Model Comments on IRS Proposed Rule-Changes to Reporting Winnings from Bingo, Keno, and Slot Machines

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.

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 section7.6041-1 requires casino operators to issue a W-2G form to any person winning $1,200 or morefrom a bingo game or slot machine play or of $1,500 or more from a keno game. The proposedrule states that the temporary regulation (7.6041-1) is a deviation from the general rule requiringbusinesses to report payments of $600 or more in any taxable year. The proposed change doesnot 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 full text of the proposed rule as published in the Federal Register:

 To assist you in developing your comments, we have prepared a model comment letter outlining the major issues with the proposed rule. Please note that comments must be received on or before June 2, 2015 via mail, hand delivery, or through the Federal eRulemaking Portal (

 Please contact Veronica Watters, Legislative Director, by email at  or by phone at 202-546-7711 with any questions or concerns.



Internal Revenue Service
U.S. Department of the Treasury
CC:PA:LPD:PR (REG-132253-11)
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

Re: Information Returns; Winnings from Bingo, Keno, and Slot Machines; IRS REG - 132253-11

Dear Sir or Madam:

I write on behalf of the ______Tribe/Nation to submit this comment in response to the Notice of Proposed Rulemaking ("NPRM") issued by the Department of the Treasury and the Internal Revenue Service (collectively, the "Department"), published at 80 Fed. Reg. 11600 (March 4, 2015). In the NPRM, the Department requests comments on proposed changes and possible future changes to the reporting requirements for bingo, keno, and slot machine winnings. 

We have serious concerns about the proposed rule and about the process by which the Department has developed and published the NPRM for comment.   We are troubled that in spite of the Department's very strong policy statements about the importance of tribal consultation processes, there was no advance consultation with tribal governments prior to the publication of the NPRM.  In its most recent progress report to the Office of Management and Budget pursuant to Executive Order 13175, the Department affirmed its commitment to establishing a comprehensive consultation process leading to meaningful dialogue with Indian tribes on Treasury Department policies that have implications for such tribes, and in particular those regulations and legislative proposals that have direct and identifiable economic impacts on Indian tribes or that preempt tribal law.  Given the critical nature of tribal gaming revenue to the social and economic health of tribal governments and communities, regulations affecting tribal gaming operations will necessarily have a direct economic impact on tribes.  As the Department notes, tribal consultation will assist Treasury's development of policy, regulation, and legislative activities, as it will increase Treasury's understanding of the potential impacts of these activities on tribes and American Indians and Alaskan Natives. In spite of this, the Department has not consulted with or even notified tribal governments in advance of issuing this NPRM, thereby violating the spirit and letter of the consultation requirements contained in federal statutes and Presidential directives. 

Moreover, the Department has failed to demonstrate any need for the changes and proposals presented in the NPRM. The basic principles of federal rulemaking require agencies to examine all relevant data and articulate a satisfactory explanation for its actions, including a rational connection between facts found and choices made. The preamble to the NPRM, generally, and the Regulatory Flexibility Certification, in particular, both fail in this regard.  

Unlike federal regulation of commercial gaming, "the United States has a unique legal and political relationship with Indian tribal governments, established through and confirmed by the Constitution of the United States, treaties, statutes, executive orders, and judicial decisions."[i]  As a result, Executive Orders 13175 mandates every federal agency to conduct meaningful consultation and collaboration prior to developing federal policies that have tribal implications. 

In light of the foregoing, significant procedural deficiencies must be resolved before any further action is taken on the NPRM. We urge the Department to defer action on the NPRM until it has fulfilled its consultation and rulemaking obligations to tribal governments.  In the alternative, we urge the Department to extend the comment period for the NPRM by at least sixty (60) days.  Preparation of our comments requires both considerable legal research and an internal coordination effort involving numerous components within our government.  We urge an extension so that we may continue coordinating the preparation of our comments internally and analyzing the issues presented in the NPRM. 

