IRS Considering New Information Reporting Thresholds for Gambling Winnings

Under current law, information reporting (i.e., Forms W-2G) to IRS is required on winnings of $1,200 or more from a bingo game or a slot machine play, and, $1,500 or more from a keno game.  This has been the reporting rule since June 1977.  Winnings falling under those thresholds did not obligate the payor to report to IRS.  Hence, under existing and current Treasury regulations, reportable bingo, keno, and slot machine winnings are reported by a payor on a special IRS Form W-2G, “Certain Gambling Winnings.” The payor must provide a copy of Form W-2G to the payee/winner by January 31 of the year following the year in which the reportable payment was made.  And the payor must also file Form W-2G with IRS by February 28 of the year following the year in which the reportable payment was made. Form W-2G must include, among other things, the name, address, and taxpayer identification number of the lucky winner and a general description of the two forms of identification used to verify that information.

There have been significant changes in the gaming industry technology since 1977. For instance, today many gaming establishments employ electronic slot machines and other mechanisms, such as player’s cards, that permit electronic tracking of wagers and winnings. Also, there have been many changes in the tax information reporting regime since the late 1970s, such as backup tax withholding and rules for electronic filing of information returns, including Form W-2G.  Current Treasury regulations do not take any of these changes into account.

Accordingly, the Treasury Department and IRS are currently reviewing the propriety of new regulations for reporting winnings from bingo, keno, and slot machines in light of those developments.

Some of those proposed changes are described in my article.

First, the proposed regulations will retain the existing general rule that every person engaged in a trade or business who pays reportable gambling winnings must make an information return with respect to such payments. And the proposed regulations clarify that the term “persons engaged in a trade or business” includes not only those engaged in a trade or business for profit or gain, but also organizations whose activities are not for profit or gain, such as tax-exempt organizations, charities, and governmental entities.

Secondly, the older regulations set thresholds for when winnings from bingo, keno, and slot machine play would be treated as reportable gambling winnings and subject to information reporting. In fact, those regulations contained one threshold for bingo and slots, and a different threshold for keno. Moreover, they provided that winnings from a keno game could be reduced by the amount wagered in determining whether the reporting threshold was satisfied, whereas for bingo and slot machine play winnings were not reduced by the amount wagered in determining whether the reporting threshold is satisfied.  Under the proposed regulations, the reporting thresholds for winnings from bingo, keno and slot machine play (other than electronically tracked slot machine play) remain the same as under the existing regulations.  Accordingly, the proposed regulations provide that reportable gambling winnings means (i) $1,200 or more in the case of one bingo game or slot machine play, and (ii) $1,500 or more in the case of one keno game. However, advances in technology since 1977 may overcome the compliance concerns that prompted the higher reporting thresholds and may warrant reducing the thresholds for bingo, keno, and slots to $600. Accordingly, IRS and Treasury will continue to monitor the effectiveness of the existing (and proposed) reporting thresholds, and may propose to reduce those thresholds at a future time.

In addition, the proposed regulations retain the rule that, in determining whether the reporting threshold is satisfied, the amount of winnings from bingo or slot machine play is not reduced by the amount wagered, but the amount of winnings from one keno game is reduced by the amount wagered in that one game. Allowing the winnings from one keno game to be reduced by the amount wagered in that one game has been permitted by the regulations for over 35 years. That rule has been relied upon by payors and is an established norm in the gaming industry. The proposed regulations do not permit the winnings from one bingo game or slot machine pull to be reduced by the amount wagered in that one game or pull because IRS does not have data indicating that this is feasible.

The proposed regulations also include new rules for determining reporting thresholds for electronically tracked slot machine play. For example, electronically tracked slot machine play means slot machine play where an electronic player system controlled by the gaming establishment (such as by using a player’s card or similar system) records the amount a specific individual won and wagered on slot machine play. The new reporting threshold rules for electronically tracked slot machine play rules are intended to simplify reporting by allowing payors to leverage existing technology to report winnings from electronically tracked slot machine play. These changes are also intended to facilitate reporting that more closely reflects gross income that will be reported by payees on individual income tax returns. See IRS Notice 2015-21 for more information on computing gross income attributable to electronically tracked slot machine play.

