82 FR 44925 - Withholding on Payments of Certain Gambling Winnings

DEPARTMENT OF TREASURY
Internal Revenue Service

Federal Register Volume 82, Issue 186 (September 27, 2017)

Page Range		44925-44929
FR Document		2017-20720
This document contains final regulations with respect to the withholding from, and the information reporting on, certain payments of gambling winnings from horse races, dog races, and jai alai and on certain other payments of gambling winnings. The final regulations affect both payers and payees of the gambling winnings.
Federal Register, Volume 82 Issue 186 (Wednesday, September 27, 2017)
[Federal Register Volume 82, Number 186 (Wednesday, September 27, 2017)]
[Rules and Regulations]
[Pages 44925-44929]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-20720]


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DEPARTMENT OF TREASURY

Internal Revenue Service

26 CFR Part 31

[TD 9824]
RIN 1545-BN58


Withholding on Payments of Certain Gambling Winnings

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations with respect to the 
withholding from, and the information reporting on, certain payments of 
gambling winnings from horse races, dog races, and jai alai and on 
certain other payments of gambling winnings. The final regulations 
affect both payers and payees of the gambling winnings.

DATES: Effective date: These regulations are effective on September 27, 
2017.
    Applicability Dates: For dates of applicability, see Sec. Sec.  
31.3402(q)-1(g) and 31.3406(g)-2(h).

FOR FURTHER INFORMATION CONTACT: David Bergman, (202) 317-6845 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains final regulations in Title 26 of the Code of 
Federal Regulations under section 3402 of the Internal Revenue Code 
(Code). The final regulations amend, update, and clarify the existing 
withholding and information reporting requirements for certain gambling 
winnings under Sec.  31.3402(q)-1 of the Employment Tax Regulations, 
and make conforming changes to Sec.  31.3406(g)-2.
    On December 30, 2016, the Treasury Department and the IRS published 
a notice of proposed rulemaking (REG-123841-16) in the Federal 
Register, 81 FR 96406, containing proposed regulations that would 
provide a new rule regarding how payers determine the amount of the 
wager in parimutuel wagering transactions with respect to horse races, 
dog races, and jai alai, and that would update the existing rules to 
reflect current law regarding the withholding thresholds and certain 
information reporting requirements.
    Over 2,700 written public comments were received in response to the 
notice of proposed rulemaking. No public hearing was requested. After 
careful consideration of the written comments, the proposed regulations 
are adopted as modified by this Treasury Decision.

Explanation and Summary of Comments

    All of the written comments on the notice of proposed rulemaking 
were considered and are available at www.regulations.gov or upon 
request. Many of these comments addressed similar issues and expressed 
similar points of view. These comments are summarized in this preamble.

Rule for Determining the Amount of the Wager in the Case of Horse 
Races, Dog Races, and Jai Alai

    The proposed regulations contained a new rule for determining the 
amount of the wager in the case of horse races, dog races, and jai alai 
to allow all wagers placed in a single parimutuel pool and represented 
on a single ticket to be aggregated and treated as a single wager. 
Commenters largely supported the proposed rules because they believe 
that the rules accurately and fairly reflect parimutuel wagering 
realities.
    Some commenters raised concerns that the single ticket requirement 
in the proposed regulations did not address electronic wagering. 
Commenters stated that in horse racing a paper ticket can only 
accommodate six separate lines of bets. In contrast, electronic 
wagering utilizes an ``account wagering'' system that can accommodate 
dozens (or even hundreds) of lines of bets in a single parimutuel pool, 
allowing bettors to place more, customized wagers. As a result, some 
commenters requested a special rule for electronic wagering.
    The proposed rule at Sec.  31.3402(q)-1(c)(1)(ii) is specifically 
not limited to a paper ticket, but also includes an electronic record 
that is presented to collect proceeds from a wager or wagers placed in 
a single parimutuel pool. Therefore, the rule in proposed Sec.  
31.3402(q)-1(c)(1)(ii) is not dependent on the applicable industry's 
ticketing format. Further, despite the commenters concern regarding the 
limits on the number of lines a paper ticket can accommodate, the 
proposed regulations do not limit the number of bets on a single ticket 
nor do the proposed regulations contain a rule governing the number of 
bets that can be contained on a single, electronic record of a wagering 
transaction.
    Another commenter stated that the single ticket requirement puts a 
person making an electronic bet at a disadvantage because it removes 
the opportunity to place bets in a single

[[Page 44926]]

parimutuel pool at multiple points in time throughout the allotted time 
period for wagering. The single ticket rule in the proposed regulations 
does not differentiate between electronic betting and placing a bet at 
a ticket window. Therefore, the proposed rule does not put an 
electronic bettor at a disadvantage. However, the comment brings to 
light that there is some confusion regarding how the rule applies in 
the context of electronic betting.
    The single-ticket requirement in the proposed regulations allows 
aggregation of wagers that are placed in the same parimutuel pool if 
they are represented on a single ticket. This is the case regardless of 
whether the ticket is paper or electronic. This requirement was 
included in the proposed regulations to limit the potential for fraud, 
such as a winning bettor collecting losing tickets from another bettor 
or bettors who placed bets in the same parimutuel pool to artificially 
increase the amount of the wager. In addition, the single-ticket 
requirement improves administrability because it does not require 
payers to collect information reflected on multiple tickets. As the 
preamble to the proposed regulations explains, the single ticket 
requirement was not intended to limit the amount of the wager to bets 
placed at a single point in time because a ticket containing prior bets 
in a single pool can be cancelled, and the original and additional 
wagers in that pool can be placed on a new ticket. The fraud and 
administrability concerns that apply to paper tickets do not apply 
equally to electronic records because each person's bets are reflected 
on a single electronic wagering account. Accordingly, electronic 
bettors may aggregate wagers placed at different points in time without 
having to cancel prior wagers and place them on a new ticket as long as 
the wagers meet the requirements in the proposed rule--that is, they 
are placed in a single parimutuel pool and are represented on a single, 
electronic record.
    Because the comments received in response to the proposed rule do 
not justify any change, the final regulations adopt the proposed rule 
without modification.