Therefore, although we offer the following comments and recommendations on the issues and proposed rules outlined in the NPRM, we wish to reserve the opportunity to provide further comments if our request for an extension of the comment period is granted.

I.  Background: the Importance of Indian Gaming

Any discussion of Indian gaming must begin with the historic background of Native Nations that pre-dates the U.S. Constitution, evolves with the formation of the United States, and exists as a vital part of this Nation's Constitution. 

Upon its formation, the United States acknowledged the sovereign authority of Indian tribes, entering into hundreds of treaties with tribal governments. Through these treaties, tribes ceded hundreds of millions of acres of Native homelands to help build this great Nation. In return, the United States made many promises to provide for the education, health, public safety, and general welfare of Indian people. The U.S. Constitution specifically acknowledges these treaties and the sovereign authority of Indian tribes as separate governments. 

The Commerce Clause provides that "Congress shall have power to . . . regulate commerce with foreign nations, and among the several states, and with the Indian tribes."[ii] Tribal citizens are referred to in the Apportionment Clause ("Indians not taxed") and excluded from enumeration for congressional representation. By its very text, the Constitution establishes the framework for the federal government-to-government relationship with Indian tribes. The Constitution finally acknowledges that Indian treaties, and the promises made, are the supreme law of the land.

Over the past two centuries, the federal government has fallen far short in meeting these solemn obligations. Failed federal policies of Removal, Allotment & Assimilation, and Termination resulted in the death of hundreds of thousands of our ancestors, the taking of hundreds of millions of acres of tribal homelands, the suppression of tribal religion and culture, and the destruction of tribal economies. The aftermath of these policies continues to plague Indian Country to this day.

However, tribal governments and Native people persevered. Contemporary Indian gaming is helping rebuild tribal communities nationwide. 

Indian gaming is governmental gaming. Unlike commercial gaming in which net revenues go to corporate shareholders, every dollar of net Indian gaming revenue is 100% taxed by the tribal governments. This requirement is codified in the Indian Gaming Regulatory Act, 25 U.S.C. 2710. 

Today, 245 tribal governments operate 445 gaming facilities in 28 states. Tribes have dedicated Indian gaming revenues to improve basic health, education, and public safety services on Indian lands. We have used gaming dollars to improve tribal infrastructure, including the construction of roads, hospitals, schools, police buildings, water projects, and many others.

The importance of Indian gaming to tribal government budgets cannot be overstated. In many cases, gaming revenues represent as much as 80% of a tribe's annual budget. It is imperative for federal agencies in their rulemaking role to understand that every dollar spent on a non-essential function is a dollar that will not go to pay for tribal government law enforcement, fire protection, child services, elder care, and other basic services that are crucial meeting the basic needs of our communities. Proposed federal rules that impact the manner and method of tribal government gaming will have a huge economic impact on Native communities. 


  1. The Department Failed to Consult with Tribal Governments Regarding the Changes and Proposals Presented in the NPRM.   

The Department's failure to consult with tribal governments prior to publication of the NPRM violates the provisions of Executive Order 13175 and the Department's own published consultation policy, both of which require the Department to engage in meaningful consultation in the early development of regulations with tribal implications. Specifically, Section 5(b) of Executive Order 13175 provides that prior to the promulgation of any regulation that has tribal implications, agencies must "consult with tribal officials early in the process of developing the proposed regulation" (emphasis added).[iii] The same requirement for earlyconsultation can also be found in Section III.C.5 of the Department's own tribal consultation policy.

Executive Order 13175 further provides that where an agency proposes to establish new federal standards with tribal implications, as is the case here, the agency must "consult with tribal governments as to the need for Federal standards and any alternatives that would limit the scope of Federal standards."[iv] In accordance with the Department's consultation policy, the Department is to "seek comment on compliance costs as appropriate to the nature of the regulation or guidance under development."[v]

Under these federal mandates and pursuant to the federal government's special government-to-government relationship with tribal governments, the Department has an obligation to consult with tribal governments on the proposals raised in the NPRM, each of which would have "substantial direct effects" on tribal governments and their gaming enterprises. To comply with the new proposed rules, tribal governments would be required to adopt and implement more extensive reporting procedures and internal controls, which could add significantly to the cost of doing business. Any such proposal to increase the operational and compliance burden on tribal governments is a matter of import affecting tribal interests for which consultation is required.   

