Casinos, gamblers lash out at proposed IRS rules on winnings

The state’s top gambling regulator wrote a letter to the tribe chairman Monday asking for a meeting where tribal leaders are expected to give state officials a timeline for closing down blackjack tables.
The state’s top gambling regulator wrote a letter to the tribe chairman Monday asking for a meeting where tribal leaders are expected to give state officials a timeline for closing down blackjack tables. Getty Images

South Florida casinos and their customers are seething over an Internal Revenue Service proposal for more stringent reporting of winnings that they say will generate reams of paperwork, slow the pace of play and take a big bite out of their jackpots.

“As an industry, we think it’s an awful rule,” said Isadore Havenick, vice president for political affairs at Miami’s Magic City Casino. “All the gamblers think it’s an awful rule. We had a patron in today, politically very liberal, always arguing with everybody, and he said, ‘Finally Washington has found something that unifies everybody. Everybody hates this.’”

The proposed rule would chop the level of slot-machine and bingo jackpot winnings that casinos must report to the IRS from $1,200 to $600. And it would allow the IRS to track the winnings of individual gamblers through the preferred-customer cards that casinos now issue to virtually all their regular patrons.

The ruckus over the proposed rule has been steadily growing since March and reached a crescendo this week as the period for public comment ended. Virtually every gambling industry group filed official protests with the IRS, along with more than 13,000 individual gamblers who complained to the agency or signed petitions opposing the rule. Seventeen congressmen and senators, including U.S. Reps. Frederica Wilson, D-Miami Gardens, and Alcee Hastings, D-West Delray, sent the IRS a letter protesting the proposed rule.

“In line with almost everybody in the industry, we believe the proposed change will have an extremely negative impact on the tribe’s casinos and their customers,” said Seminole Tribe spokesman Gary Bitner. The tribe operates 11,000 slot machines and several bingo venues at its seven casinos across Florida, including three of the dozen in Miami-Dade and Broward that have slots.

The rule must still pass a series of hurdles, including a public hearing in Washington on June 17. Gambling industry officials say they expect a decision from the IRS by the end of the year.

Technically, gamblers have to declare all their winnings on their income-tax returns. Pragmatically speaking, though, the IRS usually only hears about winnings when the casinos report them on an official form required when one of their customers hits a slot-machine or bingo jackpot of $1,200 or more. (Bets at parimutuel racetracks on winning horses or dogs are governed by a different rule, which requires casino reporting only when a bet pays off at odds of 300 to 1, while card-game winnings aren’t reported at all.)

Casino operators say compiling the reports is onerous and expensive. A slot machine that pays off a jackpot that size immediately locks up until the winner provides identification and the payout is fully documented, which often takes up to a half hour. When staff time and the revenue loss from taking a machine and a gambler out of action are added up, the Wall Street firm Credit Suisse estimated earlier this year, the new rule could cost a casino $530,000 a year.

“We haven’t ever figured out what it costs us each time we have to do a report,” said Havenick. “But we know it’s expensive — expensive enough that we put a priority on getting it done in 10 minutes or less. … We figure this will triple our paperwork, because a lot of jackpots fall into that $600 to $1,200 range.”

Which is why gamblers hate the proposed rule even more than casinos, he added.

“They just think the government is going to take a lot more money from them,” Havenick said. “Nobody’s gonna say it publicly, but most people just feel they ought to get to keep a jackpot under $1,200.”

Almost as controversial is another part of the proposed rule that would allow the government access to records on the industry’s popular customer reward cards, which are inserted into slot machines while a gambler plays. The cards award frequent gamblers points that can be exchanged for meals, gifts and hotel stays, similar to airline frequent-flyer miles.

The cards also record wins and losses, which the IRS wants to track in order to collect taxes.

“There’s not another industry in America in which the IRS uses a customer-loyalty program to collect taxes,” said Chris Moyer, a spokesman for the American Gaming Association, the industry’s largest trade association. “This is just an unprecedented step.”

Many industry officials are pessimistic about the chances of derailing the IRS proposal, but Havenick has a sunnier view, sort of. “They can’t get anything done in Washington, so I doubt if they’ll get this done, either.”

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