Waldrop pitches tax changes before panel

Alex Waldrop, the president of the National Thoroughbred Racing Association, appeared before a panel of Treasury and IRS officials on Wednesday to deliver testimony in support of proposed tax-rule changes that would benefit horseplayers. According to the NTRA, Waldrop cited “outdated, unfair, and overly burdensome” regulations in his testimony.

Waldrop’s presentation strayed little from points made by the NTRA in a petition effort that eventually resulted in 11,000 signatures in support of the changes, according to a copy of the testimony provided by the NTRA. However, Waldrop did point to the results from this year’s Kentucky Derby to argue for the changes, contending that many horseplayers who cashed the winning superfecta, which paid $634.10 for a $2 bet, likely had their earnings reported to the IRS even though the total cost of their wagers did not come close to approaching the 300-1 trigger for reporting.

Waldrop also displayed a side-by-side comparison of the wagering pools for the 2015 Kentucky Derby and the 1978 Kentucky Derby to illustrate the growth in exotic wagering over the past four decades. The 2015 Derby had 23 wagering pools leading into it, while the 1978 Derby had three: win, place, and show. The NTRA has argued that the current tax rules are outdated in an era when the majority of bets are placed in exotic pools.

The current rules, which require reporting any winnings at greater than 300-1 odds and require automatic withholding for any payout in excess of $5,000 at greater than 300-1 odds, went into effect in 1978. The proposed change would allow horseplayers to use the total amount wagered in a pool to determine reporting and withholding requirements, which would significantly cut into horseplayers’ tax liabilities. For example, if a player bet $64 on the Derby superfecta, reporting requirements would not be triggered unless the bet paid off at greater than 19,200-1.

“It is the position of the entire horse breeding and racing industry that the Treasury regulations need to be modernized to ensure that both the withholding and reporting of winning parimutuel wagers accurately and fairly reflect the realities of wagering in the 21st century,” Waldrop said, according to a copy of the remarks.

Waldrop said only one question was asked by a panelist after his presentation. The question, asked after Waldrop displayed the comparison between the pools for the 2015 Derby and the 1978 Derby, asked whether individual pools are regulated, and Waldrop responded by outlining the layers of state regulatory oversight of parimutuel betting, he said.

Waldrop was one of five gambling-industry officials to appear on the panel, but he was the only panelist representing the racing industry. The other four appeared to offer testimony on separate tax-law changes affecting keno, bingo, and slot-machine winnings. The tax-rule changes regarding winnings for casino-type games have emerged as being far more controversial than the parimutuel changes.

If Treasury and the IRS agree to change the rules, the departments will formally write a new rule. The rule then will be posted for public comment before consideration of final approval.

The NTRA approached Treasury last year about changing the rules after unsuccessfully pressing for legislation over the previous five years that would have enacted the changes. The current effort has been the NTRA’s top regulatory priority for the past year.

“I think they’re thinking positively about the changes, but it’s still very early in the process,” Waldrop said after the hearing. “We don’t really know what’s going to happen next. This is an entirely discretionary process for Treasury, and the good news about that is that we can hopefully avoid the bottleneck of legislation in the Congress.”