Pattern Not Found
I. Nelson Rose
On October 19, 2007, the Internal Revenue Service issued a press release stating that casinos, card clubs, and anyone else that sponsors a poker tournament would have to withhold 25 percent of the prize money from anyone who wins more than $5,000. Except they won’t actually have to withhold anything.
The penalties for failing to withhold can be fierce. At the very least, the sponsor has to pay the 25 percent out of its own pocket. Since the IRS is supposedly interpreting the Internal Revenue Code, there are also the possibilities of fines, penalties and even imprisonment. But the IRS added that when this new rules goes into effect on March 4, 2008, it would not go after any tourney operator who gives the IRS the names, addresses, and Taxpayer Identification Numbers (TIN)-usuallya social security number-of its big winners. Casinos are already faced with a bizarre array of reporting and withholding requirements. Besides poker tournaments, there are special rules for keno, slot machines, bingo, and sports and race books. And two patrons who win exactly the same amounts at exactly the same game will have different amounts withheld if one is from a foreign country or refuses to give his TIN. The tax code is very clear: Americans are supposed to report every dollar-and euro and pound-that they win anywhere in the world. But everyone knows that gambling is usually an all-cash business, and if big winners were not reported to the IRS by the casinos, they might “forget” to include the amounts on their income tax returns.
Of course, it is not the reporting, but the paying, that is so hard. So the law sometimes requires casinos to withhold and send part of the winnings to the IRS, giving the big winner only the remainder. Like employees who have withholding taken out their salaries, winners may, or may not, be able to get some or all of these advance tax payments back. Of course, it won’t be until after they file their tax returns the following year.
Withholding, like the taxes themselves, was created by Congress. But the IRS makes the rules, and it sure knows how to create forms.
The IRS already requires casinos to file forms like the Form W-2G “Certain Gambling Winnings,” Form 5754 “Statement by Person(s) Receiving Gambling Winnings,” Form W-9 to Request a patron’s TIN, and Form 945 to report the additional backup withholding, which is currently at 28 percent and must be taken when the patron refuses to give their TIN. There is even Form W-8BEN, which a casino should use to tell the IRS that it is not withholding a part of the winnings of a citizen of a foreign country that has a tax treaty with the U.S.
And then there is Form 1099. Anyone who pays anyone else $600 in a year is supposed to report it to the IRS. The opening of Atlantic City got the attention of the IRS, which decided it wanted all casinos to file a Form 1099 every time any patron won $600 or more. But the casinos argued that a cage cashier does not know when a gambler cashes chips for $5,000, whether he bought in for $1,000 or $10,000 at the tables. This was probably true in the late 1970s.
The IRS had a partial comeback: Casinos do know how much players have bet when they win big at keno, bingo or slot machines. So, the regulations require casinos to report winners of $1,500 or more at keno, and, for no clear reason a lesser amount, $1,200, at slot machines and bingo.
Next issue we’ll see how IRS policies in Atlantic City affected the rules that now govern poker tournament winnings, and how the IRS got things completely wrong.
Filed under: Poker News