Despite the important tribal rights and interests implicated by the NPRM, the Department did not engage in any form of consultation whatsoever with tribal governments before issuing the NPRM, nor did the Department request comments on potential compliance costs to tribal governments. Instead, the Department notified tribal governments of its proposed changes using the notice-and-comment process under the Administrative Procedures Act ("APA"), which represents the minimum standard for federal rulemaking. 

However, there is a fundamental difference between the APA's notice-and-comment process, which purpose is to gather information, and consultation, which is a government-to-government process that requires greater involvement in decision-making by tribal governments. In light of the special government-to-government relationship between tribal and federal governments, tribal governments are entitled to a higher standard, particularly in the case of regulations that directly affect tribal economic interests. 

In addition, there are fundamental differences between Indian gaming and commercial gaming that must be taken into account by the Department in its deliberations.  As noted above, unlike commercial gaming, Indian gaming is governmental gaming and the revenues generated from Indian gaming activities are government revenues.  Unlike commercial gaming, the use of Indian gaming revenue is governed by federal law, specifically, the Indian Gaming Regulatory Act, which mandates that Indian gaming net revenue be used for governmental purposes.   This distinction, coupled with the mandates of Executive Order 13175, the acknowledgment of Indian tribes as separate governments under the U.S. Constitution, and the federal treaty and trust obligations to Indian tribes, place unique obligations on the Department when promulgating regulations that impact Indian gaming that are not otherwise owed to commercial gaming entities.

Because the Department failed to comply with federal consultation mandates with respect to this NPRM, the Department should defer action on the NPRM until such time as it has engaged in meaningful consultation with tribal governments regarding the need for and impacts of the NPRM. We emphasize that in order for consultation to be meaningful, it must occur early and commence before the Department decides that a problem warranting action exists. By focusing in on the problem early in the consultation process, the Department and tribal governments can work together in considering all possible alternatives, including the alternative of no further action. 

We further emphasize that meaningful consultation requires a two-way exchange of information on a government-to-government basis and a genuine commitment to reach an agreement on how to proceed concerning the issues at hand. Unlike in other public participation processes, the Department must do more than just "listen" to tribal input, but work cooperatively and collaboratively with tribal governments towards reaching a consensus on the best available approach. The ultimate objective of consultation is to reach a mutually acceptable outcome that accommodates tribal interests and needs to the maximum extent permitted by law. 

We are deeply disappointed by the lack of consultation in the development of this NPRM and troubled by the implications. Effective dialogue through meaningful consultation is an essential component of the federal-Indian relationship. The failure to comply with federally mandated consultation requirements not only undermines the goodwill and trust between tribal and federal governments, but also violates an important component of the federal trust responsibility. For these and the reasons set forth above, we urge the Department to reverse course and commence consultative measures to ensure that its rulemaking process is consistent with federal directives and the publicly stated mandates of the Department's own consultation policy. 

  1. The Department's Regulatory Flexibility Act Assessment Is Deficient.

The proposed rule has not been conducted in compliance with the RFA, which requires federal agencies to analyze the impact a rule may have on small businesses and seek a less burdensome alternative if that impact is substantial. In the preamble, the Department has certified that the proposed rules, if promulgated, will not have a significant economic impact on a substantial number of small entities. In its analysis, the Department focuses exclusively on two components of the proposed rules. First, the Department states "that this rule merely provides guidance as to the timing and filing of information reporting returns for payors."[vi]  Second, the Department states that "this rule is reducing the existing burden . . . by simplifying the process for payors to verify payee's identities . . . and also by allowing payors to reduce the number of information returns they issue."[vii]

Notably absent from the Department's RFA analysis is a discussion of the economic impacts of the proposed new rules for determining the reporting threshold for electronically tracked slot machine play, which can be found in § 1.6041-10(b)(1) of the proposed regulations. If promulgated, these new rules would significantly change the process by which reportable winnings are calculated for electronically tracked slot machine play. Because they are a significant component of the NPRM, these proposed new rules are subject to the RFA requirements.

