IRS gaming proposal creates hubbub that ignores privacy concerns

The IRS has proposed several changes to the reporting requirements around bingo, keno and slots gambling, including:

• Reducing the threshold for jackpots from $1200 to $600
• New rules for determining the reporting threshold for electronic slot machine play
• Redefining a “single session" of play
• The potential use of player loyalty card information by the IRS

The first change which would reduce the reporting threshold from $1200 to $600 has received the most attention. The slot jackpot threshold of $1200 was created in the 1970s, so many are saying that the threshold should instead reflect inflation which would make it close to $5000 in today’s dollars. Operators contend that the reduced threshold would be onerous, as they would need to have more staff available to handle the paperwork. Players claim that the lowered threshold would push them away from slots. These arguments have merit, but response to this proposal distracted from other issues (one Bloomberg article said comment letters have read like a “Contentious Reddit Thread”). And the IRS is only proposing that the possibility to reduce the threshold be open for future consideration. There are far more alarming issues to consider in the IRS proposal.

Those alarm bells begin to sound with the proposed redefined of a “single session” of electronic slot machine play. This would require reporting on any electronically-tracked slot machines of any jackpot over $1200 if wins within that single session exceed $1200 (with the potential to reduce the threshold to $600). The “single session” would be defined as the time within a calendar day (defined as midnight from one night to the next), from the moment a player places her first bet on a particular type of game until her last within one facility.

In plain English – the slots will track spending for a 24-hour period. If there is a jackpot of $1200 AND total wins exceed $1200, the player will get a W-2G. This proposal actually begins to look almost player-friendly by allowing players to subtract losses from wins. However, the IRS is still proposing a potentially reduced threshold fro $1200 to $600 for both jackpot and single session -- if this happens, it will increase reporting, in addition to mass confusion about the revised single session concept. 

To me, though, the biggest concern, and what I have seen least addressed in the news, is the proposed electronic tracking. The reporting requirements for electronic slot play seem inherently tied to the issue of allowing the IRS to use loyalty cards to track wins and losses. The IRS would need to electronically track players using their Social Security numbers in order to determine the wins and losses in the redefined “single session.” They have proposed doing so through the casinos’ own loyalty card programs, hijacking programs developed for marketing purposes.

The data that the IRS wants casinos to provide them would include Social Security numbers*, which raises any number of questions and concerns. What other data are they receiving? How is the IRS receiving the data? Is it secure? Casino operators testified that sharing their loyalty information with the IRS will negatively affect their ability to use their loyalty programs for marketing, and the response from players has supported this.

It seems as though the IRS overstepped their bounds with this proposal, trying to cover too much ground. If they had instead started with an attempt to redefine the single session, there would be a lot less confusion and backlash, and if it truly is better for players, then they would be able to demonstrate that. Instead, the entire proposal is lost in a whole maelstrom of hullabaloo.

All of this is based on my own reading of the request for comment and the IRS’s documents. My interpretation might be incorrect. I’m not a tax guy or lawyer. The IRS held a public hearing for feedback on June 17^th and expect to have a decision by the end of the year.

*The IRS’s own guide to identity theft directs citizens to avoid giving out an SSN to businesses unless absolutely necessary.