IRS proposes and issues new rules for gambling winnings

The Internal Revenue Service and the Treasury Department have proposed new rules for withholding and reporting on gambling winnings from horseracing, dog races and jai alai pari-mutuel betting, and finalized regulations for reporting on bingo, keno and slot machine winnings.

The proposed regulations on pari-mutuel betting affect both payers and payees of gambling winnings subject to withholding under Section 3402(q) of the Tax Code. The 31-page document, entitled “Withholding on Payments of Certain Gambling Winnings,” resulted largely from the efforts of the National Thoroughbred Racing Association, accomplishing goals the NTRA initiated over two years ago, according to the association. The NTRA said it met with officials from the IRS and the Treasury Department. Horseplayers also visited Washington to lobby regulators. The effort also included grass roots campaigns and direct contact involving thousands of members of the horseracing industry, including bettors, along with involvement by members of Congress, governors and other elected officials.

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The proposed rules clarify “the amount of the wager” to include the entire amount bet in a specific pari-mutuel pool by an individual—not just the winning base unit as is the case today—so long as all wagers made into a specific pool by an individual are made on a single totalizator ticket if the wager is placed onsite. The proposed regulations would produce the same results for Advance Deposit Wagering customers and would not affect how those wagers are now made. The NTRA said the proposed regulations would have a positive impact on a significant percentage of winning wagers, particularly those involving multi-horse or multi-race exotic wagers, and result in tens of millions of dollars in additional pari-mutuel churn.

The proposed rules will go through a 90-day comment period and they could conceivably be in place prior to the 2017 Triple Crown. During a similar comment period last year that attracted nearly 12,000 comments, the NTRA set up a convenient way for industry stakeholders to encourage the IRS and Treasury to enact proposed regulations, and it plans to do the same next week.

In its rulemaking document, the Treasury and IRS cited a number of examples provided by the NTRA as reasons for the need to modernize the regulations. The document also referred to the many comments submitted by individuals in support of the proposed changes.

“This is a tremendous step forward in our ongoing efforts to modernize pari-mutuel regulations to accurately reflect today’s wagering environment,” said NTRA president and CEO Alex Waldrop in a statement Thursday. “The NTRA remains thankful to everyone who has engaged in this process, including numerous industry stake holders, horseplayers, members of Congress, governors and other elected officials, especially Congressmen John Yarmuth, D-Ky., and Charles Boustany, R-La., who led the congressional effort. A unified message has gotten us to this point, and we encourage everyone to continue to work through the channels we will be establishing as we seek to push these proposed regulations across the goal line.”

The complete Treasury and IRS rulemaking document is posted on NTRA.com here.

Bingo, Keno and Slot Machine Regulations

The IRS also issued final regulations Friday regarding the filing of information returns to report winnings from bingo, keno, and slot machine play. The rules update the existing requirements in Section 6041 of the Tax Code pertaining to the filing, form and content of these types of information returns. They also permit an additional form of payee identification and offer an optional aggregate reporting method. The final regulations affect people who pay winnings of $1,200 or more from bingo and slot machine play, $1,500 or more from keno, along with the recipients of those payments.