IRS doesn't understand the reality of the casino

IRS doesn't understand the reality of the casino

March 10, 2015 3:01 AM


IRS softer? Not so - slot machines; video casino gamblingOn March 4th there was a notice of a proposed rule related to “Information Returns; Winnings from Bingo, Keno and Slot Machines.”

The notice is to solicit public comment related to suggested rule changes by the IRS for reporting methods and processes related to W2G requirement associated with bingo, keno and slot machines. Since these rules have not basically changed since 1977, I was getting jazzed up that the IRS was actually going to move into the 21st century.

Keep in mind that since the last IRS update in this area, W2Gs have been filed on the lucky winners of bingo prizes and slot machine prizes of $1,200 or more and on lucky keno winners of $1,500 or more.

My first expectation was that since the numbers have never been adjusted for inflation certainly there would be an adjustment to the reporting numbers and the traditional $1,200 was going to move to something like $5,000. Oh how wrong I was and how disappointed I was when I realized was reading about an effort to expand reporting disguised as a “Trojan Horse.”

Normally when someone is lucky enough to win a reportable level payout from bingo, keno or slots, they are also annoyed they then have to deal with the reporting requirements on their personal tax returns and itemize their losses to offset any win.

For large denomination customers, this can become very cumbersome and over the years the notion of session play has been adopted. With individual agreements between various casinos and the IRS, it is not uncommon for higher level slot and keno customers to simply start a session and at the end of the session if they are above the reporting threshold the report is generated, if below it is not.

Sounds reasonable, reduces unneeded paperwork and simplifies the year-end tax return – not a bad thing.

So the good folk at the IRS put their heads together and have essentially suggested incorporating a variation of the session play concept into the regular W2G reporting requirements; again, not a bad thing and could make things simpler for regular customers. The suggested language would permit a customer on tracked play to enjoy the benefits of a high roller like session.

Example: Fran has her player card in, wins a $2,000 jackpot, keeps playing and loses back $1,500 of the $2,000. The W2G report would be generated to the IRS showing Fran with a net win of $500 at the end of her session. However, if instead of losing $1,500 back Fran wins another $350, then the W2G report would be generated showing her winning $2,350.

While not ideal, in a lot of cases simpler to deal with and, face it, most people blow some part of their winnings back, so overall not a bad notion – so far.

Reading further through the proposed rule changes there were multiple examples showing essentially different variations of the above examples all using the historical reporting levels that have not changed since 1977. Then rather discretely buried in the full notice the “say what phrase” was there and I quote directly from the notice:

“However, 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 § 6041(a). Accordingly, the 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. Comments are specifically requested regarding the proposed reporting thresholds, including the feasibility of reducing those thresholds to $600 at a future time, whether electronically tracked slot machine play should have a separate reporting threshold, and whether the amounts should be uniform for bingo, keno, and slot machine play.”

$600 reporting levels – are you kidding?! This is a complete lack of understanding of what the business is all about.

Let’s return to basics. Gaming activity is recreation in the form of excitement created by the anticipation of a win, being lucky or being right. Casinos are neither banks nor investment houses where money is conveyed with a full expectation of return, so reporting at levels similar to 1099’s like a bank is just plain silly and a waste of time, money and effort. Instead of dropping the reporting level, the threshold should be raised.

While I like very much the notion of session reporting, I see the IRS notice as a “Trojan Horse” on two particular levels that could end in consequences neither the industry nor its patrons will be interested in. First, the IRS could simply say “if you can track play so easily now, why not reduce the reporting level to $600 or lower.” Second, “if you can track all play at lower levels of reporting, instead of reporting when there is a triggering event or a material session play, heck, why not just send an annual report in on all customers!”

Face it, most people who play slots, bingo or keno rarely if ever finish the year ahead of the game, unless they have enjoyed a material life changing win, so why not be realistic about the subject. Adopt the session play concept but boost the reporting standards to numbers that mean something and not set the stage for excessive and needless reporting.

I encourage you all to take a moment or two and send your comments to the IRS on this topic; who knows, maybe they will listen.

Send written submissions to: CC:PA: LPD:PR (REG-132253-11), Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Electronic submissions can be sent via the Federal eRulemaking Portal at (IRS REG-132253-11).

All comments must be received by June 2, 2015.

The Analyst is an experienced gaming industry executive who offers insight each week on events and issues affecting the industry. Contact The Analyst at