Casinos call IRS tax reporting proposal 'complicated, onerous and unproductive'

When the Internal Revenue Service floated the idea of lowering the threshold for tax-reportable winnings from slot machines, the reaction from thousands of gamblers was a collective “Give us a break!”

At an IRS public hearing Wednesday, the comments were a bit more formal. But a handful of casino executives, industry officials and tribal representatives delivered much the same message.

Geoff Freeman, president and chief executive of the American Gaming Association, told a panel of IRS and Treasury Department officials the proposal is “far more complicated, onerous and unproductive” than the government may have understood.

Freeman said the change won’t necessarily bring in a lot more money to the government but it would create a big burden “for everyone involved, including the IRS.”

“The reduction in the reportable threshold could have a devastating effect on our business, and we strongly oppose the decrease,” added John Canham, vice president of casino operations at Hollywood Casino at Kansas Speedway, a property of Penn National Gaming.

The IRS has proposed lowering from $1,200 to $600 the amount at which casinos must report winnings for individuals who hit jackpots at slots and bingo, and must supply the winner with a W2-G tax form. The keno threshold presently at $1,500 also could be reduced.

The agency said the change would bring gaming in line with other industries where payments of $600 or more to individuals in a given year triggers a tax reporting requirement and a W2-G.

But David Bean, a councilman for the Puyallap Tribe that operates casinos in Tacoma, Wash., said if the agency’s idea was to simplify tax reporting, they got it all wrong.

“It’s as if these regulations were drafted in a vacuum by someone who has no idea about the gaming industry and how it operates,” Bean said.

When a slot machine hits a jackpot, it locks up until the required paperwork can be filled out and the device reset.

Canham said the number of lockups would increase 300 percent to 500 percent if the reportable payout is dropped to $600, with the delay costing the casino a dollar each minute the slot machine is out of service.

He said casinos would end up needing to add floor staff, who would be spending an increasing amount of their time attending to the machinery and jackpot transactions.

“The IRS would be flooded with these W-2Gs,” Canham said. “If the idea was not to increase paperwork this would not be the way to go.”

Greg Mullally, a gaming industry consultant, said the regulation may not be that big of a stretch.

“Most casinos that have high roller rooms are doing what they say they can’t do, right now,” Mullally said.

Gamblers who wager at a high stakes slot machine can routinely win payouts of $2,000 or more, but “The Bellagio doesn’t have a change girl sitting in that person’s lap giving him a W2-G every time they pull the handle,” he said. Rather the gambler logs in to a player tracking device to record the win and unlock the machine.

“Utilizing new technology it is possible to track every play by every player, every coin in, every coin out, every jackpot,” Mullally said. Coming soon, he added, are slot machines programmed to spit out W2-Gs automatically.

“It is possible to do what the IRS wants to do,” he said. “That technology is available where we can track the play. It is not something that is onerous or particularly expensive.”

Freeman, who spoke following Mullally, said the consultant’s view “fails to understand the casino marketplace in its current form.”

Utilizing electronic player tracking for tax purposes raises a host of red flags, Freeman said. Not the least of those is that many gamblers would reject the use of player loyalty cards – a key marketing tool for most casinos — if they thought they were being turned into tax collection devices.

“The customer would walk away,” Freeman said in an interview after the hearing. “This would have enormous implications not just for loyalty cards in the casino industry but in the broader hospitality industry – hotels, airlines and others.”

Freeman suggested to federal officials that if anything, electronic player tracking for taxes be made voluntary for casinos and their customers. Some gamblers might welcome an IRS-accepted accounting of amounts won and lost in calculating their annual tax returns.

Rochelle Hodes, a U.S. Treasury attorney listening to the testimony, asked what the response might be to such a voluntary reporting system.

“A small percentage of gamblers may participate,” Bean said. “I come across many gamblers. Some are excited to participate in these player reward tracking programs and some are like, ‘No, it’s my business. Don’t worry about what I gamble here.’”