The Las Vegas Sun reports today that the American Gaming Association and the IRS reached agreement that for poker tournaments if a casino/cardroom issues W-2Gs, then withholding at 25% will not be required on wins above $5,000.
>From the IRS’s point of view, poker tournaments have been seen as a part of the “Tax Gap.” Players win, but because few W-2Gs are issued, the IRS hasn’t been collecting its fair share. The goal in writing Revenue Procedure 2007-57 was to increase reporting.
It is my understanding that for a casino to not have to withhold, they will have to agree to abide by the Binion’s closing agreement. (Many years ago, Binion’s Horseshoe Casino and the IRS reached an agreement stating that they would issue W-2Gs on all gross wins of $600 or more, and that the IRS agreed not to require withholding except where the win was at least 300 times the buy-in.) However, casinos that do not agree to this rule will have to withhold 25% of payouts on wins of $5,000 or more.
Withholding will still be required on wins where the payout is 300 times (or more) of the buy-in (this impacts very few poker tournaments), and for non-US citizens where withholding is required either by tax treaty or by other regulations/rules.
While I still think that no withholding is required, and that Revenue Procedure 2007-57 is wrong, I do understand the IRS’ motivation. It is very clear that many poker players do not report gambling winnings correctly. (Of course, the fact that gamblers are not well treated under the US Tax Code has something to do with that, too.) Given that no casino wants to get into a battle with the IRS, this outcome was probably the best that could be hoped for.