Effective/Applicability Dates

    The proposed regulations provided that final regulations would 
apply to payments made after the date they are published in the Federal 
Register. Some commenters requested a delayed effective date to allow 
time for industry stakeholders to update their systems and seek any 
necessary state regulatory approval. One commenter specficially 
suggested that 45 days following publication of the final regulations 
would be sufficient time to perform such updates. In addition, the 
commenters suggested that the final rules be effective for wagering 
transactions with respect to winning events that occur after the date 
that the final rules are published in the Federal Register. The 
Treasury Department and IRS agree with these comments. Therefore, the 
final regulations are applicable to reportable gambling winnings paid 
with respect to a winning event that occurs on or after 45 days from 
the date the final regulations are published in the Federal Register. 
If they so choose, payers may rely on the provisions of the final 
regulations for payments made after the date the final regulations are 
published in the Federal Register, regardless of when the related 
winning event occurred.

Other Comments

    Several commenters raised concerns regarding the thresholds for 
information reporting and withholding for certain gambling winnings. 
Another commenter requested that the regulations provide an exception 
to withholding under section 3402(q). Neither the threshold for 
information reporting with respect to gambling winnings not subject to 
withholding nor exceptions to section 3402(q) withholding were the 
focus of the proposed regulations. In addition, the withholding 
thresholds are defined by statute. These comments are outside the scope 
of the proposed regulations, and therefore the comments have not been 
adopted in the final regulations.

Special Analyses

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented by Executive 
Order 13563. Therefore, a regulatory assessment is not required.
    It is hereby certified that this rule will not have a significant 
economic impact on a substantial number of small entities. Although 
this rule may affect a substantial number of small entities, the 
economic impact is minimal because this rule merely provides guidance 
as to the statutory withholding rules and filing of information returns 
for payers who make reportable payments of certain gambling winnings 
and who are required by sections 3402 and 6041 to withhold and make 
returns reporting those payments. This rule reduces the existing burden 
on payers to comply with the statutory requirement by simplifying the 
process for payers to verify payees' identities with a broader range of 
documents that are more readily available.
    This rule also will result in a reduction in the number of forms 
filed. Instead of treating all components of a bet made by a gambler in 
a single parimutuel pool as a separate amount wagered, the rules treat 
all amounts wagered in a single parimutuel pool reflected on a single 
ticket as the amount wagered for purposes of determining whether 
reporting or withholding is needed. For the reasons stated, the final 
rule will not have a significant economic impact on a substantial 
number of small entities. Accordingly, a regulatory flexibility 
analysis under the Regulatory Flexibility Act (5 U.S.C. Chapter 6) is 
not required.
    Pursuant to section 7805(f) of the Internal Revenue Code, the 
notice of proposed rulemaking preceding these regulations was submitted 
to the Chief Counsel for Advocacy of the Small Business Administration 
for comment on the regulations' impact on small businesses, and no 
comments were received.

Drafting Information

    The principal author of these regulations is David Bergman of the 
Office of the Associate Chief Counsel (Procedure and Administration). 
However, other personnel from the Treasury Department and the IRS 
participated in their development.

List of Subjects in 26 CFR Part 31

    Employment taxes, Fishing vessels, Gambling, Income taxes, 
Penalties, Pensions, Reporting and recordkeeping requirements, Social 
security, Unemployment compensation.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 31 is amended as follows:

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE

0
Par. 1. The authority citation for part 31 continues to read in part as 
follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 31.3402(q)-1 is amended:
0
1. By revising paragraphs (a)(1), (b), and (c)(1) and (4).
0
2. By redesignating paragraphs (d), (e) and (f) as paragraphs (f), (d), 
and (e), respectively.
0
3. By revising newly designated paragraphs (d) and (e).
0
4. By removing, in newly designated paragraph (f), Example 3 and 
Example

[[Page 44927]]

11, redesignating Examples 4 through 10 as Examples 3 through 9, and 
adding examples 10 through 16.
0
5. By removing, in newly designated paragraph (f) the language 
``example 4'' in newly designated Example 4 and adding in its place the 
language ``example 3'' and by removing the language ``example 6'' in 
newly designated Example 6 and adding in its place the language 
``example 5'' wherever it appears.
0
6. By adding paragraph (g).
    The revisions and additions read as follows:


Sec.  31.3402(q)-1  Extension of withholding to certain gambling 
winnings.

