IRS Approves Final Regulations on Gambling Withholding

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September 28, 2017

The IRS has finalized regulations under section 3402(q) simplifying the withholding regime applicable to certain gambling winnings, which were issued in proposed form in December 2016 (prior coverage here).  The IRS issued the regulations in response to complaints about the withholding system previously applicable to horse races, dog races, and jai alai.  Commenters explained that newer methods of gambling on such events often caused the amount withheld to exceed the actual tax liability.  The key change made by the regulations relates to the method of calculating the amount of the wager in the case of parimutuel wagers, a type of bet that differs from the typical straight wager.  Under the new rules, all wagers placed in a single parimutuel pool and represented on a single ticket are permitted to be aggregated and treated as a single wager.  One point clarified in the preamble to the final regulations is that electronic bettors may aggregate wagers made at different times, so long as the wagers are represented on a single electronic record.  To allow industry participants time to update their systems to accommodate the new rules and seek any necessary state regulatory approval, the final regulations will take effect 45 days from the date of publication.