IBA Compliance Connection

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Our bank would like to sell raffle tickets to raise funds for different charity groups. All proceeds would be donated. Anyone could buy a raffle ticket and would not have to be a bank customer. Would that be considered gambling? If the prize is worth $250, would that trigger a 1099 form?

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We believe the fundraiser that you described is prohibited under state and federal law as a form of impermissible gambling.

In general, the Illinois Criminal Code prohibits the conduct of lotteries and raffles, including “any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win such prizes, whether such scheme or procedure is called a lottery, raffle, gift, sale or some other name.” Similarly, the Federal Deposit Insurance Act prohibits federally insured institutions from offering any “arrangement where participants advance money or credit in exchange for a chance to win.” 

In this case, participants would be required to purchase a ticket for chance to win the prize, which would violate both the state and federal prohibition on lotteries and raffles. If you still wish to proceed, we would suggest a drawing that permits customers and non-customers alike to obtain a chance to win the prize without requiring the purchase of a ticket. If you take this approach, be sure to make it clear to the participants that a charitable donation (or any other advancement of money) is not required to participate in the drawing.

In addition, we note that the Illinois Prizes and Gifts Act requires nine specific disclosures to be made with any written promotional prize offer, and the Illinois Consumer Fraud and Deceptive Business Practices Act requires you to clearly and conspicuously disclose all material terms and conditions relating to the prize at the outset of the offer.

We also note that an IRS Form 1099-MISC is required only when the prize is valued at $600 or more.

For resources related to our guidance, please see:

  • Illinois Criminal Code — 720 ILCS 5/28-2(b) (defines “lottery” as “any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win such prizes, whether such scheme or procedure is called a lottery, raffle, gift, sale or some other name”)
  • Federal Deposit Insurance Act — 12 USC 1829a(c)(2) (prohibits lotteries and defines “lottery” as an arrangement (other than a savings promotion raffle) where participants advance money or credit in exchange for a chance to win)
  • Illinois Prizes and Gifts Act — 815 ILCS 525/25 (disclosure requirements for written promotional prize offers)
  • Consumer Fraud and Deceptive Business Practices Act — 815 ILCS 505/2P (requires all material terms and conditions to be clearly and conspicuously disclosed)