends two years beyond termination of the operator's permit. 15 AAC 160.030.
(d) Insurance
The operator is required to show proof of liability insurance in the minimum amounts of $100,000 per incident and $300,000 per occurrence. 15 AAC 160.210
(e) Written contract
The form of the contract between the permittee and the operator is prescribed by statute at AS 05.15.115 and by regulation at 15 AAC 160.220.
(f) Restrictions on operators
There are a few restrictions imposed upon operators. An operator may not:
- Extend credit to players
- Employ house players
- Allow employees to play a game conducted by that operator
AS 05.15.165(f).
(g) Accounting
There are modest accounting requirements imposed upon an operator. They are required to make payments by checks, AS 05.15.165(a), and the records must be reviewed annually by a certified public accountant, AS 05.15.165 and 15 AAC 160.310, and submitted to the Division by February 28 of the next year.
(5) Vendors
A third kind of gambling operator is a person permitted to sell pull-tabs, called a "vendor." Vendors are required to register with the Division. Approval of the registration operates as an endorsement on the permittee's permit, and a separate endorsement is required for each vendor location. There is a $50 fee for a vendor endorsement.
(a) Who can be a vendorOnly bars and liquor stores can operate as pull-tab vendors.
(b) Written contract
A written contract containing information specified by regulation must be presented to the Division for inspection. 15 AAC 160.340.
(c) Records retention
Vendors should keep their sales records for at least two years.
(6) Proceeds and use of proceeds
To understand what must be done with proceeds you have to understand some of the terms used. Then you must look at the activity involved and then who is conducting the operation to determine how much money must be paid to the "qualified organization."
(a) Key termsIt's not as bad as the Internal Revenue Code, but it's close.
i) Gross receiptsReceipts from the sales of participation in gambling activities authorized by the charitable gaming laws. All monies received. AS 05.15.690(21).
ii) Adjusted gross income
Defined as "gross income" (not to be confused with "gross receipts") less prizes awarded and state, federal and municipal taxes paid or owed on the income. AS 05.15.690(1).
iii) Net proceeds
Defined as gross receipts less (1) prizes paid, (2) expenses authorized under AS 05.15.160 and (3) fees paid under AS 05.15.20(b). AS 05.15.690(29).
iv) Ideal net
Defined as an amount equal to the total amount of receipts from the sale of all pull-tab tickets in a series less prizes paid for that series. AS 05.15.690(23).
v) Authorized expenses
Defined as the bona fide expenses incurred in conducting the charitable gaming activity. In the case of pull-tab operations, they are capped at 70% of the adjusted gross income. AS 05.15.160(c). In the case of any other gaming activity, they are capped at 90% of adjusted gross income. Unsurprisingly, the cap also operates as the floor, and compensation to the operator usually soaks up anything otherwise payable below the 70%/90% cap.
Note that charitable gaming activities are subject to municipal sales tax. Kotzebue Lions Club v. City of Kotzebue,, __ P. 2d __ (Alaska 1998) (Op. No. 4961 April 3, 1998).
(b) Mandatory disbursements
Operators are required to pay to the permittee not less than 30% of the adjusted gross income from pull-tabs annually. Operators are required to pay to the permittee not less than 10% of the adjusted gross income from other gambling activities annually. AS 05.15.128(a)(2).
A vendor is required to pay to the permittee not less than 70% of the ideal net. This payment is required to be made at time of delivery of the pull-tabs. Vendors may exert pressure on permittees to pay afterwards, or to grant credits for return of pull-tabs sets where the big prizes paid early. Those concessions are illegal.
(c) Maximum distributions
The total value of door prizes offered by a qualified organization is capped at $20,000 per month and $240,000 per year. AS 05.15.180(d) and (e).
A permittee may distribute a maximum of $1,000,000 in prizes in a year. If the permittee conducts its activities through an operator, it may distribute a maximum of $500,000 in prizes in a year. Multiple-beneficiary permits are permitted to multiply these amounts by the number of beneficiaries operating under the permit. AS 05.15.180(g).
Bingo games are not subject to these limitations.
(d) Uses of net proceeds
Although the kinds of "qualified organizations" are very broad, the uses that those "qualified organizations" may make of net proceeds is a little more limited. AS 05.15.150 provides limits on the uses that may be made of net proceeds:
The authority to conduct the activity authorized by this chapter is contingent upon the dedication of the net proceeds of the charitable gaming activity to the awarding of prizes to contestants or participants and to political, educational, civic, public, charitable, patriotic, or religious uses in the state. "Political, educational, civic, public, charitable, patriotic, or religious uses" means uses benefiting persons either by bringing them under the influence of education or religion or relieving them from disease, suffering, or constraint, or by assisting them in establishing themselves in life, or by providing for the promotion of the welfare and well-being of the membership of the organization within their own community, or through aiding candidates for public office or groups that support candidates for public office, or by erecting or maintaining public buildings or works, or lessening the burden on government, but does not include
(1) the direct or indirect payment of any portion of the net proceeds of a bingo or pull-tab game to a lobbyist registered under AS 24.45;
(2) the erection, acquisition, improvement, maintenance, or repair of real, personal, or mixed property unless it is used exclusively for one or more of the permitted uses; or
(3) [Effective January 1, 1997] the direct or indirect payment of any portion of the net proceeds of a charitable gaming activity, except the proceeds of a raffle and lottery,
(A) to aid candidates for public office or groups that support or oppose candidates for public office;
(B) to a political party or to an organization affiliated with a political party; or
(C) to a group, as that term is defined in AS 15.13.400 , or a political group, as that term is defined in AS 15.60, that seeks to influence the outcome of an election.
(b) The net proceeds derived from the activity must be devoted within one year to one or more of the uses stated in (a) of this section. A municipality or qualified organization desiring to hold the net proceeds for a period longer than one year must apply to the department for special permission and upon good cause shown the department may grant the request.
i) Political uses constrainedNote that political uses of charitable gaming proceeds were sharply reduced effective January 1, 1997. Lobbying is forbidden, and using funds in support of or against candidate elections is prohibited. However, so-called "grass-roots" lobbying, things like paying the expenses of citizens to travel to Juneau to lobby without pay for or against legislation, isn't addressed and may still be permitted.
ii) Uncertain limits on real property and improvements
For purchase of real property or construction or repair of improvements to real property to qualify as a use of net proceeds the real property and improvements have to be dedicated exclusively to "Political, educational, civic, public, charitable, patriotic, or religious uses." Over the life of a building, that could present some challenges. A similar issue has arisen repeatedly in the context of property tax levies against charitable properties. See, for example, City of Nome v. Catholic Bishop of Northern Alaska, 707 P.2d 870 (Alaska 1985).
iii) Use within one year
A qualified organization must disburse net proceeds to a "qualified purpose" within one year to "political, educational, civic, public, charitable, patriotic, or religious uses." A qualified organization may apply to the Division for additional time. It's not clear when the year starts. It's not clear whether creating a "permanent fund" and drawing the interest operates as a disbursement. AS 05.15.150(b).
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