1) 

    If you were an officer of the PNAA chapter, how would you vote on the proposed
fundraising activities? Explain.

2)     How does the IRS Gambling Rules for Nonprofit organizations impact the plans for the
fundraising?

3)     What mechanisms would you make sure are in place in the PNAA chapter to be compliant
with IRS Gambling Rules for Nonprofit organizations?

https://www.cof.org/content/nonprofit-law-philippines

IRC Section and Treas. Regulation

IRC Section 512(a)(1) defines the term "unrelated business taxable
income.”
IRC Section 512(a)(3) provides special rules used in determining unrelated
business taxable income for certain organizations, including those exempt
under IRC Section 501(c)(7).
IRC Section 513(a)(1) and Treas. Reg. Section 1.513-1(e)(1) exclude from
the definition of “unrelated trade or business” any trade or business in
which substantially all the work in carrying on such trade or business is
performed for the organization without compensation.
IRC Section 513(d)(1) and IRC Section 513(d)(2)(C) provide that the term
“unrelated trade or business” does not include a “qualified public
entertainment activity” conducted by an organization described in Section
501(c)(3), Section 501(c)(4), or Section 501(c)(5) that regularly conducts,
as one of its substantial exempt purposes, an agricultural and educational
fair or exposition.
IRC Section 513(f) excludes from the definition of “unrelated trade or
business” any trade or business that consists of conducting bingo games.
Treas. Reg. Section 1.501(c)(6)-1 states that the purpose of a business
league may not be to engage in a regular business of a kind ordinarily
carried on for profit.
Treas Reg. Section 1.513-5(c) provides that IRC Section 513(f) will not
apply to any bingo games conducted in violation of state or local law.
Analysis
Gaming is a recreational activity and, if conducted for a profit, a trade or
business. Gaming includes bingo, beano, raffles, lotteries, pull-tabs,
scratch-offs, pari-mutuel betting, Calcutta wagering, pickle jars,
punchboards, tip boards, tip jars, certain video games, and other games of
chance. (Notice 1335)
Gaming is also a common type of fundraising engaged in by tax-exempt
organizations. In addition, many types of organizations conduct gaming in
furtherance of social or recreational purposes. Gaming is normally
regulated by state and local law in the jurisdiction in which the activity
occurs.
Most gaming, if regularly carried on for profit, is an unrelated trade or
business activity, which may produce unrelated business taxable income
(UBTI).  As with other unrelated trade or business activities, the fact that
an organization uses the proceeds from its gaming to pay for its exempt
purpose programs does not make the gaming activity related to its exempt
purposes.  Therefore, gaming income received by exempt organizations is
treated as UBTI, unless a specific exception applies.

General Exclusions and Exceptions:

 Certain bingo games are excluded from the definition of “unrelated
trade or business” as long as state or local law is not violated – IRC
Section 513(f) Bingo Exclusion. See Issue Snapshot - Exclusion of
Bingo from Unrelated Business Activity
 Most games of chance conducted by exempt organizations in North
Dakota are not unrelated trades or businesses if conducting the
games does not violate any state or local law. Only North Dakota
enjoys the exception for non-bingo gaming. See Pub. 3079
 Qualified public entertainment activities, which may include
gaming, are excluded from the definition of unrelated trade or
business. IRC Section 513(d).
 The term “unrelated trade or business” does not include any trade or
business if substantially all work is performed by volunteers. IRC
Section 513(a)(1). See Issue Snapshot – Volunteer Labor Exclusion
from Unrelated Trade or Business. (but see Section 512(a)(3) for
special rules applicable to organizations exempt under subsections
(c)(7), (9), (17), or (20)).
501(c)(3) Organizations

Gaming isn’t an inherently charitable activity; it is a recreation and a

business. Although an organization may use the proceeds from gaming to
pay expenses associated with its charitable programs, gaming itself does
not further exempt purposes. Thus, the sole purpose of a Section 501(c)(3)
organization can’t be to conduct gaming. Further, foundation classification
may be affected by gaming receipts. Gaming income is UBTI unless an
exclusion or exception applies.

