Week in Insights: IRS Must Step Up Gambling Winnings Enforcement

It can be challenging to ensure tax compliance among gamblers, a group that is self-selected for being risk-tolerant. The IRS must prioritize compliance in this area to send the message that failing to report winnings is a losing bet.

To increase compliance, the IRS must make gambling winnings a near certain predictor of at least a correspondence audit and cursory review of the return. Gambling establishments send the IRS information on winners and payouts—that’s how a recent Treasury Inspector General for Tax Administration report was able to determine how much in winnings has gone unreported.

For the bulk of non-filers, enforcement is a matter of the IRS devoting resources to matching reported winnings to individual taxpayers. This outlay of resources would be substantial but necessary to keep up with the expanding gambling industry.

Currently, many taxpayers seem to be rolling the dice on not reporting their gambling winnings despite clear IRS requirements, the TIGTA report concluded late last month. In 2020, the last year for which public data is available, the IRS examined 0.2% of all individual income tax returns filed—it’s no wonder many gamblers take those odds.

The report revealed that the IRS hasn’t enforced tax filing for thousands of individuals who received Form W-2G, which is used to report substantial gambling winnings. TIGTA found that over 148,000 individuals who won more than $15,000 gambling from 2018 to 2020 didn’t file a return reflecting those winnings. This represents about $13.2 billion in unreported winnings, which contributed to the $688 billion annual tax gap during that time period.

Also, a significant portion of the gambling non-filers are high-income individuals, which would place their winnings in higher tax brackets and could mean as much as $1.4 billion in tax revenue has gone uncollected.

The report indicated the IRS has begun taking steps to address the issue, but enforcement remains inconsistent—especially in emergent gambling markets such as online sports betting.

—Andrew Leahey

Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined Amgen’s transfer pricing dispute, use of cryptocurrency for tax payments, and more.

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Insights

Retired Deloitte executive Bob Stack examines sources of global tax disagreements, noting that business and government mistrust can lead to poor policy.

Hofstra University’s Jack Castonguay examines the impact of the Supreme Court’s ruling in Jarkesy, saying new limits on SEC probes could affect investors and the auditing profession.

Dentons’ Rezan Ökten, Linda Pfatteicher, and Davy Schoorl offer lessons from an investor lawsuit against Amgen, noting that robust transfer pricing frameworks are more important than ever.

Attorney Andrew Gordon says the current crypto payment system is impractical and can be confusing for taxpayers to understand.

SMB Law Group’s Kevin Henderson and Eric Pacifici say working remotely helps retention, noting that it’s important to review compliance and tax policies.

Columnist Corner

Technically Speaking design by Jonathan Hurtarte/Bloomberg Tax

To fight theft of tax-refund checks, the IRS should offer EBT-style digital refund cards for taxpayers without bank accounts, allow refund check pickup at trusted sites, and offer an optional mobile app to track and manage refunds, Andrew Leahey argues in his latest Technically Speaking column.

The IRS could collaborate with community organizations, local nonprofits, and libraries to ease this transition, Andrew writes, adding that “a targeted education and awareness campaign would be essential to the widespread adoption of these new systems.” Read More

News Roundup

Corporate Jet Tax Breaks at Risk in IRS Probes of Personal Use

IRS agents are cracking down on personal use of corporate jets, in part because abusive deductions can signal that companies are taking much larger writeoffs upfront than they’re entitled to. Read More

EY’s Global Revenue Growth Slows With $51 Billion in Fees

Ernst & Young ’s global revenue climbed 3.9% last year in local currency, the firm announced Thursday, representing a steep decline from double-digit growth the accounting and consulting giant booked the previous year. Read More

Italy and France Seek to Hike, Broaden Digital Service Taxes

Italy and France proposed changes to their digital services taxes in their budget processes, potentially increasing the burden on digital companies amid a stalled project at the OECD that would eliminate the use of the levy. Read More

NYC Sweetens Green Roof Incentive After Decade of Disappointment

New York City wants more “green roofs” on office and apartment buildings, and hopes a sweetened tax incentive will increase the disappointing number that have been installed since the credit was created nearly 16 years ago. Read More

Tax Management International Journal

Differing approaches to financial segmentation between taxpayers and governments may cause wildly different Amount B returns, or a different conclusion on being in-scope at all, so documentation of reasonable allocation standards is key to avoiding government rebuttals, say Baker McKenzie’s Andrew O’Brien-Penney, Alejandro Zavala-Rosas, Imke Gerdes, and Shane Koball.

The IRS has staked out its position on Section 246(b) disallowing some of a taxpayer’s FDII and GILTI deductions in GLAM 2024-002, but the statute is poorly drafted and courts will need to weigh in to resolve open issues, say Baker McKenzie’s John Barlow, Ethan Kroll, and Samuel Pollack.

Tax Management Memorandum

Kathryn J. Kennedy, former professor of law at the University of Illinois, analyzes new IRS regulations affecting retirement plan participants and beneficiaries in the first of a two-part article series.

Career Moves

Joshua Husbands was named executive partner of Holland & Knight’s Portland, Ore., office.

Jenny Speck joined Vinson & Elkins as a partner in its energy transition and tax practices in Houston.

John Robert joined Polsinelli as a shareholder in its tax practice group in Washington.

Amy Earing joined Bond, Schoeneck & King as a member in its trust and estate practice group in New York.

If you’re changing jobs or being promoted, send your submission to TaxMoves@bloombergindustry.com for consideration.