Can a North Carolina nonprofit raffle off a house or other real estate, and if so, who has to be licensed (the organization, the ticket sellers, real estate brokers), and is there a cap on how valuable the property can be?
Plain-English summary
A district attorney asked AG Edmisten a stack of related questions about charitable raffles of real estate. Could an exempt NC nonprofit raffle off a house? If yes, how should the transaction between the property owner and the charity be structured? Did the ticket sellers need real estate broker licenses? Did the charity need a charitable solicitations license? Was there a cap on the value of the real estate prize?
Special Deputy AG David Crump walked through each question:
(1) Can an exempt org raffle real estate? Yes, provided the org complies with G.S. § 14-292.1 and other applicable laws. G.S. § 14-290 (the general anti-lottery statute) carves out lawful raffles under § 14-292.1, and § 14-290 expressly mentions "house" and "real estate" as kinds of property that can be raffled (it only criminalizes raffles that fall outside the § 14-292.1 framework).
(2) Structure of the property-owner-to-charity deal. The cleanest arrangement is one where the property owner's only obligation is to convey the real estate, and the charity's only obligation is to pay the owner the fair market value (or less). The charity must end up with legal or equitable title to the property; otherwise the property owner is effectively conducting the raffle himself, which § 14-292.1(e) bars. The charity is allowed to expend raffle proceeds for "prizes" (§ 14-292.1(d)), so paying fair market value to the property owner as the prize cost is legal.
(3) Broker licensing for ticket sellers. No real estate broker or salesman license is required for bona fide members of the exempt organization to sell raffle tickets, as long as the organization has legal or equitable title to the real estate. The Real Estate License Act (G.S. § 93A-2(c)) exempts owners selling their own property; McArver v. Gerukos confirms that the act applies to those selling "for others," not for one's own account. Once the charity is the owner, it is not selling for others.
(4) Charitable Solicitations license. Yes. Effective January 1, 1982, the new Charitable Solicitations Licensure Act (ch. 131C, enacted 1981 Sess. Laws ch. 886) required any person soliciting charitable contributions to obtain a license from the Department of Human Resources, unless qualifying for an exemption under § 131C-5. Bingo and raffles plausibly fell within the definition of "solicitation," "charitable sales promotion," or "contribution" under § 131C-3, so exempt organizations should either obtain a license or a determination of exemption. Once the org had its 131C status, bona fide members could solicit on its behalf without individual licenses (§ 131C-4(a)).
(5) Value cap on real estate prizes. None. The $500 cash cap in § 14-292.1(g) applies only to cash prizes. The General Assembly had previously been read (in 49 N.C.A.G. 44 (1979)) to leave merchandise prizes unregulated by value. The AG extended the same logic to real estate: the statute does not mention real estate as a regulated prize category, criminal statutes are strictly construed against the State, so there is no implied cap.
The AG closed with two unprompted but important warnings. First, the abolition of charitable immunity (Rabon v. Rowan Memorial Hospital and G.S. § 1-539.9) means an exempt org raffling real estate has the same liability exposure as any other seller of real estate. Second, federal tax consequences for raffle winners can be devastating when the prize is valuable: the cost of a raffle ticket is gambling (not a charitable contribution), the full fair market value of the prize is ordinary gross income, and the basis for any later sale of the property is only the cost of the ticket. A modest-income citizen who wins a $250,000 house can owe more in taxes than they can pay without selling the house immediately.
Currency note
This opinion was issued in 1981. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The cash prize cap in § 14-292.1 has been amended upward since 1981, the Charitable Solicitations Licensure Act has been substantially rewritten and is now administered by the NC Secretary of State (not DHR), and the federal tax treatment of raffle prizes has shifted with general changes to the Internal Revenue Code. Anyone planning or auditing a real estate raffle today must read the current statutes and consult current NC and federal tax guidance.
Background and statutory framework
NC banned lotteries for most of its history under G.S. § 14-290 et seq. The 1979 General Assembly carved out a narrow exception for charitable bingo and raffles by enacting G.S. § 14-292.1. The exception was tightly conditioned: the organization had to be "exempt" (a § 501(c)(3) charity, a fraternal or veterans organization, or similar), the org had to display its IRS or NC Revenue determination letter at the raffle location, the org could not contract with outside parties to run the raffle, members could not be compensated for running it, proceeds had to be spent only on the listed categories (auditing, prizes, utilities, supplies/equipment, taxes, and limited rent or compensation under § 14-292.1(e)), and prize caps applied.
