As sports betting continues to grow across the United States, fueled by the Supreme Court’s 2018 decision to lift the nationwide ban, the thrill of winning could soon be tempered by a reminder: the taxman is watching. A new report reveals that the federal government has missed out on a staggering $1.5 billion in unpaid taxes from sports bettors since the legalization of wagering beyond Nevada, prompting the IRS to take action.

The Treasury Inspector General for Tax Administration (TIGTA) released the report highlighting that nearly 150,000 individuals, each with gambling winnings exceeding $15,000, failed to file tax returns between 2018 and 2020. These unreported winnings total about $13.2 billion, raising alarms within the IRS and setting the stage for potential enforcement actions.

Winnings But No Taxes

The report outlines that 148,908 bettors were issued Forms W-2G, used to report gambling winnings, yet failed to file the appropriate tax returns. Despite the significant sums involved, the IRS did not notify about two-thirds of those non-filers, missing an opportunity to recoup billions in unpaid taxes. The Inspector General pointed to deficiencies in the IRS’s ability to track and address noncompliance among sports betting operators and winners.

“These non-filers were associated with approximately $13.2 billion in total gambling winnings,” the TIGTA report noted, underscoring the sheer scale of the potential tax gap.

What’s Next for Bettors? IRS Steps Up Enforcement

The report doesn’t just highlight a missed opportunity but also proposes steps to correct the oversight and recover some of the lost revenue. Some of the key recommendations include:

• Analyzing Tax Identification Numbers (TINs): This would help the IRS identify noncompliant betting operators and individuals.
• Expanding wager codes: Currently, there are limited codes to identify types of gambling on tax filings. Expanding these codes could help the IRS track sports betting more effectively.
• Scanning the sports betting industry: A broader review of the industry could provide insight into existing and emerging compliance challenges, particularly as online and mobile betting continues to grow.

The IRS agreed with most of these recommendations and plans to ramp up enforcement for unfiled tax returns from 2018 to 2020. This includes notifying individuals who may have missed reporting their winnings and scanning the sports betting industry for further tax evasion.

However, the IRS pushed back on one recommendation: analyzing Forms W-2G that lacked TINs to track down potential noncompliant operators, citing feasibility concerns. They also partially agreed on expanding wager codes, suggesting that further evaluation was needed before implementation.

A Growing Challenge for Regulators

As sports betting and online gambling become increasingly mainstream, tax compliance is becoming an area of heightened focus for regulators. Legalization of online gaming and sports betting has led to massive state-level tax revenues, but the federal government is now looking to ensure its share of the pie isn’t lost amid the betting boom.

While many casual bettors may not think twice about reporting their winnings, large sums from major sports betting payouts can quickly draw the attention of the IRS. The agency’s renewed focus means that bettors who have enjoyed big wins without filing taxes may soon face enforcement actions.

What Should Bettors Do?

For those who have scored substantial wins over the last few years, it’s essential to understand the tax implications of gambling income. The IRS classifies all gambling winnings as taxable income, whether from sports betting, casino play, or daily fantasy sports. Even if a Form W-2G isn’t issued, bettors are responsible for reporting their winnings.

Failing to file taxes on gambling income could lead to penalties, interest, and even audits. With the IRS now eyeing potential gaps in tax compliance across the sports betting industry, it’s clear that unreported winnings may soon become a thing of the past.

Final Thoughts

As the IRS steps up its scrutiny of sports betting and gambling, the days of casually pocketing large payouts without a second thought may be over. With billions at stake, the government is ramping up efforts to ensure tax compliance across the booming sports betting industry. For bettors, the message is clear: if you’re raking in big winnings, it’s time to start keeping an eye on Uncle Sam.

This entry was posted on Thursday, October 10th, 2024 at 10:24 am and is filed under Gambling News. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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