The Department must, therefore, conduct an RFA analysis of the proposed rules for electronically tracked slot machine play before it proceeds with the NPRM. The analysis will be especially important in understanding the financial burdens imposed by the proposed rule, particularly in relation to the changes required to accommodate the new reporting requirements. At present, the technology to implement the new reporting procedures has not been made readily available, which means that significant costs will be incurred to update and modify existing player tracking systems.  

Given the current lack of appropriate technology, we believe the proposed new rules relating to electronically tracked slot play will have a significant economic effect on a substantial number of small entities. At the very least, the proposed rules will impact small entities formed by tribal governments to operate their gaming activities. Thus, in order to satisfy the requirements of the RFA, it is incumbent upon the Department to analyze the financial impacts of its proposed new rules for electronically tracked slot machine play before proceeding further.


  1. The Internal Revenue Service Should Not Proceed with Consideration of the Idea of Lowering the Reporting Threshold to $600.00 As It Is Unnecessary, Overly Burdensome, and Would Result in Significant Costs to the Tribal Gaming Industry. 

The NPRM retains the current reporting threshold of $1,200.00, but seeks comments on whether to reduce that amount to $600.00 at a future time. The Department is considering whether the $1,200.00 reporting threshold, which was first enacted in 1977, is still appropriate given the significant changes in gaming technology since that time.

We strongly object to any proposal to lower the current reporting threshold and urge the Department to withdraw this proposal from further consideration. First, to counter the above statement, it could be argued that any benefits from technological advances since 1977 would be offset by the rate of inflation during this period. In addition, it is important to bear in mind that the growth of the gaming industry and the proliferation of gaming products in recent decades has given rise to higher wagers and increased payouts. Simply put, the value of a $600.00 jackpot today is not the same as it was in 1977.  Accordingly, it would be much more reasonable to propose an increase to the reporting threshold taking into account the inflation rate. 

Moreover, there are also the potential costs to the gaming operation. The process for reporting gambling winnings is already a costly and time-consuming task. Gaming machines are typically programmed to "lock up" following a win of $1,200.00 or more so that the requisite paperwork can be completed. A lower reporting level would increase the number of instances a gaming machine has to be shut down, which will ultimately hurt the gaming operation's bottom line. The increase in downtime and interruptions in game play would also disrupt the patron's gaming experience and have the unintended consequence of encouraging players to play less and seek games with smaller payouts. Without question, the lower reporting threshold would cause tribal gaming operations to suffer significant losses in gaming revenue and profit.

The Department must also consider the administrative and compliance burdens associated with the proposal to lower the reporting threshold. Rather than reducing burden and simplifying reporting, the proposal would have the opposite effect of increasing the paperwork burden and costs on tribal gaming operations. This, in turn, would result in increased labor and operating costs as more employees would be needed to respond to the higher rate of gaming machine lock-ups and the increased accounting responsibilities in the back of the house. 

These added compliance burdens are inappropriate and unwarranted, especially when considering that the Department has not articulated any problems of under reporting or compliance to justify this change. We, therefore, urge the Department to withdraw this proposal from further consideration as it will have a detrimental impact on tribal governments and the tribal gaming industry more broadly.

  1. The NPRM Will Require Costly Changes to Player's Card Reward Programs and May Create a Disincentive to Participate in Such Programs, Which Will Significantly and Adversely Impact Tribal Government Gaming Revenue. 