The AG's analysis turned heavily on the distinction between cash, merchandise, and real estate prizes. The statute caps cash prizes at $500 per raffle (and lower aggregate caps on bingo). It is silent about merchandise and real estate. A 1979 AG opinion had already read that silence as deliberate: the General Assembly meant to leave merchandise prizes unregulated by value. The 1981 AG extended that to real estate. The principle is one of statutory construction: criminal statutes are strictly construed against the State, so categories the statute does not specifically prohibit or regulate are not impliedly forbidden.
The brokerage licensing question turned on the owner exemption in G.S. § 93A-2(c) and on McArver v. Gerukos. McArver held that the Real Estate License Act applies to people who sell "for others," not for their own account, even when the sale is part of a buy-resell scheme. Once the charity holds legal or equitable title to the raffle property, the charity is selling for its own account, and the broker statute does not apply.
The structural caution about the property-owner-charity deal is important. If the property owner retains conditions, contingencies, or rights of approval beyond conveying title for fair market value, the AG would view the owner as effectively co-running the raffle. That would trigger the § 14-292.1(e) bar on contracting with non-exempt parties to conduct the raffle. The clean structure is: charity buys the property at FMV (or below), charity holds title, charity raffles. The "sale" from the owner can be paid out of raffle proceeds because § 14-292.1(d) permits expenditures for prizes.
The tax-warning piece is the most important practical caveat. A raffle ticket is not a charitable deduction (it is a gambling expense). The winner of a property prize has gross income equal to the property's fair market value, taxed as ordinary income, in the year of the win. The winner's basis in the property is the cost of the ticket, so a quick sale at FMV produces no further taxable gain but generates the cash to pay the income tax on the win. A winner who tries to keep the property faces a large tax bill with no easy source of cash. The AG flagging this in a 1981 opinion was unusually consumer-focused for a question framed as a legality inquiry.
Common questions
How big can a real estate raffle prize be?
There is no statutory NC cap on the value of a real estate prize. The cap applies only to cash. Practically, the larger the prize value, the more careful the structuring needs to be, the more attention the raffle will draw, and the more important the tax consequences become for the winner.
Can a real estate developer use the raffle to dispose of an unsold house?
The owner can convey the house to the charity for fair market value (or less), and the charity can raffle it. The developer cannot run the raffle, set conditions on the conveyance, or share in the proceeds beyond the prize-cost payment. The transaction needs to look like a sale, not like a co-venture.
Did the charity have to use the raffle proceeds for charitable purposes?
Yes, under § 14-292.1(d). Permitted expenditures from raffle proceeds were limited to auditing, prizes, utilities, supplies/equipment, taxes, and limited compensation/rent. Anything left over was supposed to fund the charity's exempt purposes. Diverting raffle proceeds to non-permitted purposes was an offense.
What is the practical takeaway for the raffle winner who would owe taxes they can't pay?
The opinion does not give legal advice to winners. As a practical matter, winners who could not pay the tax on a large property prize often arranged immediate sale of the property at fair market value to generate cash for the tax. The basis equals ticket cost, so no additional gain on the sale; the win itself is the taxable event.
Source
Citations
- N.C. Gen. Stat. § 14-290
- N.C. Gen. Stat. § 14-292
- N.C. Gen. Stat. § 14-292.1 (subsections a, b(1), c, d, e, g, j)
- N.C. Gen. Stat. § 93A-2(c)
- N.C. Gen. Stat. ch. 131C (Charitable Solicitations Licensure Act, eff. Jan. 1, 1982)
- 1981 N.C. Sess. Laws ch. 886
- Internal Revenue Code §§ 74(a), 165(d), 1012
- McArver v. Gerukos, 265 N.C. 413, 144 S.E.2d 277 (1965)
- Rabon v. Rowan Memorial Hospital, Inc., 269 N.C. 1, 152 S.E.2d 485 (1967)
- 49 N.C.A.G. 44 (1979)
Original opinion text
Requested By: The Honorable J. Randolph Riley District Attorney Tenth Prosecutorial District
Questions: May an exempt organization as defined in G.S. § 14-292.1(b)(1) lawfully conduct a raffle wherein the prize offered is real estate?
- If the answer to Question #1 is in the affirmative, what sort of transaction between the property owner and the exempt organization is lawful?
- If the answer to Question #1 is in the affirmative, must the exempt salesman's license to lawfully sell tickets when real estate is the prize? In other words, may persons other than licensed brokers sell chances on real estate?
