House Holds Hearing Today on Tax and Internet Gambling

The House Ways & Means Committee holds a hearing this morning on Tax Proposals Related to Legislation to Legalize Internet Gambling. From the hearing announcement:

The Committee will discuss the current tax laws and reporting requirements applicable to wagering in the United States.  The Committee will consider tax and other proposals in the Committee’s jurisdiction related to legislation pending in the Congress to license and regulate Internet gambling activities.

Witnesses:

• Barney Frank (U.S. Representative, Massachusetts)
• Jim McDermott (U.S. Representative, Washington)
• Bob Goodlatte (U.S. Representative, Virginia)
• Christopher Wagner (Commissioner, Small Business Self- Employed Division, IRS)
• Rebecca Sparkman (Deputy Director for Operations, Criminal Investigation Division, Treasury Department)
• Charles M. Steele (Deputy Director, Financial Crimes Enforcement Network, Treasury Department)

In connection with the hearing, the Joint Committee on Taxation has released Overview of Federal Tax Laws and Reporting Requirements Relating to Gambling in the United States:

The United States gambling industry generated more than $92 billion in revenue in 2007. This includes commercial casinos operating in 12 States, casinos operating on Indian tribal lands in 28 States, State lotteries operating in 42 States, and racetrack casinos operating in 12 States.

Part I provides a general overview of legal gambling operations in the United States, State taxation of gambling, and Internet gambling. The legal gambling market includes revenues from commercial casinos, Indian tribal casinos, State lotteries, pari-mutuel wagering, and other types of gambling which are discussed in this part.

Part II summarizes the Federal income taxation of gambling. This part includes the individual taxation of gambling winnings, the special limitation on gambling losses, the tax implications related to domestic and foreign persons engaged in a gambling business, and considerations related to the taxation of Internet gambling operations.

Part III describes the various reporting and withholding obligations imposed on gambling operators, casinos, and individuals. Generally, gambling proceeds are subject to 25 percent withholding if the amount exceeds $5,000 and is at least 300 times the amount wagered. In addition, proceeds from gambling are generally subject to information reporting if the amount exceeds $600 and is at least 300 times the amount wagered. Additionally, special rules applicable to certain types of gambling proceeds are discussed in this part.

Part IV provides an overview of the existing wagering and occupational taxes that are applicable to wagering in the United States. The excise tax imposed is 0.25 percent of a wager authorized under State law, and two percent of any unauthorized wager.

Part V summarizes the Federal tax and regulatory treatment of gaming of Indian tribes and Indian tribe members.

Part VI summarizes legislation pending in the United States Congress to license, regulate and tax Internet gambling activities.