    (a) Withholding obligation--(1) General rule. Every person, 
including the Government of the United States, a State, or a political 
subdivision thereof, or any instrumentality of any of the foregoing 
making any payment of ``winnings subject to withholding'' (defined in 
paragraph (b) of the section) must deduct and withhold a tax in an 
amount equal to the product of the third lowest rate of tax applicable 
under section 1(c) and the payment. The tax must be deducted and 
withheld upon payment of the winnings by the person making the payment 
(``payer''). See paragraph (c)(5)(ii) of this section for a special 
rule relating to the time for making deposits of withheld amounts and 
filing the return with respect to those amounts. Any person receiving a 
payment of winnings subject to withholding must furnish the payer a 
statement as required in paragraph (d) of this section. Payers of 
winnings subject to withholding must file a return with the Internal 
Revenue Service and furnish a statement to the payee as required in 
paragraph (e) of this section. With respect to reporting requirements 
for certain payments of gambling winnings not subject to withholding, 
see section 6041 and the regulations thereunder.
* * * * *
    (b) Winnings subject to withholding--(1) In general. Winnings 
subject to withholding means any payment from--
    (i) A wager placed in a State-conducted lottery (defined in 
paragraph (c)(2) of this section) but only if the proceeds from the 
wager exceed $5,000;
    (ii) A wager placed in a sweepstakes, wagering pool, or lottery 
other than a State-conducted lottery but only if the proceeds from the 
wager exceed $5,000; or
    (iii) Any other wagering transaction (as defined in paragraph 
(c)(3) of this section) but only if the proceeds from the wager:
    (A) Exceed $5,000; and
    (B) Are at least 300 times as large as the amount of the wager.
    (2) Total proceeds subject to withholding. If proceeds from the 
wager qualify as winnings subject to withholding, then the total 
proceeds from the wager, and not merely amounts in excess of $5,000, 
are subject to withholding.
    (c) Definitions; special rules--(1) Rules for determining amount of 
proceeds from a wager--(i) In general. The amount of proceeds from a 
wager is the amount paid with respect to the wager, less the amount of 
the wager.
    (ii) Amount of the wager in the case of horse races, dog races, and 
jai alai. In the case of a wagering transaction with respect to horse 
races, dog races, or jai alai, all wagers placed in a single parimutuel 
pool and represented on a single ticket are aggregated and treated as a 
single wager for purposes of determining the amount of the wager. A 
ticket in the case of horse races, dog races, or jai alai is a written 
or electronic record that the payee must present to collect proceeds 
from a wager or wagers.
    (iii) Amount paid with respect to a wager--(A) Identical wagers. 
Amounts paid with respect to identical wagers are treated as paid with 
respect to a single wager for purposes of calculating the amount of 
proceeds from a wager. Two or more wagers are identical wagers if 
winning depends on the occurrence (or non-occurrence) of the same event 
or events; the wagers are placed with the same payer; and, in the case 
of horse races, dog races, or jai alai, the wagers are placed in the 
same parimutuel pool. Wagers may be identical wagers even if the 
amounts wagered differ as long as the wagers are otherwise treated as 
identical wagers under this paragraph (c)(1)(iii)(A). Tickets purchased 
in a lottery generally are not identical wagers, because the 
designation of each ticket as a winner generally would not be based on 
the occurrence of the same event, for example, the drawing of a 
particular number.
    (B) Non-monetary proceeds. In determining the amount paid with 
respect to a wager, proceeds which are not money are taken into account 
at the fair market value.
    (C) Periodic payments. Periodic payments, including installment 
payments or payments which are to be made periodically for the life of 
a person, are aggregated for purposes of determining the amount paid 
with respect to the wager. The aggregate amount of periodic payments to 
be made for a person's life is based on that person's life expectancy. 
See Sec. Sec.  1.72-5 and 1.72-9 of this chapter for rules used in 
computing the expected return on annuities. For purposes of determining 
the amount subject to withholding, the first periodic payment must be 
reduced by the amount of the wager.
* * * * *
    (4) Certain payments to nonresident aliens or foreign corporations. 
A payment of winnings that is subject to withholding tax under section 
1441(a) (relating to withholding on nonresident aliens) or 1442(a) 
(relating to withholding on foreign corporations) is not subject to the 
tax imposed by section 3402(q) and this section when the payee is a 
foreign person, as determined under the rules of section 1441(a) and 
the regulations thereunder. A payment is treated as being subject to 
withholding tax under section 1441(a) or 1442(a) notwithstanding that 
the rate of such tax is reduced (even to zero) as may be provided by an 
applicable treaty with another country. However, a reduced or zero rate 
of withholding of tax must not be applied by the payer in lieu of the 
rate imposed by sections 1441 and 1442 unless the person receiving the 
winnings has provided to the payer the documentation required by Sec.  
1.1441-6 of this chapter to establish entitlement to treaty benefits.
* * * * *
    (d) Statement furnished by payee--(1) In general. Each person who 
is making a payment subject to withholding under this section must 
obtain from the payee a statement described in paragraph (d)(2) of this 
section.
    (2) Contents of statement. Each person who is to receive a payment 
of winnings subject to withholding under this section must furnish the 
payer a statement on Form W-2G or 5754 (whichever is applicable) made 
under the penalties of perjury containing--
    (i) The name, address, and taxpayer identification number of the 
winner accompanied by a declaration that no other person is entitled to 
any portion of such payment, or
    (ii) The name, address, and taxpayer identification number of the 
payee and of every person entitled to any portion of the payment.
    (3) Multiple payments. If more than one payment of winnings subject 
to withholding is to be made with respect to a single wager, for 
example in the case of an annuity, the payee is required to furnish the 
payer a statement with respect to the first payment only, provided that 
the other payments are taken into account in a return required by 
paragraph (e) of this section.
    (4) Reliance on statement for identical wagers. If the payee 
furnishes the statement which may be required pursuant to Sec.  1.6011-
3 of this chapter

[[Page 44928]]