- Must an exempt organization which conducts raffles or bingo games obtain a license under the "Charitable Solicitation Licensure Act" (S.L. 1981, Chapter 886)?
- If the answer to Question #1 is in the affirmative, is there any limit to the value of the real estate which may be offered as a prize in any one raffle?
Conclusions: An exempt organization which has otherwise complied with G.S. § 14-292.1 and other applicable laws as more fully discussed in the text of this opinion may lawfully offer real estate as a prize.
- An agreement between a real estate owner and an exempt organization whereby the sole obligation of the real estate owner is to convey the real estate; and whereby the sole obligation of the exempt organization is to pay the owner the fair market value, or an amount less than the fair market value, of the real estate is lawful. "An exempt organization shall not contract with any person for the purpose of conducting a raffle . . .", G.S. 14-292.1(e) and only an exempt organization may conduct a raffle.
- So long as the agreement between the property owner and the exempt organization is such that legal or equitable title to the real estate is vested in the exempt organization, the bona fide members of that exempt organization may lawfully sell raffle tickets without the necessity of obtaining a real estate broker's or salesman's license.
- Unless the exempt organization is exempt from licensure under G.S. § 131C-5, the exempt organization must obtain a Charitable Solicitations License from the Social Services Commission of the Department of Human Resources prior to conducting a raffle or bingo game.
- No.
G.S. § 14-292.1(g) provides:
"The maximum prize in cash or merchandise that may be offered or paid for any one game of bingo is five hundred dollars ($500.00). The maximum aggregate amount of prizes, in cash and/or merchandise, that may be offered or paid at any one session of bingo is one thousand five hundred dollars ($1,500.00). Provided, however, that if an exempt organization holds only one session of bingo during a calendar week, the maximum aggregate amount of prizes, in cash and/or merchandise, that may be offered or paid at any one session is two thousand five hundred dollars [2,500.00]. The maximum cash prize that may be offered or paid for any one raffle is five hundred dollars ($500.00)."
In 49 N.C.A.G. 44 (1979) this Office concluded that an exempt organization could offer merchandise prizes in a raffle and that an exempt organization might raffle a merchandise prize without regard to its cash value. The reasoning of this Office was that:
"The clear and definite use of the terms "cash" and "merchandise" in the three sentences of subsection (g) relating to bingo games and the term "cash" in the last sentence of subsection (g) relating to raffles leads to the conclusion that the legislature clearly intended to make no specific limitation in regards to merchandise prizes for raffles."
The plain language of G.S. § 14-292.1(g) neither mentions nor authorizes prizes in raffles in merchandise or real estate. The statute prohibits the offering of cash in excess of five hundred dollars ($500.00) as a prize in a raffle.
- G.S. § 14-292.1(a) provides, in part: "It is lawful for an exempt organization to conduct raffles and bingo games in accordance with the provisions of this section. Any person who conducts a raffle or bingo game in violation of any provision of this section shall be guilty of a misdemeanor under G.S. § 14-292 and be punished in accordance with G.S. § 14-3. . . ."
- G.S. § 14-292.1(j) provides:
"A raffle or bingo game conducted otherwise than in accordance with the provisions of this section is "gambling" within the meaning of G.S. § 19-1 et seq., and proceedings against such raffle or bingo game may be instituted as provided for in Chapter 19 of the General Statutes."
Subsection (a) of the statutes makes the violation "of any provision of this section" a criminal offense. Thus, for example, should the exempt organization fail to display its determination letter from the Internal Revenue Service or the North Carolina Department of Revenue indicating that it is an exempt organization, in the specific place or room where the raffle is being conducted, the exempt organization would violate G.S. § 14-292.1(c).
The remedies of Chapter 19 of the General Statutes, providing for the abatement of a public nuisance, are also of a penal character, and include injunction, confiscation of moneys received or used in gambling, padlocking of a place of business, civil penalties and forfeitures. Such remedies are clearly penal remedies. Those remedies are made available when the raffle is "conducted otherwise than in accordance with the provisions of" G.S. § 14-292.1.
A criminal or penal statute must be strictly construed against the State and liberally in favor of the defendant, with all conflicts resolved in favor of the defendant. 12 Strongs, North Carolina Index 3d, Statutes § 10.1 (1978). G.S. § 14-292.1(g) does prohibit or regulate the offering of "merchandise" or "real estate" as prizes in an otherwise lawful raffle.
