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Odd Tax Proposal Harms Tax Gap And Tax Transparency



Odd Tax Proposal Harms Tax Gap And Tax Transparency

H.R. 6937, Shifting Limits on Thresholds (SLOT) Act, is a bipartisan proposal to increase the information reporting threshold for slot machine winnings from $1,200 to $5,000 and adjust it for inflation. The sponsors note that the threshold has been $1,200 since 1977.

Per co-sponsor Rep. Anthony G. Brown, this proposal “is a necessary modernization of our tax code.”

Really?  This proposal would harm our tax law by reducing gambling winnings that get reported (that is, it would increase the tax gap) and make many people think that such winnings are only taxable if they exceed $5,000.

The reality is that winnings are taxable regardless of the dollar amount (unless the recipient’s total income is below the standard deduction amount). Information reporting is good and the dollar amount should be lowered rather than raised as there are decades of data from the GAO and others that tax compliance improves with information reporting.

Is the $1,200 threshold burdensome for casinos? Likely not as they have many laws to deal with and likely good reporting systems (including for player and loyalty cards) that would allow for a lower threshold for information reporting rather than a higher one.

What do you think? Professor Annette Nellen, San Jose State University, San Jose, CA.

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.

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One thought on “Odd Tax Proposal Harms Tax Gap And Tax Transparency

  1. Michael S Cash says:

    Taxation of gambling “winnings” or at least recreational gambling winnings creates a crazy quilt of results and (in my opinion, inequitable outcomes.) If more winnings should be reported then losses should be treated as a cost of generating the winnings not itemized deductions. If a slot player playing at a machine that returns 95% of bets as winnings starts with $100 after 50 pulls with a consistent 95% payout they will have $1,753.80 in winnings and $8.10 left out of their original $100 and unless they itemize deductions will have $1,753.80 in taxable winnings with no corresponding write-off. You have to accept the fact there is a house advantage or there would be no house and chalk it up to what you pay to the house be amused but the tax result if properly reported is inequitable. I find casinos easy to stay away from unless there is an opportunity for low cost meals.

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