Under the new proposed rules, gambling winnings for electronically tracked slot machine play must be reported when two criteria are met: (i) The total amount of winnings earned from electronically tracked slot machine play during a single session netted against the total amount of wagers placed on electronically tracked slot machines during the same session is $1,200 or more; and (ii) at least one single win during the session (without regard to the amount wagered) equals or exceeds $1,200. The first criterion helps to implement the safe harbor for computing gross income attributable to electronically tracked slot machine play described in IRS Notice 2015-21.  The second criterion is intended to be consistent with the casino industry’s current practice of gathering winners’ information when players win a single jackpot that satisfies the reporting threshold.  The $1,200 threshold for each criterion is intended to balance reporting burden and compliance risk.  Under the proposed regulations, a session begins when a player places the first wager on a particular type of game at the payor’s gaming establishment and ends when the player places the last wager on the same type of game before the end of the same calendar day at the same establishment.  Under this rule, reporting with respect to electronically tracked slot machine play is not required if no single win (without reduction for the amount of the wager) meets the $1,200 reporting threshold or if the net amount of winnings reduced by the amount of all wagers for the session is less than $1,200. However, if the $1,200 reporting threshold for a single win is met and all winnings from electronically tracked slot machine play during a session netted against all wagers on electronically tracked slot machine play during that session are $1,200 or more, gambling winnings for the session must be reported to IRS on Form W-2G.

The proposed regulations also define the term “slot machine.” Under that definition, a slot machine is a device that, by application of the element of chance, may deliver or entitle the person playing or operating the device to receive cash, premiums, merchandise, or tokens, whether or not the device is operated by inserting a coin, token, or similar object.

In addition, the proposed rules clarify that the reporting of winnings from bingo, keno, and slot machine play do not apply to payments made to foreign persons. Instead, gambling winnings paid to a foreign person are generally subject to 30 percent withholding under the Internal Revenue Code and are reportable on Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.

The proposed rules also retain the rules in existing regulations regarding the information that is required on the Form W-2G, including the requirement that the payor describe the two types of identification relied on to verify the winners identity. However, under the proposed rules, one of the forms of identification must include the winner’s photograph to ensure that certain safeguards are in place to properly identify the winner.

In addition, under the proposed rules, the type of identification that is acceptable will be expanded.  The older regulations provided that the identification verifying the winner’s identity had to include the social security number.  According to those older regulations, examples of acceptable identification included a driver’s license, a social security card, or a voter registration card. However, today most forms of identification do not include a person’s social security number. Therefore, many winners do not have identification that contains the winner’s social security number and, even if they did, they may not have this identification with them at the time of payment. To address this issue, the new rules will provide that, in addition to government-issued identification, a properly completed Form W-9 signed by the winner is an acceptable form of identification to verify the winner’s identifying information.

Aggregate Reporting Method

The new rules will allow an alternative method for reporting multiple winnings from bingo, keno, and slots. Under the older regulations, each payment of gambling winnings from a single bingo or keno game, or slot machine play that met the reporting threshold was reportable on Form W-2G to the same winner.  To simplify reporting, the proposed rules will permit a payor making more than one payment of reportable gambling winnings to the same winner from the same type of game during the same session to report the aggregate amount of such reportable gambling winnings on one Form W-2G. This aggregate reporting method may be used at a payor’s option.

Gambling Winnings Other Than Bingo, Keno, and Slot Machine Play

The proposed regulations apply to reporting of gambling winnings from bingo, keno, and slot machine play. Yet, the Treasury Department and IRS are aware that taxpayers required to report winnings from pari-mutuel gambling may have concerns, similar to those addressed in the proposed regulations, relating to when wagers with respect to horse races, dog races, and jai alai may be treated as identical. Identical wagers are combined and offset against winnings to determine proceeds from the wager for purposes of determining whether the reporting thresholds are satisfied.  So, the Treasury Department and IRS intend to amend the regulations in a manner consistent with the proposed regulations and request comments from the public on this topic. In addition, comments are requested regarding whether the aggregate reporting method should be available for gambling winnings other than winnings from bingo, keno, and slot machine play.

The new rules will become effective after the Treasury Department issues final regulations, which to date, has not occurred.

So, gambling winners be aware!  New rules may be issued soon.  So, make sure you retain evidence of gambling losses, which may be offset against winnings for federal income tax purposes under certain circumstances.

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  • About the Author

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    Howard L. Richshafer

    Howard Richshafer joined Wood + Lamping in 2008, and his practice is focused on civil and criminal tax problems, estate planning and probate, tax court trial work, mergers and acquisitions, and general corporate business matters. Howard is also a licensed Ohio CPA. Over the past 40 years, Howard has represented clients experiencing all types of civil and criminal tax problems with IRS. Those problems include IRS audits, IRS criminal investigations, enforced collection of unpaid tax liabilities involving levies, liens, and seizures of assets and income.

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