This Office, as previously mentioned, has earlier construed the statute as leaving unregulated prizes of merchandise in a raffle. Likewise, the statute neither prohibits nor regulates the offering of real estate as a prize. The statute only prohibits the offering or payment of more than five hundred dollars ($500.00) in cash as a prize in an otherwise lawful raffle.
G.S. § 14-290 provides, in part:
"Exception in connection with a lawful raffle as provided in G.S. § 14-292.1, if any person shall open, set on foot, carry on, promote, make or draw, publicly or privately, a lottery, by whatever name, style or title the same may be denominated or known; or if any person shall, by such way and means, expose or set to sell any house, real estate, . . . or other thing of value whatsoever, every person to offending shall be guilty of a misdemeanor, . . . ." (Emphasis added).
Thus, by negative implication from the language of G.S. § 14-290, a house or real estate is subject to being a lawful prize in a lawful raffle under G.S. § 14-292.1. Just as the statute leaves unregulated the value of merchandise which might be offered as a prize in a raffle, it also leaves unregulated the value of real estate which might be offered as a prize in an otherwise lawful raffle.
- G.S. § 14-292.1(e) provides, in relevant part: "No person may be compensated for conducting a raffle or bingo game, an exempt organization shall not contract with any person for the purpose of conducting a raffle or bingo game. . . ."
- G.S. § 14-292,1(d) provides, in relevant part:
"The exempt organization may expend proceeds derived from a raffle . . . only for auditing expenses, prizes, utilities and the purchase of supplies and equipment used on conducting the raffle . . . taxes related to raffles . . ., and the payment of compensation and rent as authorized by subsection (e) of this section. In no event shall the price for purchase of supplies and equipment exceed the fair market value thereof. . . ."
A property owner may not, himself, raffle his own real estate or any other property, G.S. § 14-290. An exempt organization may do so, subject to the restriction of G.S. 14-292.1. Thus, if the charity has no obligation to the owner of property other than to pay the owner the fair market value of his property the charity does not compensate anyone for anything other than a prize. An exempt organization may lawfully expend the proceeds derived from a raffle for the prize. If the owner of property has no legal obligation other than the delivery of the prize, upon the payment to him of a lawful price, not in excess of the fair market value of that prize, the property owner neither conducts a raffle, nor is he compensated for doing so. Should the property owner attempt to establish limitations or conditions upon his obligation to convey the property beyond an obligation to deliver title to the exempt organization or its assignee or designee upon the payment of the fair market value of the property then, both the exempt organization and the property owner would be guilty of an offense.
The Real Estate Brokers and Salesmen's Licensing Act, Chapter 93A of the General Statutes, defines "real estate broker" as any person who "for compensation or valuable consideration or promise there of . . . sells or offers to sell . . . auctions or offers to auction . . . real estate . . . for others." The "owner exemption" from the coverage of the licensing act reads, G.S. 93A-2(c):
"(c) The provisions of this Chapter shall not apply to and shall not include any person, partnership, association or corporation, who, as owner of lessor shall perform any oft he acts aforesaid with reference to property owned or leased by them, where such acts are performed in the regular course of or as an incident to the management of such property and the investment therein; nor shall the provisions of this Chapter apply to persons acting as attorney-in-fact under a duly executed power of attorney from the owner authorizing the final consummation of performance of any contract for the sale, lease or exchange of real estate. Nor shall this Chapter be construed to include in any way the acts or services rendered by an attorney-at-law; nor shall it be held to include, while acting as such, a receiver, trustee in bankruptcy, guardian, administrator or executor or any such person acting under order of any court, nor to include a trustee acting under a trust agreement, deed of trust or will, or the regular salaried employees thereof, and nothing in this Chapter shall be so construed as to require a license for the owner, personally, to sell or lease his own property."
It would be illegal for any person to be compensated for selling raffle tickets, G.S. § 14-292.1(e). Furthermore, in the transaction which this Office would regard as legal between the property owner and the charity, the charity would acquire either legal or equitable title to realty being offered as a prize. In McArver v. Gerukos, 265 N.C. 413, 144 S.E.2d 277 (1965) the Supreme Court construed the "owner exemption" as follows, 265 N.C. at 418:
"Although the statute does not expressly exempt from its provisions one who purchases or leases land for his own account, it defines "real estate broker" as a person who does these specified acts "for others." Thus, it is clear that the Legislature did not intend for this act to apply to a person, partnership or association who purchases land for his or its own account, even though such purchase is for resale. Therefore, a contract by one who is not a licensed real estate broker or salesman with another person to buy land, or an option thereon, for their own account, and thereafter, to resell such land, or option, and divide the profits would not be a contract to do an act prohibited by this statute."
