Recently I found myself taking a look at the taxation of gambling. But, just so we're all on the same page, I'm not talking about income tax due from gambling. Instead, we're focusing on the excise taxes imposed on gambling, which include… illegal gambling!
Bookies are singled out for additional taxation. Illegal bookmakers for even more.
These taxes only really apply to bookies, or to people accepting wagers (the occupational tax also applies to a middleman who is accepting wagers on behalf of a bookkeeper) for profit on sporting events/contests or a for-profit lottery. Exceptions for taxable wagers exclude many activities already exempt from gambling restrictions (such as 501(c)(3) raffles). And, in case you're the type to stop by a buddy's house for some friendly play, also excludes card, dice, bingo, and keno games. Roulette is also in the green! It also excludes the big gambling businesses by removing card games, racing games (where the bets are licensed by state law), slot machines, and state lotteries.
While taxation for legal wagers is pretty straight-forward, things get wild when bookies operate outside the confines of the law. So how does the IRS assist criminal enterprises to be in compliance with the tax code? Well first, let's talk about the IRS filing requirements on illegal gambling income, aside from Form 1040.
Yearly Occupational Tax: IRS Form 11-C
Form 11-C is used to register certain information with the IRS and to pay the occupational tax on wagering. You must pay the occupational tax if you accept taxable wagers for yourself or another person. There are two amounts of occupational tax: $50 or $500. The $50 occupation tax is for bookies accepting legal wagers. The $500 tax only applies to bookies working in areas where gambling is illegal.
Taxable wagers include those placed:
- On sports events or contests with any person engaged in the business of accepting wagers
- In any for-profit wager pool revolving around sporting events or contests
- In any for-profit lottery (numbers game, policy, punch boards, etc.) that is not state-conducted
The Monthly Excise Tax: IRS Form 730
IRS Form 730 allows bookies to calculate and submit their monthly excise taxes to the IRS. The excise tax is between 0.25% and 2% of wagers accepted, the lower percentage applying to those with wagering activities authorized by state law. Even though illegal bookies aren't known to be the most trustworthy of sorts, those who file their obscure tax forms in a timely manner (assuming they exist) are allowed to claim a credit overpayment of their monthly excise returns. There is a caveat— they have to attach specifically requested evidence of the overpayment.
Engaging in illegal gambling? The IRS takes steps to protect your privacy from law enforcement
"In order to make illegal bookies more likely to file Form 730, the IRS does disclose that they will not share submitted information with any law enforcement agencies (for purposes other than taxes). This guarantees that "certain documents related to" Form 730 are not to be used against taxpayers in any non-tax criminal proceeding.
If you need any assistance with tax prep, planning, or reporting (including solving issues if you didn't report something that should have been), contact us. We can help.