On March 4, 2015, the Internal Revenue Service (IRS) issued a proposed rule to change the current requirements for casino operators to report winnings from bingo, keno, and slot machines. The IRS is accepting comments on the proposal through Tuesday, June 2, 2015. The IRS will hold a public hearing on the proposal on Wednesday, June 17th at the IRS headquarters.
This topic will be fully discussed at the NIGA Tradeshow with an IRS representative on Tuesday, March 31, 2015 in Room 32B at the session titled "A Conversation with the IRS."
Overview of IRS Proposal
Stated purpose: "The Treasury Department and the IRS think regulations for reporting winnings from bingo, keno, and slot machine play need to be updated in light of [electronic slot machines and player's card tracking technology] and there are opportunities to reduce burden and simplify reporting. The changes proposed ... are intended to accomplish these goals. In addition, the Treasury Department and the IRS specifically request comments on certain topics addressed by the regulations."
The proposed change would replace 26 C.F.R. 7.6041-1 (a Temporary Income Tax Regulation adopted in 1977) with the new proposed regulation at 26 C.F.R. 1.6041-10. Current section 7.6041-1 requires casino operators to issue a W-2G form to any person winning $1,200 or more from a bingo game or slot machine play or of $1,500 or more from a keno game. The proposed rule states that the temporary regulation (7.6041-1) is a deviation from the general rule requiring businesses to report payments of $600 or more in any taxable year. The proposed change does not include lower reporting thresholds for winnings from bingo, keno, and slot machines.
The published rule does, however, state, "advances in technology ... may warrant reducing the thresholds to $600, consistent with other reporting thresholds under current regulations." As a result, the IRS and Treasury will continue to monitor this issue "and may propose to reduce those thresholds at a future time." The proposal requests comments about "the feasibility of reducing 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."
The proposed rule would add new regulations for "electronically tracked slot machine play" in an attempt to simplify reporting and to permit operators to take advantage of new technology. It is also an attempt to more closely reflect gross income reported by individual gamblers. In addition to defining the phrase "electronically tracked slot machine play," this provision adds definitions for the terms "slot machine" and "session."
The proposed rule also adds and/or clarifies existing requirements for information contained in the reports, in addition to the W-2G forms.
Finally, the proposed rule would establish an alternative method for reporting aggregate bingo, keno, or slot machine winnings by permitting operators the option to file one W-2G form for a single payee that has multiple winnings in the same session of play on the same type of game.
The remainder of this alert provides additional details on the proposed changes. The full text of the proposed rule as published in the Federal Register: https://federalregister.gov/a/2015-04437
Section-by-Section Summary of IRS Proposed Changes and Requested Comments
§ 1.6041-10(b). Definitions.
Reportable gambling winnings. The proposed regulations maintain the current reporting thresholds of $1,200 for winnings from bingo and slot machine play (other than electronically tracked slot machine play), and $1,500 for one keno game.
The proposal also maintains the current rule that winnings from a keno game are reduced by the amount wagered for purposes of the reporting threshold, whereas winnings for bingo and slot machine play (other than electronically tracked slot machine play) are not reduced by the amount wagered in determining whether the reporting threshold is satisfied.
As noted above, the IRS may consider raising the reporting thresholds for bingo, keno, and slots to $600 "at a future time."
- The proposed rule thus specifically requests comments on the future feasibility of reducing bingo, keno, and slot machine thresholds to $600.
- The proposal also requests comments on 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.
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 the IRS does not have data indicating that this is feasible.
- The proposal requests comments about whether reportable gambling winnings in the case of bingo and slot machine play (other than electronically tracked slot machine play) should be determined by netting the wager against the winnings as with keno.
§ 1.6041-10(b) Definitions (continued).
Electronically tracked slot machine play. The proposed rule suggests new rules for determining the reporting threshold for electronically tracked slot machine play, which is defined as slot machine play where an electronic player system that is controlled by the gaming establishment (such as through the use of a player's card or similar system) records the amount a specific individual won and wagered on slot machine play.
Under the proposal, operators must file a report for winnings for electronically tracked slot machine play 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. If both of these criteria are met, gambling winnings for the session must be reported on a Form W-2G.
Conversely, reports for electronically tracked slot machine play are 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.
Under the proposal, a "session of play" is defined as beginning when a patron places the first wager on a particular type of game at an establishment and ends when the patron places his or her last wager on the same type of game before the end of the same calendar day at the same establishment.
The term "slot machine" is defined as 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. This definition is nearly identical to the definition of "wagering machines" (which includes the term "so called 'slot' machines") contained in the IRS Wagering Tax Regulations at 26 C.F.R. 44.4402-1(b)(1).
- Comments are specifically requested with respect to the definitions of session and electronically tracked slot machine play.
§ 1.6041-10(d). Prescribed form, time and place for filing the return.
This section retains the current rule that a casino operator file a Form W-2G, "Certain Gambling Winnings," on or before February 28 (or March 31, if filed electronically) of the year following the calendar year in which the reportable gambling winnings were paid.
§ 1.6041-10(e). Information included in the return.
This section retains the current rules regarding information that is required on the return, including the requirement that the casino operator describe the two types of ID relied on to verify the payee's identity. This section adds / clarifies that one of the forms of ID include the payee's photograph to ensure that certain safeguards are in place to properly identify the payee.
§ 1.6041-10(f). Identification.
This section provides that, in addition to government-issued ID, a properly completed Form W-9 signed by the payee is an acceptable form of ID to verify the payee's identifying information. This rule is consistent with procedures currently used to address the fact that most forms of ID do not contain social security numbers.
§ 1.6041-10(h). Aggregate reporting of bingo, keno, and slot machine winnings.
This section provides an alternative method for reporting multiple winnings from bingo, keno, and slots. Under current regulations, each payment of gambling winnings from a single bingo or keno game, or slot machine play that meets the reporting threshold is required to be reported on a Form W-2G to the same payee. To simplify reporting, this section would allow a casino operator that makes more than one payment of reportable gambling winnings to the same payee from the same type of game during the same session to file the aggregate amount of reportable gambling winnings on one Form W-2G. This aggregate reporting method is only an option for the operator to consider using at its discretion. An operator may opt to use aggregate reporting for some payees and not others.
§ 1.6041-10(i) Payments to foreign persons.
This section clarifies that the rules for reporting 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 is subject to a 30 percent withholding tax.
Please contact Veronica Watters, Legislative Director, by email at firstname.lastname@example.org or by phone at 202-546-7711 with any questions or concerns.