Thus, where the exempt organization has legal or equitable title of the real estate, the charity would not be acting for "others."
Your next question concerns Session Laws 1981, Chapter 886. That Chapter becomes effective January 1, 1982 (S.L. 1981, Ch. 886, § 3). G.S. § 131C-4(a) provides:
"Any person who solicits charitable contributions shall apply for and obtain an annual license from the Department of Human Resources. A person who is authorized to solicit on behalf of a licensed or exempt person is not required to obtain a license under this section."
The exemption from licensure are described in G.S. § 131C-5. Under the definition contained in
- G.S. § 131C-3 it would appear that an organization described as an "exempt organization" authorized to conduct bingo or raffles under G.S. § 14-292.1(b)(1) would be either a "charitable" "person" as defined in G.S. § 131C-3(1),(7) and thus subject to the licensure requirements of
- G.S. § 131C-4, or eligible for exemption under G.S. § 131C-5. Raffles or bingo games would appear to be either a "charitable sales promotion" (G.S. § 131C-3(2)), a "contribution" (G.S. § 131C-3(4)) or a "solicitation" (G.S. § 131C-3(11)). Thus a G.S. § 14-292.1(b)(1) "exempt organization" should either obtain a license from the Department of Human Resources or a determination that it is exempt from licensure. Once the "exempt organization" has obtained a Chapter 131C license or exemption, bona fide members who were authorized to solicit on its behalf could lawfully sell raffle tickets without being individually licensed, G.S. § 131C-4(a).
Chapter 131C also defines and requires licensure of "Professional Fund-Raising Counsel" (G.S. § 131C-3(8)) and "Professional Solicitors" (G.S. § 131C-3(9)). Because those persons are defined as performing acts pursuant to agreements for compensation, their services could not be used in connection with lawful raffles, G.S. § 14-292.1(e). The activity prohibited in connection with fund raising subject to Chapter 131C is described in G.S. 131C-17. Violation of any provision of Chapter 131C is declared to be a misdemeanor, G.S. § 131C-22.
While not immediately relevant to the questions which you have asked, this Office, for the guidance of both charities and the public, feels obliged to discuss some of the consequences of real estate raffles.
By virtue of the decision in Rabon v. Rowan Memorial Hospital, Inc., 269 N.C. 1, 152 S.E.2d 485 (1967) and statute, G.S. § 1-539.9, the common law defense of charitable immunity has been abolished. Thus, an exempt organization has the same liabilities and duties as would any other seller of real estate.
We are aware that a great deal of the real estate which people are interested in offering by raffle is of great value. While the tax consequences of participating in a raffle are the same, no matter what the value of the prize, the tax consequences to citizens of modest means are potentially devastating where the prize offered is of great value. Of particular concern are the following tax consequences:
- (1) Bingo games and raffles sponsored by charities are the only form of legalized gambling in North Carolina. Even though a charity sponsors the raffle, the purchasers of raffle tickets are engaged in gambling. Thus, the cost of the raffle ticket is not deductible as a charitable contribution. Gambling losses are deductible "only to the extent of the gains from such transactions." IRC § 156(d).
- (2) "(G)ross income includes amounts received as prizes. . . ." IRC § 74(a). See, F. Dowling, 18 TCM 737, Dec. 23, 738 (M), TC Memo. 1959-169.
- (3) The basis for determining gain or loss upon a future sale of the real estate won as a prize would be the cost of the raffle ticket, IRC § 1012:
"The basis of property shall be the cost of such property. . . ."
This opinion seeks to be responsive to the questions which were the subject of your inquiry. It does not pass upon the legality of any particular raffle, as doing so would require determinations of fact which we would not be in a position to make.
This Office is aware that exempt organizations have offered are currently offering real estate as a prize in raffles. The General Assembly may wish, when it has the opportunity to do so, to address itself explicitly to this area. Should the General Assembly desire to prohibit the offering of real estate as a prize in a raffle by an exempt organization, the General Assembly should adopt curative legislation to remove any cloud from the title of real estate awarded as a prize prior to the effective date of such prohibition.
Rufus L. Edmisten
Attorney General
David S. Crump
Special Deputy Attorney General
Special Assistant to the Attorney General