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It's tax time and this is one of our most frequently asked questions about the IRS vis-a-vis gambling.
The IRS regulation that slot and video poker machines go into what's known as “IRS lockdown” was imposed in 1977. Being 47 years old, it's pretty well known. In all that time, it has never been revised, even though $1,200 in 1977 would be around $5,000 today in inflation-adjusted dollars. Hence, the desire of interested parties to raise the reporting threshold to $5K.
In 2015, the IRS proposed some new regulations about how it wanted to treat casino-machine gambling wins. But instead of raising the amount that would trigger a W-2G from the old '70s amount of $1,200 by applying inflation indexing, Revenue proposed to lower that figure to $600. Believe it or not.
When the proposed new IRS regulation came out, the casino world reacted with an uproar. It was a rare occasion when the entire gambling universe, from the giant casino corporations and tribal casinos down to penny slot players, united to oppose the plan.
Since then, modernizing the threshold remains a priority issue for the American Gaming Association, the lobbying arm of the casino industry. They've addressed the Treasury Department directly and enlisted support from allies on Capitol Hill to encourage a regulatory change.
The AGA isn't going it alone. Casino companies are also lobbying their constituent lawmakers.
In addition, Nevada Representative Dina Titus began pushing for IRS-lockdown reform in 2015 and didn't let up in the subsequent congressional sessions. She was joined by Nevada's other representatives along the way. Nothing happened and we do mean nothing.
Then, coincidentally as we were preparing this QoD and as the second question states, it was reported that the IRS' own Advisory Council (IRSAC) issued an opinion last November and officially announced on February 15 that the threshold should be changed.
To what? No, not the $600 the IRS proposed, not $2,000, $3,000, or even the $5,000 that the AGA and the Nevada caucus have asked for, but -- are you sitting down? -- $5,800. That number is based on current accounting for inflation; the Council also suggested that the threshold could be increased again based on cost-of-living adjustments each year.
We tried to find information on whether the IRS acts on IRSAC recommendations, but came up empty. We note that the Council consists of a couple of dozen volunteers from the tax industry -- lawyers, CPAs, enrolled agents, certified public accountants -- and other interested parties, such as state revenue officials, law and accounting academics, taxpayer advocates, etc. So we can't comment on the likelihood of the IRS reaction to the recommendation.
That said, this development is so recent that the IRS hasn't issued any comment on it and frankly, we're not holding our breath waiting for it to do so. But as the second question notes, this cause has suddenly, after all these years, started to heat up.
Reportedly, recent commissioners of the IRS have been reticent to take unilateral regulatory action, since various bills have been proposed in Congress. But now, with the Advisory Council recommendation, the current commissioner is being "encouraged" by the gambling lobby to raise the threshold.