Federal authorities consider changing parimutuel tax rules

Federal tax authorities have issued a notice saying that they intend to consider changes to the tax laws that are applied to parimutuel winnings, a step that could lead to a steep drop in the tax liabilities for horseplayers.

The Treasury Department and the Internal Revenue Service on Tuesday issued a Notice of Proposed Rulemaking and Public Hearing announcing the consideration. The notice states that the two agencies expect to take public comments about changes to the reporting and withholding requirements for parimutuel winnings through June 1.

The announcement of the consideration is a partial victory for the National Thoroughbred Racing Association, an industry-funded group that has been lobbying legislators since last summer to pressure Treasury into a reconsideration of the tax rules. The NTRA adopted the tactic of going directly to Treasury after legislative efforts to change the tax laws were stymied by critics who contended that the changes would amount to windfalls for horseplayers.

The changes being sought by the NTRA would allow horseplayers to combine the total amount of money bet into a single pool for the purposes of calculating whether withholding or tax-reporting requirements are triggered. Under the current rule, the denomination of the winning bet, which is often the minimum, is used to calculate the requirements.

The current policy triggers a tax-reporting notification to the IRS when a player cashes a ticket at greater than 300-1 odds, using the denomination of the wager. Automatic withholding is triggered when the payoff is both at greater than 300-1 odds and in excess of $5,000, also based on the denomination of the winning ticket.

Under the change sought by the NTRA, a player who bet $200 into a pick four pool and cashed a single $1 ticket would be able to use the $200 total wager to calculate whether the reporting requirements were triggered. Officials who support the change say that it could lead to a significant increase in churn while returning far more of the industry’s largest payoffs into the pockets of horseplayers.

Racing lobbyists have argued that the current system is archaic and does not reflect the growth in wagering in exotic and superexotic pools over the past several decades. The officials also have argued that other gambling winnings are not “subject to such aggressive tax treatment,” according to a release distributed Wednesday by the NTRA.

The NTRA is expected to launch a publicity campaign in the coming weeks to encourage racing-industry participants to submit comments in favor of the change. The group had earlier organized a petition effort calling on Treasury to reconsider the tax treatment of parimutuel winnings. The effort resulted in 8,000 signatures to the petition.