EDITORIAL: IRS should back off bid to tax more casino winnings

The IRS is determined to make the casino business as burdensome as possible. It’s not enough that claiming gambling losses on individual tax returns invites an audit. And it’s not enough that IRS agents have put increasing pressure on casinos to report “suspicious activity” by customers. What qualifies as “suspicious activity”? Criticism of the IRS, of course.

The agency will get a lot more of that if a proposed regulation change is approved. This month, the IRS suggested reducing the reporting threshold for slot, keno and bingo winnings to $600. Under current IRS regulations, a casino must report payouts of $1,200 or more on a slot machine jackpot or a bingo game and winnings of $1,500 on a game of keno.

Reporting casino winnings to the IRS is a costly, time-consuming process. It ties up casino employees and customers. And slots that pay out jackpots of $1,200 or more lock up until the reporting process is complete and the machine can be reset. A lower reporting standard would increase slot machine down time. Casino payouts of between $600 and $1,200 are so common, the Review-Journal’s Howard Stutz reported this month, that a Wall Street gaming analyst estimates the rule change would lead to $530,000 in losses per casino, per year.

“While $530,000 per casino is not game changing, the impact on a portfolio of 20 to 30 casinos begins to add up,” Credit Suisse gaming analyst Joel Simkins wrote.

Moreover, the lower reporting threshold will prove such a nuisance to regular gamblers that they likely will gamble less, Mr. Simkins observed. And that will have a negative effect on not only casinos, but state tax collections as well.

Oh, those pesky unintended consequences.

The amount of new federal tax revenue the IRS would collect as a result of this change would pale in comparison to the economic harm it would cause across the country. If anything, the IRS should increase the reporting threshold for casino winnings, which hasn’t been adjusted since 1977. At that time, the casino industry didn’t exist outside Nevada.

“The gaming industry already partners extensively with the IRS and other agencies to facilitate collection of taxation as well to prevent money laundering and other potentially illicit activities,” Rep. Dina Titus, D-Nev., wrote in a letter to the agency.

The IRS will accept comments on the proposal through June 2 and may hold a public hearing on the issue June 17. The agency subjects casinos and gamblers to enough scrutiny already. It should back off this overly intrusive idea and leave small casino winnings alone.