Are You Feeling Lucky? IRS Taxes on Wagers and Bookmakers
By Joel N. Crouch on July 27, 2021
-
Joel N. Crouch
View Bio
These days it seems like the government taxes everything it can. While it is debatable whether or not that is true, there are a number of “hidden” taxes of which many taxpayers are unaware. Taxes on wagers and occupational taxes on bookmakers are a couple of those “hidden” taxes. Although the casinos in Las Vegas know about and pay these taxes, illegal bookmakers may not be and could be facing significant tax liabilities as a result.
Chapter 35 of the Internal Revenue Code addresses taxes on wagering. Pursuant to IRC Section 4401 any person who is engaged in the business of accepting wagers, legal or illegal, is liable for and must pay an excise tax on all wagers. Legal wagers, i.e. those authorized under state law, are subject to an excise tax rate of .25%. Illegal wagers are subject to an excise tax rate of 2%. Every month, bookmakers, legal or illegal, are required to file a Form 730, Monthly Tax Return for Wagers, reporting the gross amount of wagers accepted during the month and the gross amount of laid-off wagers and pay the resulting tax. A “laid-off” wager is when a bookmaker places a wager with another bookmaker in order to help reduce the liability on a certain game or to simply balance out the action.
In addition to filing a monthly Form 730 and paying excise tax on wagers, bookmakers must file an annual Form 11-C, Occupational Tax and Registration Return for Wagering. If all wagers are authorized under the laws of the state in which they are accepted, the occupational tax is $50. If any wagers are not authorized by state law, the occupational tax is $500. The tax is payable for the period that begins July 1 of each year and is prorated for the first year if the bookmaker begins accepting wagers after July 31.
Not surprisingly, in my practice I have found that bookies who are accepting illegal wagers either do not know about or ignore the forms they are required to file and the wagering tax and occupational tax they are required to pay. Let’s face it, anyone who is operating an illegal bookmaking operation would be hesitant to tell the IRS, a government agency, about the illegal betting operation. The concern is that the information could be used against the bookmaker in a non-tax criminal proceeding. The IRS recognizes the concerns of illegal bookmakers and in order to entice them to comply, the IRS claims it will not share the information it receives with any law enforcement agencies, other than for tax purposes.
A bookmaker who fails to file the forms and pay the taxes could face significant tax, penalties and interest. The Internal Revenue Code provides penalties for filing a return late, paying taxes late, failing to file a return, negligence, and even civil fraud. These civil penalties range from 20% for negligence up to 75% for civil fraud. The IRS may also pursue criminal penalties in egregious cases, which can result in incarceration. Although the IRS has a three year statute of limitations for imposing tax, penalties and interest, if a tax return is not filed, the three year rule does not apply. In those situations, there is not a statute of limitations and a non-compliant bookmaker could be looking at six years or more of delinquent tax, penalties and significant interest.
So the question for bookmakers is “How lucky are you feeling?” Any bookmaker who has not been complying with the tax laws regarding wagers should consult with an tax attorney about options for addressing the noncompliance before being contacted by the IRS.
For questions regarding this blog post or any other civil or criminal tax related matter, please feel free to contact Joel Crouch at (214) 749-2456 or jcrouch@meadowscollier.com.
Chapter 35 of the Internal Revenue Code addresses taxes on wagering. Pursuant to IRC Section 4401 any person who is engaged in the business of accepting wagers, legal or illegal, is liable for and must pay an excise tax on all wagers. Legal wagers, i.e. those authorized under state law, are subject to an excise tax rate of .25%. Illegal wagers are subject to an excise tax rate of 2%. Every month, bookmakers, legal or illegal, are required to file a Form 730, Monthly Tax Return for Wagers, reporting the gross amount of wagers accepted during the month and the gross amount of laid-off wagers and pay the resulting tax. A “laid-off” wager is when a bookmaker places a wager with another bookmaker in order to help reduce the liability on a certain game or to simply balance out the action.
In addition to filing a monthly Form 730 and paying excise tax on wagers, bookmakers must file an annual Form 11-C, Occupational Tax and Registration Return for Wagering. If all wagers are authorized under the laws of the state in which they are accepted, the occupational tax is $50. If any wagers are not authorized by state law, the occupational tax is $500. The tax is payable for the period that begins July 1 of each year and is prorated for the first year if the bookmaker begins accepting wagers after July 31.
Not surprisingly, in my practice I have found that bookies who are accepting illegal wagers either do not know about or ignore the forms they are required to file and the wagering tax and occupational tax they are required to pay. Let’s face it, anyone who is operating an illegal bookmaking operation would be hesitant to tell the IRS, a government agency, about the illegal betting operation. The concern is that the information could be used against the bookmaker in a non-tax criminal proceeding. The IRS recognizes the concerns of illegal bookmakers and in order to entice them to comply, the IRS claims it will not share the information it receives with any law enforcement agencies, other than for tax purposes.
A bookmaker who fails to file the forms and pay the taxes could face significant tax, penalties and interest. The Internal Revenue Code provides penalties for filing a return late, paying taxes late, failing to file a return, negligence, and even civil fraud. These civil penalties range from 20% for negligence up to 75% for civil fraud. The IRS may also pursue criminal penalties in egregious cases, which can result in incarceration. Although the IRS has a three year statute of limitations for imposing tax, penalties and interest, if a tax return is not filed, the three year rule does not apply. In those situations, there is not a statute of limitations and a non-compliant bookmaker could be looking at six years or more of delinquent tax, penalties and significant interest.
So the question for bookmakers is “How lucky are you feeling?” Any bookmaker who has not been complying with the tax laws regarding wagers should consult with an tax attorney about options for addressing the noncompliance before being contacted by the IRS.
For questions regarding this blog post or any other civil or criminal tax related matter, please feel free to contact Joel Crouch at (214) 749-2456 or jcrouch@meadowscollier.com.
