This morning the IRS proposed a new Revenue Procedure for individual taxpayers to determine wagering (gambling) gains and losses from slot machine play. Additionally, the IRS proposed an update to the regulations on information returns for gambling from slot machines.
There’s a lot to like in IRS Notice 2015-21, the IRS’s proposal for a “Safe Harbor Method for Determining a Wagering Gain or Loss from Slot Machine Play.” The proposal is for a daily session for slot machine play where there are electronic records. Let’s say an individual plays slot machines at Bellagio from 10:00am – 12:00pm and from 3:300pm – 5:00pm. That can all be combined into one session per this revenue procedure (if it is finalized).
Some things are not allowed. The day ends at midnight, so if a player is playing slot machines from 11:00pm to 1:00am, that would be two sessions (11:00pm – 11:59pm and 12:00am – 1:00am). Additionally, play at different casinos cannot be combined. Finally, each session stands on its own; a gambling loss from a session cannot be netted with a gambling win from another session.
The IRS doesn’t really have a choice in allowing session reporting of gambling; court decisions and an opinion from the IRS General Counsel have endorsed this. The proposed Safe Harbor procedure appears, at first glance, to strike a reasonable balance of session reporting with IRS verification. The only issue I see is that daily reporting is not normally provided to patrons by casinos.
Coincidentally, the IRS released a proposed regulation on reporting gambling winnings from slot machines (and bingo and keno). The IRS will be holding a public hearing on June 17th in Washington on the proposal.
The proposed regulation does not change the reporting threshold for when a W-2G is issued for slot play:
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. These thresholds are intended to reach a balance between reporting burden and compliance risk. Based on over 35 years of experience with the current thresholds, the IRS thinks they are sufficient at this time to verify correct reporting of wagering income. Accordingly, §1.6041-10(b) of the proposed regulations provides 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 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.
If anything, the threshold should be raised, not lowered. The value of a 1977 dollar today is a bit over $4. Thus, an equivalent threshold today is $4,800. I doubt the IRS will like my opinion on this. I am certain that casinos will not want the threshold lowered.
There’s more in this (this notice runs 30 pages), but it is Tax Season and I have a lot of work. I will report on this again after April 15th.