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An exempt organization is considering conducting bingo games on Thursday nights as a way of generating...

An exempt organization is considering conducting bingo games on Thursday nights as a way of generating additional revenue to support its exempt pur-pose. Before doing so, however, the president of the organization has come to you for advice regarding the effect on the organization’s exempt status and whether the net income from the bingo games will be taxable. Identify the relevant tax issues.

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The organization's exempt status is not affected by the bingo games .However bingo games' net income would be taxable as unrelated business income. Advice on this issue is to be provided only after ensuring whether the bingo game is legal under state as well as local law and whether commercial bingo games ( for profit motive) are not permitted in the jurisdiction. The bingo game is a qualified bingo game if answer to both of these questions is yes, and therefore it is not an unrelated trade or business. However, the related net income is taxable if the answer to either of these questions is no.

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