o be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an

organization must be organized and operated exclusively for exempt
purposes set forth in section 501(c)(3), and none of its earnings
may inure to any private shareholder or individual. In addition, it may not
be an action organization, i.e., it may not attempt to influence legislation
as a substantial part of its activities and it may not participate in any
campaign activity for or against political candidates.
Organizations described in section 501(c)(3) are commonly referred to
as charitable organizations. Organizations described in section 501(c)(3),
other than testing for public safety organizations, are eligible to receive
tax-deductible contributions in accordance with Code section 170.
The organization must not be organized or operated for the benefit
of private interests, and no part of a section 501(c)(3) organization's net
earnings may inure to the benefit of any private shareholder or individual.
If the organization engages in an excess benefit transaction with a person
having substantial influence over the organization, an excise tax may be
imposed on the person and any organization managers agreeing to the
transaction.
Section 501(c)(3) organizations are restricted in how much political and
legislative (lobbying) activities they may conduct. For a detailed
discussion, see Political and Lobbying Activities. For more information
about lobbying activities by charities, see the article Lobbying Issues; for
more information about political activities of charities, see the FY-2002
CPE topic Election Year Issues.
As a general rule, IRS rules and BIR rules both treat profit from any activity, trade or
business as an income, thus, taxable. If PNAA is not registered in the Philippines as an
independent NGO, it is subject to the IRS rules, since taxation is imposed for income within
and without (within the tax jurisdiction or outside).
The gaming activities (Bingo and raffle) and the concert are fundraising activities commonly
engaged in by tax-exempt organizations. Since they will be conducted in furtherance of a
social purpose which is to fund an outreach program in the Philippines, then it may not be
considered as unrelated trade or business activity as defined under IRC Section 512(a)(1), and
therefore will not produce unrelated business taxable income (UBTI), thus exempt.
However, gaming is normally regulated by state and local law in the jurisdiction in which the
activity occurs. As long as the activity does not violate any local law, then it will not be
considered as unrelated trade or business.
In deciding what fund -raising activity may be conducted by the NGO, the state or local laws
and regulations must be considered. The NGO must choose an activity that does not violate
any local law which in turn results to more duties and obligations (in the form of taxes and
fees) or less cumbersome.

Tax exemptions are often met with reservations and must withstand the strict
scrutiny of revenue collectors. After all, taxes are the driving fuel that propels all
programs and activities of the state. Absolving persons from their tax liabilities
means reducing public funds and restraining the government from actualizing its
goals.

Nevertheless, the legislative groundwork covering the tax exemption of religious and
charitable institutions has long been established, even as early as the
Commonwealth period. The rationale for the exemption springs from the benevolent
neutrality approach premised on the ground that religious and charitable institutions
are not engaged in profit-seeking undertakings; whatever gains derived by the
organization redounds to charity. Hence, Section 30(E) of the National Internal
Revenue Code (or simply, the Tax Code) is specifically couched to incorporate the
rationale in these words: a non-stock corporation or association organized and
operated exclusively for religious, charitable, scientific, athletic, or cultural purposes,
or for the rehabilitation of veterans, wherein no part of its net income or asset shall
belong to or inure to the benefit of any member, organizer, officer or any specific
person shall be exempt from income tax.

In a recent decision (CTA Case No. 8912 dated July 25, 2017), the Court of Tax
Appeals (CTA) emphasized that while our Tax Code provides exemptions for certain
non-stock corporations from income tax, this incentive is not absolute. It reiterated
that in order to enjoy immunity from taxation, the following requirements for
exemption must continually be satisfied by the taxpayer: (a) The taxpayer must be a
non-stock corporation or association; (b) Organized exclusively for charitable
purposes; (c) Operated exclusively for such purposes; and (d) No part of its net
income or asset shall belong to or inure to the benefit of any member, organizer,
officer or any specific person.

In the foregoing case, the CTA ruled in favor of the BIR, declaring that while there
was no sufficient evidence to prove that any income or asset inured to the benefit of
any member or officer of the institution, the 10% preferential tax rate applicable to
proprietary hospitals which are nonprofit (under Section 27(B) of the Tax Code)
should be imposed since the taxpayer was not operated “exclusively” in charitable
purposes. Although not barred from engaging in activities conducted for profit, any
income the hospital derives from profit-oriented activities should not escape the
reach of taxation. Thus, an organization with both non-profit and profit-generating
activities may still enjoy its tax exempt status but only on income from not-for-profit
activities. Any income generated from activities conducted for profit shall strictly be
subject to income tax.

As basis, the CTA also cited previous cases (G.R. Nos. 195909 and 195960 dated
September 26, 2012) where the Supreme Court extensively discussed the
application of Section 30(E) of the Tax Code, as amended, and upheld the same
decision.

For taxpayers, an important takeaway from this case is that in order to enjoy
immunity from taxation, all of the requirements for the same must continually be
satisfied by the taxpayer. Thus, being a non-stock and non-profit charitable institution
does not automatically exempt an institution from paying taxes.

Generally, just relying on the specific tax-exemption provision of charitable

institutions from our Tax Code, a non-stock, non-profit corporation is exempt from
paying income taxes at first glance. In some instances, organizations tend to
overlook the succeeding provision clearly stating that the exemption only applies to
income from non-profit activities. Through this case, the CTA reiterated the prevailing
tax position in the Philippines that income from profit-generating activity is taxable,
regardless of the disposition of the income earned from such activities. Nonetheless,
while this may be the case, an organization may still, at the same time, remain tax-
exempt on income from its actual charitable activities. Therefore, it may be deduced
that at the end of the day, the determining factor for taxability lies in whether an
activity is for profit or not.

To be exempt from tax, the challenge is for charitable and religious organizations to
have a better appreciation of the rationale behind their tax-exempt status. As a rule,
taxation is the overarching principle and exemption is the exception; as such, the
burden of proof rests upon the party claiming exemption to prove that it is, in fact,
covered by the exemption so claimed.