Lotteries; Bingo; Raffles; Real Estate

December 18, 1981 Lotteries; Bingo; Raffles; Real Estate; Real Estate Licensing Law; Charitable Solicitation Licensure Act.

Subject:

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(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(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