A trade association representing the casino industry is sounding the alarm over proposed regulations from the Internal Revenue Service that would lower the threshold for reporting winnings from slot machines, keno and bingo.
The American Gaming Association filed comments this week as the IRS closed the public comment period on a proposal it announced in March for reporting requirements on winnings from slot machine, bingo and keno play. The IRS is proposing mandatory electronic player tracking regulations using player loyalty cards for tax reporting purposes and may consider lowering the winnings threshold from $1,200 to $600.
“The gaming industry is aware of no other industry in the country for which the IRS has issued regulations requiring the industry to deploy its customer loyalty program for federal tax collection purposes,” said AGA president and CEO Geoff Freeman in a statement. “Further, members of Congress from eleven states and every segment of the gaming industry—operators, suppliers and customers—are united against the potential proposal to lower the gaming winnings threshold for federal tax withholding from $1200 to $600.”
Such a threshold reduction would render slot machines inactive for significant periods of time, according to the AGA, and as a result, the move would lead to a decrease in state gaming revenues and harm the customer experience.
While expressing concerns, the AGA also said it wants to help the IRS meet its goals of increasing efficiency and gathering more accurate information.
“We look forward to collaborating with the IRS to improve the efficiency, accuracy and customer-friendliness of the tax reporting process,” said Freeman. “We appreciate the approach the IRS is taking to this complex issue and look forward to building a stronger relationship.”
After the IRS announced the proposal on March 4, the AGA convened met with tax experts from the gaming companies it counts as members and formulated a response to the IRS proposal. AGA officials also met with the IRS in person to discuss the proposal last month.
Earlier this week, 17 members of Congress from eleven states sent a letter to the IRS outlining their concerns with the proposal. The states represented are Arizona, Colorado, Florida, Indiana, Iowa, Louisiana, Mississippi, Missouri, Nevada, New Jersey and Ohio.
“First, we appreciate the proposal’s intent to utilize modern technology to streamline the efficiency and accuracy of tax reporting on patron winnings on specified casino games,” the lawmakers wrote. “However, if the proposed regulations are set forth as mandatory, then the gaming industry’s significant labor cost and lost business revenue to comply would be detrimental to local, state and national economies that depend on needed dollars to support critical services. Further, the potential technological challenges and limitations of electronic player tracking system controls, envisioned under the current IRS proposals, would create disparate impacts on the wide-ranging and diverse operations of U.S. gaming establishments that operate in 40 states.”
The lawmakers urged the IRS to consider a voluntary opt-in solution for the gaming industry and enact a voluntary regulatory approach. They also pointed out that since the current $1,200 threshold was adopted in 1977, the threshold should actually be increased to approximately $4,700 today to account for inflation.
Sen. Dean Heller, R-Nev., also raised the issue with IRS Commissioner John Koskinen during a Senate hearing Tuesday that mainly focused on the recent data breach in the IRS’s online Get Transcript application.
In its comments, the AGA expressed concern with the proposed mandatory slot tax information reporting that is based on electronic player tracking by the casino. Such a requirement would adversely affect a crucial casino marketing tool and could have a chilling effect, as customers would be reluctant to use or sign up for loyalty cards associated with tax tracking and collection.
AGA also warned that current electronic player tracking systems were designed for marketing purposes and lack the types of controls necessary to ensure proper compliance with tax information reporting. Conflicting state tax reporting and withholding requirements would also pose serious challenges.
While the public comment period closed this week, the process of writing the final regulation is just beginning, the AGA pointed out. By the end of the public comment period on Tuesday, more than 13,000 people had expressed opposition to the proposal by signing a petition, leaving a comment directly with the IRS, or contacting their member of Congress by phone, on Twitter or on Facebook.
The IRS plans to hold a public hearing on the proposal on June 17 in Washington, D.C.
In the proposal, the IRS noted that it had proposed to make the threshold $600 back in 1977, but backed away from applying it to bingo, slot and keno play after hearing public comments. Section 6041 of the Tax Code generally requires information reporting by every person engaged in a trade or business who, in the course of such trade or business, makes payments of gross income of $600 or more in any taxable year. The current regulatory reporting thresholds for winnings from bingo, keno, and slot machines deviate from this general rule. Prior to the adoption of the current thresholds in 1977, reporting from bingo, keno, and slot machines was based a sliding scale threshold tied to the amount of the wager and required the wager odds to be at least 300 to 1.
On Jan. 7, 1977, the IRS published temporary regulations establishing reporting thresholds for payments of winnings from bingo, keno, and slot machine play in the amount of $600. But the IRS also announced that it would not assert penalties for failure to file information returns before May 1, 1977, to allow the casino industry to submit, and the IRS to consider, information regarding the industry’s problems in complying with the reporting requirements.
After considering the evidence presented by the casino industry, the IRS announced in a press release that effective May 1, 1977, information reporting to the IRS would be required on payments of winnings of $1,200 or more from a bingo game or a slot machine play, and $1,500 or more from a keno game net of the wager. On June 30, 1977, the Tax Code was amended to raise the reporting thresholds for winnings from a bingo game and slot machine play to $1,200, and the reporting threshold for winnings from a keno game to $1,500.
Section 7.60411(c) provides that bingo, keno and slot machine winnings are reported on the Form W2G, “Certain Gambling Winnings.” The payor must provide a copy of the Form W2G to the payee by January 31 of the year following the year in which the reportable payment is made, and the payor must file the Form W2G with the IRS by February 28 of the year following the year in which the reportable payment is made. The Form W2G must include, among other things, the name, address, and taxpayer identification number of the payee and a general description of the two forms of identification used to verify this information.
The IRS pointed out that advances in technology in the nearly four decades since the existing rules were adopted may overcome the compliance concerns that prompted the higher reporting thresholds and may warrant reducing the thresholds for bingo, keno, and slots to $600, consistent with other information reporting thresholds under Section 6041(a) of the Tax Code. The newly proposed reporting threshold rules for electronically tracked slot machine play rules are supposed to simplify reporting by allowing payors to leverage their existing technology and processes to report winnings from electronically tracked slot machine play. In addition, the changes are intended to facilitate reporting that more closely reflects gross income that will be reported by payees on their individual income tax returns.
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