(regarding the requirement of a statement from payees of certain 
gambling winnings), indicating that the payee (and any other persons 
entitled to a portion of the winnings) is entitled to winnings from 
identical wagers, as defined in paragraph (c)(1)(iii)(A) of this 
section, and indicating the amount of the winnings, if any, then the 
payer may rely upon the statement in determining the total amount of 
proceeds from the wager under paragraph (c)(1) of this section.
    (e) Return of payer--(1) In general. Every person making payment of 
winnings for which a statement is required under paragraph (d) of this 
section must file a return on Form W-2G at the Internal Revenue Service 
location designated in the instructions to the form on or before 
February 28 (March 31 if filed electronically) of the calendar year 
following the calendar year in which the payment of winnings is made. 
The return required by this paragraph (e) need not include the 
statement by the payee required by paragraph (d) of this section and, 
therefore, need not be signed by the payee, provided the statement is 
retained by the payer as long as its contents may become material in 
the administration of any internal revenue law. In addition, the return 
required by this paragraph (e) need not contain the information 
required by paragraph (e)(1)(v) of this section provided the 
information is obtained with respect to the payee and retained by the 
payer as long as its contents may become material in the administration 
of any internal revenue law. For payments to more than one winner, a 
separate Form W-2G, which in no event need be signed by the winner, 
must be filed with respect to each such winner. Each Form W-2G must 
contain the following:
    (i) The name, address, and taxpayer identification number of the 
payer;
    (ii) The name, address, and taxpayer identification number of the 
winner;
    (iii) The date, amount of the payment, and amount withheld;
    (iv) The type of wagering transaction;
    (v) Except with respect to winnings from a wager placed in a State-
conducted lottery, a general description of the two types of 
identification (as described in paragraph (e)(2) of this section), one 
of which must have the payee's photograph on it (except in the case of 
tribal member identification cards in certain circumstances as 
described in paragraph (e)(3) of this section), that the payer relied 
on to verify the payee's name, address, and taxpayer identification 
number;
    (vi) The amount of winnings from identical wagers; and
    (vii) Any other information required by the form, instructions, or 
other applicable guidance published in the Internal Revenue Bulletin.
    (2) Identification. The following items are treated as 
identification for purposes of paragraph (e)(1)(v) of this section--
    (i) Government-issued identification (for example, a driver's 
license, passport, social security card, military identification card, 
tribal member identification card issued by a federally-recognized 
Indian tribe, or voter registration card) in the name of the payee; and
    (ii) A Form W-9, ``Request for Taxpayer Identification Number and 
Certification,'' signed by the payee that includes the payee's name, 
address, taxpayer identification number, and other information required 
by the form. A Form W-9 is not acceptable for this purpose if the payee 
has modified the form (other than pursuant to instructions to the form) 
or if the payee has deleted the jurat or other similar provisions by 
which the payee certifies or affirms the correctness of the statements 
contained on the form.
    (3) Special rule for tribal member identification cards. A tribal 
member identification card need not contain the payee's photograph to 
meet the identification requirement described in paragraph (e)(1)(v) of 
this section if--
    (i) The payee is a member of a federally-recognized Indian tribe;
    (ii) The payee presents the payer with a tribal member 
identification card issued by a federally-recognized Indian tribe 
stating that the payee is a member of such tribe; and
    (iii) The payer is a gaming establishment (as described in Sec.  
1.6041-10(b)(2)(iv) of this chapter) owned or licensed (in accordance 
with 25 U.S.C. 2710) by the tribal government that issued the tribal 
member identification card referred to in paragraph (e)(3)(ii) of this 
section.
    (4) Transmittal form. Persons making payments of winnings subject 
to withholding must use Form 1096 to transmit Forms W-2G to the 
Internal Revenue Service.
    (5) Furnishing a statement to the payee. Every payer required to 
make a return under paragraph (e)(1) of this section must also make and 
furnish to each payee, with respect to each payment of winnings subject 
to withholding, a written statement that contains the information that 
is required to be included on the return under paragraph (e)(1) of this 
section. The payer must furnish the statement to the payee on or before 
January 31st of the year following the calendar year in which payment 
of the winnings subject to withholding is made. The statement will be 
considered furnished to the payee if it is provided to the payee at the 
time of payment or if it is mailed to the payee on or before January 
31st of the year following the calendar year in which payment was made.
    (f) * * *

    Example 10. (i) B places a $15 bet at the cashier window at the 
racetrack for horse A to win the fifth race at the racetrack that 
day. After placing the first bet, B gains confidence in horse A's 
prospects to win and places an additional $40 bet at the cashier 
window at the racetrack for horse A to win the fifth race, receiving 
a second ticket for this second bet. Horse A wins the fifth race, 
and B wins a total of $5,500 (100 to 1 odds) on those bets. The $15 
bet and the $40 bet are identical wagers under paragraph 
(c)(1)(iii)(A) of this section because winning on both bets depended 
on the occurrence of the same event and the bets are placed in the 
same parimutuel pool with the same payer. This is true regardless of 
the fact that the amount of the wager differs in each case.
    (ii) B cashes the tickets at different cashier windows. Pursuant 
to paragraph (d) of this section and Sec.  1.6011-3, B completes a 
Form W-2G indicating that the amount of winnings is from identical 
wagers and provides the form to each cashier. The payments by each 
cashier of $1,500 and $4,000 are less than the $5,000 threshold for 
withholding, but under paragraph (c)(1)(iii)(A) of this section, 
identical wagers are treated as paid with respect to a single wager 
for purposes of determining the proceeds from a wager. The payment 
is not subject to withholding or reporting because although the 
proceeds from the wager are $5,445 ($1,500 + $4,000 - $55), the 
proceeds from the wager are not at least 300 times as great as the 
amount wagered ($55 x 300 = $16,500).
    Example 11. B makes two $1,000 bets in a single ``show'' pool 
for the same jai alai game, one bet on Player X to show and one bet 
on Player Y to show. A show bet is a winning bet if the player comes 
in first, second, or third in a single game. The bets are placed at 
the same time at the same cashier window, and B receives a single 
ticket showing both bets. Player X places second in the game, and 
Player Y does not place first, second, or third in the game. B wins 
$8,000 from his bet on Player X. Because winning on both bets does 
not depend on the occurrence of the same event, the bets are not 
identical bets under paragraph (c)(1)(iii)(A) of this section. 
However, pursuant to the rule in paragraph (c)(1)(ii) of this 
section, the amount of the wager is the aggregate amount of both 
wagers ($2,000) because the bets were placed in a single parimutuel 
pool and reflected on a single ticket. The payment is not subject to 
withholding or reporting because although the proceeds from the 
wager are $6,000 ($8,000 - $2,000), the proceeds from the wager are 
not at least 300 times as great as the amount wagered ($2,000 x 300 
= $600,000).
    Example 12. B bets a total of $120 on a three-dog exacta box bet 
($20 for each one of

