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IRS wants to use casino comp cards to track taxes

IRS wants to use casino comp cards to track taxes

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The Internal Revenue Service will take public comment Wednesday on a controversial plan to use casino comp cards to track slot-machine winnings — a proposal casino companies fiercely oppose.

Comp systems, sometimes called player loyalty programs, already track cardholders’ slot play with algorithmic precision, so the IRS says the systems should be used to monitor payouts and verify that gamblers are paying taxes on winnings.

But the American Gaming Association, the main casino lobby in the United States, says the IRS is trying to use casinos’ treasured marketing tool against them, and that the proposed regulation will create a logistical and marketing nightmare.

Gambling winnings are, for the most part, taxable income. For smaller payouts the IRS generally relies on taxpayers to self-report winnings. Slot payouts of $1,200 or more, though, immediately trigger a reporting process that starts on the casino floor, where the winning machine goes offline while casino personnel have the lucky winner fill out a tax form that’s headed to the IRS.

Now the IRS wants to beef-up casinos’ reporting obligations for “electronically tracked slot machine play”; in other words, for gambling that happens while comp cards are being used.

Under the proposal, casinos would be required to report to the IRS winnings paid for electronically-tracked slot play when a pair of conditions are met. First, the gambler must win $1,200 or more, reduced by wagers, on tracked play within the same calendar day at a single casino. Second, at least one of the wins during the one-day session must have been $1,200 or larger.

In a letter to the IRS, AGA President Geoff Freeman, who’s scheduled to testify at the Washington, D.C. hearing, said the proposed regulation, if approved, will have a “chilling effect” on customers, who will balk at signing up for comp cards if they believe the federal government will use their accounts for tax-auditing purposes.

“The gaming industry is aware of no other industry in the country for which the IRS has issued regulations requiring the industry to deploy its customer loyalty program for Federal tax collection purposes.,” the letter said.

And, casinos argue, comp systems are designed for marketing, not tax-auditing, so the proposal would require costly reengineering to give the IRS what it wants.

“What they’re asking is for us to change our software from a marketing software to a tracking software,” Joe Lupo, Borgata's senior vice-president of operations, said Tuesday.

Those looking to speak at Wednesday’s hearing had to get an outline of their comments to the IRS by June 2.

More than 1,700 comments were submitted to the IRS in advance of Wednesday’s hearing. Many of them fully ignored the proposal, which will become a full-on-regulation if it’s accepted by the U.S. Treasury Department.

Instead they blasted the IRS’ mere suggestion, buried in the proposal, that the agency might consider halving the current $1,200 reporting threshold for slot payouts, which has been in place for almost four decades.

Golden Nugget Atlantic City would see nearly three times as many reportable slot payouts if such a change were made, general manager Tom Pohlman said this week.

The current reporting protocol is already a stick in the craw of casino executives, who say it increases labor costs – employees on paperwork duty – while decreasing revenue from slots, which are temporarily inoperable while tax forms are filled out.

The intimation that tax reporting will happen with greater frequency, Pohlman said, is “crazy.”

Contact: 609-272-7239

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