The use of player's card rewards programs is not currently subject to IRS W-2G reporting thresholds and therefore the programs are not designed to accurately track winnings for the purpose of reporting earnings to IRS. Accordingly, costly changes will need to be made to player's card reward programs in order to comply with the proposed rule. The costs of such changes, and the costs of ongoing future compliance with the proposed rule, must be determined in order to adequately evaluate the proposed rule. There can be little doubt that such costs will be significant for tribal casinos. 

Furthermore, the proposed regulations may create a financial disincentive for players to participate in player's card rewards programs, which are primarily used as marketing devices. Players may conclude that the proposed rule results in increased reporting or taxation of their winnings because of its reliance on data from the player's card rewards program. As a result, players may refuse to participate in such programs and reduce the marketing benefits to tribal casinos of such programs. The additional costs and disincentive to use player's rewards programs will adversely impact tribal governmental gaming revenues.

The NPRM Fails to Provide the Data and Analysis Necessary to Fully Understand the Impacts of the Proposed New Rules for Electronically Tracked Slot Machine Play.

The proposed rules concerning electronically tracked slot machine play will operate to effect a major change in the way in which reportable winnings are calculated. Under well-established principles of federal rulemaking, when a federal agency establishes new federal standards, it is first obligated to furnish adequate data and a reasoned analysis supporting the change. 

The Department, however, has not articulated how the proposed electronically tracked slot machine play rules will actually fill a regulatory void or address existing compliance concerns. Moreover, there are no facts or evidence to support the Department's assertions that advances in gaming technology are reducing burden with respect to electronically tracked play. And as noted above, no cost-benefit analysis or RFA assessment has been provided in support of the new rules. As such, it is not possible to fully understand the implications of the proposed new rules.

We are concerned that the Department has not have given due consideration of the costs associated with the proposed rules for electronically tracked play, including the technological ability to meet the new standards. And, as noted above, we are also concerned with the detrimental impact that the new rules will have on the use of player cards, which are primarily used as marketing devices and not to track winnings for tax reporting purposes. To that end, we urge the Department to provide a detailed explanation of the economic considerations of the proposed rule, an assessment of the technologic ability to meet the particular regulatory standards in the proposed rule, and reasonable alternatives before proceeding further. 

  1. There Is No Factual Basis for Revising the Current Reporting Requirements for Bingo, Keno, or Slot Machine Play.

In the preamble, the Department requests comments as to whether electronically tracked slot play should have a separate reporting threshold and whether the reporting levels should be uniform for bingo, keno, and slot machine play. The Department is considering whether these reporting requirements should be revised at a future time.

While we appreciate the opportunity to comment on the Department's possible future changes, we are concerned with the lack of information and context. The Department has made no effort to articulate why these proposals are under consideration and what their intended benefits may be. Without the ability to review and understand the factual basis for these proposals, we are left unable to fully evaluate or comment on their potential impacts. Unless the Department can demonstrate a need for revising the current reporting requirements, we request that the proposals described in the preamble be withdrawn from further consideration. 


In closing, we again urge the Department to defer action on this NPRM until it has fulfilled its consultation and rulemaking responsibilities and thoroughly considered the impacts of its proposals or, in the alternative, extend the comment period by at least sixty (60) days. We look forward to working together with the Department on a government-to-government basis to resolve these issues and develop policies that are consistent with federal Indian law and policy and in furtherance of the trust obligation owed to tribal governments.   

[i]  President Barack Obama, Presidential Memorandum for the Heads of Executive Departments and Agencies (Nov. 5, 2009) (Subject: Tribal Consultation). 

[ii] U.S. Const. Art. 1, § 8, cl. 3.

[iii] Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, 65 Fed. Reg. 67,249, 67,250 (Nov. 6, 2000). 

[iv] Id.   

[v] U.S. Dep't of the Treasury Interim Tribal Consultation Policy, 79 Fed. Reg. 71816, 71,817 (Dec. 3, 2014).

[vi] U.S. Dep't of the Treasury, Internal Revenue Service, 80 Fed. Reg. 11,600, 11,603 (proposed March 4, 2015). 

[vii] Id.