[[Page 44929]]

the six combinations played) at the dog racetrack and receives a 
single ticket reflecting the bet from the cashier. B wins $5,040 
from one of the selected combinations. Pursuant to the rule in 
paragraph (c)(1)(ii) of this section, the amount of the wager is 
$120, not $20 for the single winning combination of the six 
combinations played. The payment is not subject to withholding under 
section 3402(q) because the proceeds from the wager are $4,920 
($5,040 - $120), which is below the section 3402(q) withholding 
threshold.
    Example 13. B makes two $12 Pick 6 bets at the horse racetrack 
at two different cashier windows and receives two different tickets 
each representing a single $12 Pick 6 bet. In his two Pick 6 bets, B 
selects the same horses to win races 1-5 but selects different 
horses to win race 6. All Pick 6 bets on those races at that 
racetrack are part of a single parimutuel pool from which Pick 6 
winning bets are paid. B wins $5,020 from one of his Pick 6 bets. 
Pursuant to the rule in paragraph (c)(1)(ii) of this section, the 
bets are not aggregated for purposes of determining the amount of 
the wager because the bets are reflected on separate tickets. 
Assuming that the applicable rate is 25%, the racetrack must deduct 
and withhold $1,252 (($5,020 - $12) x 25%) because the amount of the 
proceeds of $5,008 ($5,020 - $12) is greater than $5,000 and is at 
least 300 times as great as the amount wagered ($12 x 300 = $3,600). 
The racetrack also must report B's winnings on Form W-2G pursuant to 
paragraph (e) of this section and furnish a copy of the Form W-2G to 
B.
    Example 14. C makes two $50 bets in two different parimutuel 
pools for the same jai alai game. One bet is an ``exacta'' in which 
C bets on player M to win and player N to ``place.'' The other bet 
is a ``trifecta'' in which C bets on player M to win, player N to 
``place,'' and player O to ``show.'' C wins both bets and is paid 
$2,000 with respect to the bet in the ``exacta'' pool and $3,100 
with respect to the bet in the ``trifecta'' pool. Under paragraph 
(c)(1)(iii)(A) of this section, the bets are not identical bets. 
Under paragraph (c)(1)(ii) of this section, the bets are not 
aggregated for purposes of determining the amount of the wager for 
either payment because they are not wagers in the same parimutuel 
pool. No section 3402(q) withholding is required on either payment 
because neither payment separately exceeds the $5,000 withholding 
threshold.
    Example 15. C makes two $100 bets for the same dog to win a 
particular race. C places one bet at the racetrack and one bet at an 
off-track betting establishment, but the two pools constitute a 
single pool. C receives separate tickets for each bet. C wins both 
bets and is paid $4,000 from the racetrack and $4,000 from the off-
track betting establishment. Under paragraph (c)(1)(ii) of this 
section, the bets are not aggregated for purposes of determining the 
amount of the wager because the wager placed at the racetrack and 
the wager placed at the off-track betting establishment are 
reflected on separate tickets, despite being placed in the same 
parimutuel pool. No section 3402(q) withholding is required because 
neither payment separately exceeds the $5,000 withholding threshold.
    Example 16. C places a $200 Pick 6 bet for a series of races at 
the racetrack on a particular day and receives a single ticket for 
the bet. No wager correctly picks all six races that day, so that 
portion of the pool carries over to the following day. On the 
following day, C places an additional $200 Pick 6 bet for that day's 
series of races and receives a new ticket for that bet. C wins 
$100,000 on the second day. Pursuant to the rule in paragraph 
(c)(1)(ii) of this section, the bets are on two separate tickets, so 
C's two Pick 6 bets are not aggregated for purposes of determining 
the amount of the wager. Assuming that the applicable rate is 25%, 
the racetrack must deduct and withhold $24,950 (($100,000 - $200) x 
25%) because the amount of the proceeds of $99,800 ($100,000 - $200) 
is greater than $5,000, and is at least 300 times as great as the 
amount wagered ($200 x 300 = $60,000). The racetrack also must 
report C's winnings on Form W-2G pursuant to paragraph (e) of this 
section and furnish a copy of the Form W-2G to C.

    (g) Applicability date. The rules in this section apply to payments 
made with respect to a winning event that occurs after November 13, 
2017. For rules that apply to payments made with respect to a winning 
event on or before that date, see Sec.  31.3402(q)-1 as contained in 26 
CFR part 31, revised April 1, 2017.

0
Par. 3. Section 31.3406-0 is amended by adding an entry for paragraph 
(h) to Sec.  31.3406(g)-2 to read as follows:


Sec.  31.3406-0  Outline of the backup withholding regulations.

