Undeclared Gambling Wins Tax Audit By Treasury Claims Feds Owed $1.4B

The Internal Revenue Service says it is planning on enforcement action for some $1.4 billion of alleged unpaid taxes on gambling winnings, as revealed by a recent U.S. Treasury audit. 

The federal audit was conducted by the Treasury Inspector General for Tax Administration. It was published on September 30, and late last week, the IRS responded. 

The report found that gamblers filling out W-2G forms may have been responsible for not accounting for up to $13 billion in gambling winnings. The IRS could demand $1.4 billion from that total. 

The IRS disputed some of the Treasury findings, but agreed it would take action on others. Reportedly, some regular gamblers known to the IRS have already been issued payment notices, although many have disputed that they owe anything. 

“The IRS has not enforced income tax return filing requirements for recipients of millions of Forms W-2G reporting billions of dollars in gambling winnings,” said the report’s conclusion.

“In addition, hundreds of Forms W-2G do not include a TIN (Taxpayer Identification Number) needed to trace the income to the recipient. Finally, the IRS has few processes in place to identify potential excise tax noncompliance by entities accepting wagers, particularly in emerging areas such as online sports wagering.”

The Report

Currently, any gambler who hits a jackpot over $1,200 needs to fill out a federal W-2G tax form. This process has long been targeted for reform by a few politicians in Washington, D.C., but is not considered a priority outside of states like Nevada, which have large gambling sectors. 

The IRS agreed with this recent audit, which found that some 150,000 Americans each had more than $15,000 in undeclared winnings. It said it would begin the process of chasing many of them. 

The auditors also said that hundreds of people had filed incorrect or incomplete W2-G forms, so they could not be chased by the IRS.

However, the tax authority disagreed on this point. It said that the number of incorrectly filed W-2G forms were negligible, and did not add up to a significant sum that was worth chasing. 

Lastly, the Treasury audit found that the W2-G forms have not been updated to represent the expansion of legal sports betting across most U.S. states since 2018. 

“However, the Form W-2G has not evolved with the growth of the gambling industry. For example, the wager codes on Form W-2G include only nine specific types of gambling activities, which do not include a wager code for sports betting,” the audit said. 

“If there was a wager code specifically for sports betting, the IRS could use this information to identify potential nonfilers and underreporters of excise tax related to these gambling activities.”

The Gamblers 

As people began getting enforcement notices from the IRS, one high-profile gambler publicly disputed that they owed anything. 

Because gambling taxes on winnings are allowed to be deducted from losses, gamblers who hit a jackpot win after a losing streak often don’t bother sending off the forms. The win counts as part of a larger session, which may have resulted in a profit – but could equally have been a loser or broke even. 

Either way, that outcome might not be reflected by the one big reported win. Casinos have to file the forms, resulting in the discrepancy of gamblers that this audit says didn’t file wins on their end and may owe money. 

One Las Vegas-based casino blogger, Scott Roeben of Vital Vegas, says the IRS has sent him a form claiming he owes them taxes on $100,000 of unreported wins. But Roeben says he did file them in his tax return for 2022. 

“I filed everything properly,” he said. “I just had a large number of jackpots, so that triggered the audit, presumably.”

“This is making people jump through hoops, spend money on tax professionals to help with their audits, and reconsider a pursuit they enjoy. Jackpots are far from the entire picture when it comes to gambling.”