Regulations on Pari-Mutuel Withholding Adopted by IRS

By BloodHorse Staff
The U.S. Treasury Department and the Internal Revenue Service announced Sept. 25 that they will formally adopt modernized regulations regarding the withholding and reporting of pari-mutuel proceeds.

The new rules were posted Monday afternoon as a Public Inspection Document. They are scheduled to be officially published in Wednesday's edition of the Federal Register and will go into full effect no later than Nov. 14, giving racing associations, totalisator companies, and advance deposit wagering operators up to 45 days to implement these important changes; however, some may elect to start as soon as Thursday.

"These landmark U.S. Treasury regulations will have an enormously positive impact on horseplayers, the racing industry, and the federal government," said NTRA president and CEO Alex Waldrop. "I am extremely proud of the NTRA's legislative team for spearheading this effort, which will prove to be among the most meaningful regulatory advances made by our industry in decades. The results of this much-needed measure will be horseplayers keeping more of their winnings, racetracks generating more pari-mutuel handle, and government collecting additional tax revenue. This is a sure bet where everyone wins.

"This day would never have come without the persistence of Thoroughbred racing's friends in Congress, especially Rep. John Yarmuth of Kentucky, Rep. Pat Meehan of Pennsylvania, Senate Majority Leader Mitch McConnell, and our many bipartisan supporters on Capitol Hill," Waldrop added. "We also are indebted to the industry stakeholders and thousands of customers of Thoroughbred racing who signed our petition or submitted public comments in favor of these changes."

Under the new regulations, the IRS will consider the inclusion of a bettor's entire investment in a single pari-mutuel pool when determining the amount reported or withheld for tax purposes, as opposed to only the amount wagered on the correct result.

For example, the amount wagered by a Pick Six player who hits with one of 140 combinations on a $1-minimum wager now will be $140, which is the total amount bet into the Pick Six pool. This more accurate calculation will remove the significant reporting and withholding obligations on horseplayers and the unnecessary paperwork for the IRS that was a result of the prior rule, which used only the $1 bet on the single winning combination as the amount wagered.

"This is a major victory for all pari-mutuel wagering customers," said Judy Wagner, the horseplayers' representative on the NTRA Board of Directors and winner of the 2001 National Horseplayers Championship. "It would not have occurred without the leadership of the NTRA and the support of thousands of horseplayers who actively participated in the process to modernize these regulations."

The amended regulations, advocated by the NTRA and its legislative team, define the "amount of the wager" to include the entire amount wagered into a specific pari-mutuel pool by an individual—not just the winning base unit as is the case today—so long as all wagers made into a specific pool by an individual are made on a single totalisator ticket if the wager is placed onsite. The modernized regulations will have the same positive results for ADW customers and will not impact how those wagers are currently made.

"This represents a great triumph by the entire NTRA legislative team, including the bipartisan Horse PAC, which played an instrumental role in the passage of these regulations that will benefit all segments of the industry," said Horse PAC chairman William S. Farish Jr. "We thank the hundreds of individual stakeholders who contribute to Horse PAC; they played a major role in today's victory."

Waldrop noted that the NTRA has been working behind the scenes since January with industry groups—including totalisator companies, ADWs, and racing organizations—to ensure a smooth implementation for customers.

"For the industry to fully realize the benefits of modernized regulations for pari-mutuel withholding and reporting it is essential that we deliver a seamless transition to our customers," he said. "We are optimistic that the industry will be fully prepared to institute these landmark changes by no later than Nov. 14."

View the full text of the new rule under section 3402(q) of the Internal Revenue Code here: https://s3.amazonaws.com/public-inspection.federalregister.gov/2017-20720.pdf