* * * * *


Sec.  31.3406(g)-2  Exception for reportable payments for which backup 
withholding is otherwise required.

* * * * *
    (h) Applicability date.
* * * * *

0
Par. 4. Section 31.3406(g)-2 is amended by revising paragraphs (d)(2) 
and (3) and adding paragraph (h) to read as follows:


Sec.  31.3406(g)-2  Exception for reportable payment for which 
withholding is otherwise required.

* * * * *
    (d) * * *
    (2) Definition of a reportable gambling winning and determination 
of amount subject to backup withholding. For purposes of withholding 
under section 3406, a reportable gambling winning is any gambling 
winning subject to information reporting under section 6041. A gambling 
winning (other than a winning from bingo, keno, or slot machines) is a 
reportable gambling winning only if the amount paid with respect to the 
wager is $600 or more and if the proceeds are at least 300 times as 
large as the amount wagered. See Sec.  1.6041-10 of this chapter to 
determine whether a winning from bingo, keno, or slot machines is a 
reportable gambling winning and thus subject to withholding under 
section 3406. The amount of a reportable gambling winning is--
    (i) The amount paid with respect to the amount of the wager 
reduced, at the option of the payer; by
    (ii) The amount of the wager.
    (3) Special rules. For special rules for determining the amount of 
the wager in a wagering transaction with respect to horse racing, dog 
racing, and jai alai, or amounts paid with respect to identical wagers, 
see Sec.  31.3402(q)-1(c).
* * * * *
    (h) Applicability date. The rules apply to reportable gambling 
winnings paid with respect to a winning event that occurs after 
November 13, 2017. For rules that apply to payments made with respect 
to a winning event on or before that date, see Sec.  31.3406(g)-2 as 
contained in 26 CFR part 31, revised April 1, 2017.

Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
    Approved: August 21, 2017.
David J. Kautter,
Assistant Secretary for Tax Policy.
[FR Doc. 2017-20720 Filed 9-25-17; 4:15 pm]
BILLING CODE 4830-01-P
Federal Register / Vol. 82, No. 186 / Wednesday, September 27, 2017 / Rules and Regulations 44925

VI. Document Availability North American Electric Reliability of proposed rulemaking. No public
Corporation (NERC) hearing was requested. After careful
45. In addition to publishing the full
text of this document in the Federal [FR Doc. 2017–20669 Filed 9–26–17; 8:45 am] consideration of the written comments,
Register, the Commission provides all BILLING CODE 6717–01–P the proposed regulations are adopted as
interested persons an opportunity to modified by this Treasury Decision.
view and/or print the contents of this Explanation and Summary of
document via the Internet through the DEPARTMENT OF TREASURY Comments
Commission’s Home Page (http://
Internal Revenue Service All of the written comments on the
www.ferc.gov) and in the Commission’s
notice of proposed rulemaking were
Public Reference Room during normal
26 CFR Part 31 considered and are available at
business hours (8:30 a.m. to 5:00 p.m.
www.regulations.gov or upon request.
Eastern time) at 888 First Street NE., [TD 9824] Many of these comments addressed
Room 2A, Washington DC 20426.
46. From the Commission’s Home RIN 1545–BN58 similar issues and expressed similar
Page on the Internet, this information is points of view. These comments are
available on eLibrary. The full text of Withholding on Payments of Certain summarized in this preamble.
this document is available on eLibrary Gambling Winnings
Rule for Determining the Amount of the
in PDF and Microsoft Word format for AGENCY: Internal Revenue Service (IRS), Wager in the Case of Horse Races, Dog
viewing, printing, and/or downloading. Treasury. Races, and Jai Alai
To access this document in eLibrary, ACTION: Final regulations. The proposed regulations contained a
type the docket number excluding the new rule for determining the amount of
last three digits of this document in the SUMMARY: This document contains final the wager in the case of horse races, dog
docket number field. regulations with respect to the races, and jai alai to allow all wagers
47. User assistance is available for withholding from, and the information placed in a single parimutuel pool and
eLibrary and the Commission’s Web site reporting on, certain payments of represented on a single ticket to be
during normal business hours from gambling winnings from horse races, aggregated and treated as a single wager.
FERC Online Support at 202–502–6652 dog races, and jai alai and on certain Commenters largely supported the
(toll free at 1–866–208–3676) or email at other payments of gambling winnings. proposed rules because they believe that
ferconlinesupport@ferc.gov, or the The final regulations affect both payers the rules accurately and fairly reflect
Public Reference Room at (202) 502– and payees of the gambling winnings. parimutuel wagering realities.
8371, TTY (202)502–8659. Email the DATES: Effective date: These regulations Some commenters raised concerns
Public Reference Room at are effective on September 27, 2017. that the single ticket requirement in the
public.referenceroom@ferc.gov. Applicability Dates: For dates of proposed regulations did not address
VII. Effective Date and Congressional applicability, see §§ 31.3402(q)–1(g) and electronic wagering. Commenters stated
Notification 31.3406(g)–2(h). that in horse racing a paper ticket can
FOR FURTHER INFORMATION CONTACT: only accommodate six separate lines of
48. The final rule is effective
November 27, 2017. The Commission David Bergman, (202) 317–6845 (not a bets. In contrast, electronic wagering
has determined, with the concurrence of toll-free number). utilizes an ‘‘account wagering’’ system
the Administrator of the Office of SUPPLEMENTARY INFORMATION: that can accommodate dozens (or even
Information and Regulatory Affairs of hundreds) of lines of bets in a single
Background parimutuel pool, allowing bettors to
OMB, that this rule is not a ‘‘major rule’’
as defined in section 351 of the Small This document contains final place more, customized wagers. As a
Business Regulatory Enforcement regulations in Title 26 of the Code of result, some commenters requested a
Fairness Act of 1996. This final rule is Federal Regulations under section 3402 special rule for electronic wagering.
of the Internal Revenue Code (Code). The proposed rule at § 31.3402(q)–
being submitted to the Senate, House,
The final regulations amend, update, 1(c)(1)(ii) is specifically not limited to a
and Government Accountability Office.
and clarify the existing withholding and paper ticket, but also includes an
By the Commission. information reporting requirements for electronic record that is presented to
Issued: September 20, 2017. certain gambling winnings under collect proceeds from a wager or wagers
Nathaniel J. Davis, Sr., § 31.3402(q)–1 of the Employment Tax placed in a single parimutuel pool.
Deputy Secretary. Regulations, and make conforming Therefore, the rule in proposed
changes to § 31.3406(g)–2. § 31.3402(q)–1(c)(1)(ii) is not dependent
Appendix
On December 30, 2016, the Treasury on the applicable industry’s ticketing
Bonneville Power Administration Department and the IRS published a format. Further, despite the commenters
(Bonneville) notice of proposed rulemaking (REG– concern regarding the limits on the
Edison Electric Institute (EEI) 123841–16) in the Federal Register, 81 number of lines a paper ticket can
International Transmission Company d/b/a
ITC Transmission, Michigan Electric FR 96406, containing proposed accommodate, the proposed regulations
Transmission Company, LLC, ITC Midwest regulations that would provide a new do not limit the number of bets on a
LLC and ITC Great Plains, LLC (together, rule regarding how payers determine the single ticket nor do the proposed
ITC) amount of the wager in parimutuel regulations contain a rule governing the
asabaliauskas on DSKBBXCHB2PROD with RULES

