Horse, Dog & Sports Bettor-Friendly Tax Regs Nearing Reality


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A framework of new horseplayer-friendly tax regulations that were jointly proposed by the United States Department of the Treasury and the Internal Revenue Service (IRS) on Dec. 29 could go into effect as early as April if the 31-page set of rules makes it unscathed through a 90-day public comment period.

The new regulations, titled “Withholding on Payments of Certain Gambling Winnings,” are designed to ease the burden of federal tax reporting and withholding requirements related to pari-mutuel betting.

For the better part of a decade, but most emphatically in the past two years, the National Thoroughbred Racing Association (NTRA) has lobbied hard at the federal level for such changes while recruiting a grass-roots corps of horseplayers to support the cause.

“We are going to be working over the next few days to make certain we have everything in the rule that we asked for,” NTRA President and Chief Executive Officer Alex Waldrop told TDN in a Thursday phone interview. “We think it’s there, and we will be coordinating a consistent response to the IRS and Treasury, essentially thanking them for listening to us and providing relief for the industry in the form of modernized withholding and reporting.”

According to an NTRA statement, “the proposed regulations will positively impact a significant percentage of winning wagers, particularly those involving multi-horse or multi-race exotic wagers, and result in tens of millions of dollars in additional pari-mutuel churn.”

The NTRA has long lobbied for changes to IRS code section 3402(q)(3)(c). It requires federal tax withholding if winnings of more than $5,000 are derived from bets at the reporting level, which is 300 times as large as the base amount wagered.

That rule is unfair, the NTRA has argued, because it was conceived in an era when the daily double was the industry’s most exotic bet. Horseplayers have likewise bemoaned that this standard for reporting is outdated, because these days, withholding- and reporting-triggering scores are increasingly comprised of a complex array of horizontal and vertical bets that by their very nature end up producing numerous losing wagers on the same ticket that don’t count as losses for tax purposes.

An “Explanation of Provisions” section of the proposed new regulations addresses those concerns.

“The increase in exotic betting, and in particular the use of certain methods of exotic betting, has resulted in scenarios where [the outdated] rules may result in withholding that significantly exceeds the individual gambler’s ultimate income tax liability,” the Treasury/IRS document explains. “In light of this, the proposed regulations amend the rules regarding how payers determine the amount of the wager in pari-mutuel wagering transactions… by providing a new rule to determine the amount of the wager when wagers are placed in a single pari-mutuel pool and are reflected on a single ticket.”

After years of stalled efforts to reform tax rules, the NTRA embarked upon a strategy shift in January 2015. Instead of continuing to ask for federal legislative changes to withholding and reporting, the organization decided to go straight to the Treasury, which has the power to re-interpret the tax code without changing it.

“We believe the strategy that we undertook of enlisting the support of key lawmakers…to get the attention of staffers in the Treasury department who understood our issues,” was the big breakthrough in getting the new regulations to the brink of passage, Waldrop said.

When asked if the NTRA was aware of any entities that would try to block or oppose the proposal, Waldrop said, “not that we are aware of. No one emerged in 2015 when we went through the original comment period, so we don’t anticipate any opposition.”

That original public input period drew some 12,000 comments, many of which were written by supportive horseplayers who spoke up via an online submission portal. In the coming days, the NTRA will again be getting the word out to bettors about how to submit comments for this close-to-final rules package.

Waldrop said “depending on how [the comment period] goes, if there are no objections to the rule, it could become law in as quickly as 90 days.”

Waldrop was quick to credit numerous legislators involved in the plan, but he added “it was also horseplayers” who helped to push the tax initiative to its present point.

“It was the thousands of people who submitted positive comments to the changes that we proposed.” Waldrop said. “As they say, ‘Victory has a thousand fathers.’”

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