IRS to ramp up gambling winnings tax enforcement

A federal watchdog has found that the Internal Revenue Service (IRS) is failing to collect over a billion dollars in taxes from unreported gambling winnings.

According to a Treasury Inspector General report released on 30 September, nearly 149,000 individuals who received gambling winnings exceeding $15,000 between 2018 and 2020 failed to file tax returns, representing approximately $13.2bn in unreported winnings.

The IRS’s preliminary analysis suggests it could recover about $1.4bn in tax revenue by addressing these cases.

The report comes amid rapid growth in the US gambling industry, which reached a record $60.5bn in revenue during 2022, driven by the post-2018 online sports betting boom.

The report said: “The IRS has not enforced income tax return filing requirements for recipients of millions of Forms W-2G, Certain Gambling Winnings, reporting billions of dollars in gambling winnings.

“In addition, hundreds of Forms W-2G do not include a Taxpayer Identification Number required 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.”

Watchdog recommends corrective action

The watchdog recommended five corrective actions, including immediate enforcement against non-filers and expanding tracking codes to specifically include sports betting.

While the IRS agreed to begin enforcement actions and conduct an environmental scan of the sports betting industry, it pushed back on some recommendations, including analysing forms with missing taxpayer identification numbers.

The findings come as the IRS faces increased scrutiny over tax enforcement, particularly regarding high-income non-filers.

A previous Inspector General report found that the agency failed to pursue over 800,000 high-income non-filers between 2014 and 2016.

The agency recently received $79.4bn in supplemental funding through the Inflation Reduction Act, potentially providing resources to address such compliance gaps.

Under current law, wilful failure to file a tax return is punishable by fines of up to $25,000 for individuals, $100,000 for corporations, and imprisonment of up to one year.

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