Midcontinent Independent System Operator, wagering transactions with respect to number of bets that can be contained on
Inc. (MISO) horse races, dog races, and jai alai, and a single, electronic record of a wagering
New England States Committee on Electricity that would update the existing rules to transaction.
(NESCOE) Another commenter stated that the
New York Independent System Operator,
reflect current law regarding the
Independent Electricity System Operator, withholding thresholds and certain single ticket requirement puts a person
ISO New England, Inc. and Electric information reporting requirements. making an electronic bet at a
Reliability Council of Texas, Inc. (together, Over 2,700 written public comments disadvantage because it removes the
Joint ISOs) were received in response to the notice opportunity to place bets in a single

VerDate Sep<11>2014 17:24 Sep 26, 2017 Jkt 241001 PO 00000 Frm 00047 Fmt 4700 Sfmt 4700 E:\FR\FM\27SER1.SGM 27SER1
Federal Register / Vol. 82, No. 186 / Wednesday, September 27, 2017 / Rules and Regulations 44929

the six combinations played) at the dog Example 16. C places a $200 Pick 6 bet for § 1.6041–10 of this chapter to determine
racetrack and receives a single ticket a series of races at the racetrack on a whether a winning from bingo, keno, or
reflecting the bet from the cashier. B wins particular day and receives a single ticket for slot machines is a reportable gambling
$5,040 from one of the selected the bet. No wager correctly picks all six races
combinations. Pursuant to the rule in
winning and thus subject to
that day, so that portion of the pool carries
paragraph (c)(1)(ii) of this section, the over to the following day. On the following withholding under section 3406. The
amount of the wager is $120, not $20 for the day, C places an additional $200 Pick 6 bet amount of a reportable gambling
single winning combination of the six for that day’s series of races and receives a winning is—
combinations played. The payment is not new ticket for that bet. C wins $100,000 on (i) The amount paid with respect to
subject to withholding under section 3402(q) the second day. Pursuant to the rule in the amount of the wager reduced, at the
because the proceeds from the wager are paragraph (c)(1)(ii) of this section, the bets option of the payer; by
$4,920 ($5,040 ¥ $120), which is below the are on two separate tickets, so C’s two Pick (ii) The amount of the wager.
section 3402(q) withholding threshold. 6 bets are not aggregated for purposes of
Example 13. B makes two $12 Pick 6 bets
(3) Special rules. For special rules for
determining the amount of the wager. determining the amount of the wager in
at the horse racetrack at two different cashier Assuming that the applicable rate is 25%, the
windows and receives two different tickets racetrack must deduct and withhold $24,950
a wagering transaction with respect to
each representing a single $12 Pick 6 bet. In (($100,000 ¥ $200) × 25%) because the horse racing, dog racing, and jai alai, or
his two Pick 6 bets, B selects the same horses amount of the proceeds of $99,800 ($100,000 amounts paid with respect to identical
to win races 1–5 but selects different horses ¥ $200) is greater than $5,000, and is at least wagers, see § 31.3402(q)–1(c).
to win race 6. All Pick 6 bets on those races 300 times as great as the amount wagered
at that racetrack are part of a single * * * * *
($200 × 300 = $60,000). The racetrack also (h) Applicability date. The rules apply
parimutuel pool from which Pick 6 winning
must report C’s winnings on Form W–2G to reportable gambling winnings paid
bets are paid. B wins $5,020 from one of his
pursuant to paragraph (e) of this section and
Pick 6 bets. Pursuant to the rule in paragraph with respect to a winning event that
furnish a copy of the Form W–2G to C.
(c)(1)(ii) of this section, the bets are not occurs after November 13, 2017. For
aggregated for purposes of determining the (g) Applicability date. The rules in rules that apply to payments made with
amount of the wager because the bets are this section apply to payments made respect to a winning event on or before
reflected on separate tickets. Assuming that with respect to a winning event that
the applicable rate is 25%, the racetrack must
that date, see § 31.3406(g)–2 as
occurs after November 13, 2017. For contained in 26 CFR part 31, revised
deduct and withhold $1,252 (($5,020 ¥ $12)
× 25%) because the amount of the proceeds rules that apply to payments made with April 1, 2017.
of $5,008 ($5,020 ¥ $12) is greater than respect to a winning event on or before
that date, see § 31.3402(q)–1 as Kirsten Wielobob,
$5,000 and is at least 300 times as great as
the amount wagered ($12 × 300 = $3,600). contained in 26 CFR part 31, revised Deputy Commissioner for Services and
The racetrack also must report B’s winnings April 1, 2017. Enforcement.
on Form W–2G pursuant to paragraph (e) of ■ Par. 3. Section 31.3406–0 is amended
Approved: August 21, 2017.
this section and furnish a copy of the Form David J. Kautter,
W–2G to B. by adding an entry for paragraph (h) to
§ 31.3406(g)–2 to read as follows: Assistant Secretary for Tax Policy.
Example 14. C makes two $50 bets in two
different parimutuel pools for the same jai [FR Doc. 2017–20720 Filed 9–25–17; 4:15 pm]
§ 31.3406–0 Outline of the backup
alai game. One bet is an ‘‘exacta’’ in which BILLING CODE 4830–01–P
withholding regulations.
C bets on player M to win and player N to
‘‘place.’’ The other bet is a ‘‘trifecta’’ in * * * * *
which C bets on player M to win, player N DEPARTMENT OF HOMELAND
to ‘‘place,’’ and player O to ‘‘show.’’ C wins § 31.3406(g)–2 Exception for reportable
both bets and is paid $2,000 with respect to payments for which backup withholding is SECURITY
the bet in the ‘‘exacta’’ pool and $3,100 with otherwise required.
respect to the bet in the ‘‘trifecta’’ pool. * * * * * Coast Guard
Under paragraph (c)(1)(iii)(A) of this section, (h) Applicability date.
the bets are not identical bets. Under 33 CFR Part 100
* * * * *
paragraph (c)(1)(ii) of this section, the bets
■ Par. 4. Section 31.3406(g)–2 is [Docket Number USCG–2016–1041]
are not aggregated for purposes of
determining the amount of the wager for amended by revising paragraphs (d)(2) RIN 1625–AA08
either payment because they are not wagers and (3) and adding paragraph (h) to read
in the same parimutuel pool. No section as follows: Special Local Regulation; Fautasi
3402(q) withholding is required on either Ocean Challenge Canoe Race, Pago
payment because neither payment separately § 31.3406(g)–2 Exception for reportable Pago Harbor, American Samoa
exceeds the $5,000 withholding threshold. payment for which withholding is otherwise
Example 15. C makes two $100 bets for the required. AGENCY: Coast Guard, DHS.
same dog to win a particular race. C places * * * * * ACTION: Final rule.
one bet at the racetrack and one bet at an off- (d) * * *
track betting establishment, but the two pools (2) Definition of a reportable gambling SUMMARY: The Coast Guard is
constitute a single pool. C receives separate
tickets for each bet. C wins both bets and is
winning and determination of amount establishing a permanent special local
paid $4,000 from the racetrack and $4,000 subject to backup withholding. For regulation for the Fautasi Ocean
from the off-track betting establishment. purposes of withholding under section Challenge canoe races in Pago Pago
Under paragraph (c)(1)(ii) of this section, the 3406, a reportable gambling winning is Harbor, American Samoa. These annual
bets are not aggregated for purposes of any gambling winning subject to events historically occur four separate
asabaliauskas on DSKBBXCHB2PROD with RULES

determining the amount of the wager because information reporting under section weekend or holiday days each year. The
the wager placed at the racetrack and the 6041. A gambling winning (other than a annual dates include one day in April
wager placed at the off-track betting winning from bingo, keno, or slot and three separate days between
establishment are reflected on separate
tickets, despite being placed in the same
machines) is a reportable gambling Veteran’s Day and the Thanksgiving
parimutuel pool. No section 3402(q) winning only if the amount paid with holiday weekend. Each of the four days,
withholding is required because neither respect to the wager is $600 or more and canoe races are held between 7 a.m. to
payment separately exceeds the $5,000 if the proceeds are at least 300 times as 4 p.m. This action is necessary to
withholding threshold. large as the amount wagered. See safeguard the participants and

VerDate Sep<11>2014 17:24 Sep 26, 2017 Jkt 241001 PO 00000 Frm 00051 Fmt 4700 Sfmt 4700 E:\FR\FM\27SER1.SGM 27SER1
Document Created: 2018-10-24 14:45:59
Document Modified: 2018-10-24 14:45:59
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Rules and Regulations
Action		Final regulations.
Dates		Effective date: These regulations are effective on September 27, 2017.
Contact		David Bergman, (202) 317-6845 (not a toll-free number).
FR Citation		82 FR 44925
RIN Number		1545-BN58
CFR Associated		Employment Taxes; Fishing Vessels; Gambling; Income Taxes; Penalties; Pensions; Reporting and Recordkeeping Requirements; Social Security and Unemployment Compensation
82 FR 44925 - Withholding on Payments of Certain Gambling Winnings

DEPARTMENT OF TREASURYInternal Revenue Service

Federal Register Volume 82, Issue 186 (September 27, 2017)

DEPARTMENT OF TREASURY
Internal Revenue Service
