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  • IRS Proposes Changes to Pari-Mutuel Wagering Regulations

IRS PROPOSES CHANGES TO PARI-MUTUEL WAGERING REGULATIONS

December 29, 2016

The Internal Revenue Service (IRS) has published a proposed rule regarding withholding requirements on pari-mutuel winnings. The proposed rule would make changes to withholding requirements that are more accurate and reflect the current state of wagering in the horse racing industry. These changes, if made final, will be of great benefit to horse players and the racing industry.

Specifically, the proposed rule would define “amount of the wager” as the total amount wagered by a bettor into a specific pari-mutuel pool on a single ticket for purposes of determining whether wagering proceeds are subject to 25% withholding on winnings of $5,000 or more and are at least 300 times as large as the amount wagered.

Currently, the IRS does not recognize the total amount wagered on an exotic bet with “boxes,” “wheels,” and “keys,” when determining whether the 300:1 ratio has been met and 25% withholding is triggered, only the cost of the individual winning bet. This greatly increases the number of winning bets that are subject to withholding and does not accurately reflect the actual amount bet and the actual amount won.

The American Horse Council and the National Thoroughbred Racing Association have requested the IRS make the proposed change for many years.

Example under Current Regulations

Assume an individual decided to make a Trifecta wager (selecting the first-, second-, and third-place finishers in a race, in exact order). To improve his or her chances of winning, the individual selects a group of seven horses in the race and requests a “Trifecta box.” By boxing the bet, a bettor wins if any three of the seven horses finishes one-two-three (in any order). A seven- horse Trifecta box involves 210 different mathematical combinations. If the bettor bets $20 on each combination, the total amount wagered is $4,200 ($20 x 210). After the race, the bettor holds a winning ticket that pays $6,100 (which is odds of 304-to-1 under the current regulations which limit the amount wagered to only the single $20 combination).

In accordance with the current rules, the racetrack would withhold $1,520 because the rules treat the $20 paid for the one winning combination as the only amount wagered. The withholding is computed as follows:

$6,100             Winnings

   ($20)           Amount wagered

$6,080             Proceeds from the wager

x 25%           Automatic withholding

$1,520             Withholding tax

The individual, however, has really only won $1,900 ($6,100 winnings less $4,200 wagered). Consequently, after the withholding tax is taken out, the person is left with a net of only $380, making the withholding rate 80 percent of the actual winnings.

Example under Proposed Change

 The pay-off computations for the winning Trifecta outlined in the example above are changed by defining the “amount of the wager” as the actual dollars wagered by that individual into the Trifecta pool for that race. The wager in this scenario results in no withholding as the twin tests of winnings of more than $5,000 and odds of at least 300-to-1 or more are not met:

$6,100            Winnings

$4,200            Amount wagered

$1,900            Proceeds from the wager

In this example, the proceeds from the wager of $1,900 is less than the $5,000 threshold and is far less than 300 times the amount wagered of $4,200.

This proposed change will obviously be of benefit to individuals who bet on horse races and the racing industry in general.

Comments

This is a proposed rule and the IRS will be accepting comments for 90 days. The IRS will then have to review all comments and release a final rule. The proposed rule can be viewed here: https://www.federalregister.gov/documents/2016/12/30/2016-31579/withholding-on-payments-of-certain-gambling-winnings

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    The AHC believes that the more opportunities available to use horses in various activities, the better the overall health of the industry and those who participate.


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    Lynda is the membership and communications specialist for the American Horse Council. Lynda grew up in Pasadena, Maryland with a passion for horses. She relocated to San Diego, California, where her dream of owning and riding horses came true. Lynda has worked with several law enforcement mounted units and has participated in several national and international horse associations.

    Lynda believes horses play a major role in our society from therapy horses helping children learn to walk again, to helping military veterans and emergency service personnel learn to cope with stress, to keeping our parks and cities safe through law enforcement mounted units. Along with our equine partners assisting in burial services at Arlington National Cemetery. Horses impact our lives in ways others cannot.

    Lynda believes the horse industry as a whole needs to have a voice and working at the American Horse Council is a way for her to help and keep the industry alive and informed.

    Interested in a Free Microchip for your Horse?

    The United Horse Coalition is offering up to 5 free microchips (while supplies last). Click below for more info on how to get your free chip.

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    Cliff Williamson is the Director of Health and Regulatory Affairs for the American Horse Council based in Washington D.C.

    He grew up in Reva, VA on his family’s horse farm, participating in both horse and livestock 4-H activities. In 2008 he graduated from Virginia Tech with a degree in Animal Science, where he was an active member of both the animal science club Block & Bridle as well as the agricultural fraternity Alpha Gamma Rho. After graduation he spent 27 months in Nicaragua with the Peace Corps for their Food Security Program. Upon his return to the United States he spent four years in the animal export industry as the Director of Animal Logistics for T.K. Exports, Inc. In that time he was honored to be appointed to a seat on the Board of Directors for the Culpeper chapter of the Farm Bureau Federation.

    For information regarding any equine health issues, welfare issues, and state, federal and international requirements regarding the movement of horses, please contact Cliff. 

    cwilliamson@horsecouncil.org

    Bryan Brendle is the Director of Policy & Legislative Affairs for the AHC.

    For information regarding public policy, government relations and advocacy, please contact Bryan.

    bbrendle@horsecouncil.org

    With over 30 years of leadership experience in both for-profit and non-profit sectors, Julie holds a BS, MBA, Executive Certificate in Non-Profit Leadership  and is Certified Association Executive®. She’s a life-long horse enthusiast ranging from recreational rider, breeder, and show competitor. A native of NC, she and her husband now reside in DC along with their Pembroke Welsh Corgis and Morgan horses.

    In her down time she enjoys volunteering (she’s president of the board of PATH International), horseback riding, gardening and cooking. “I’m passionate about the equine industry because horses have enhanced my life and well-being so profoundly,” said Julie. “Working at the AHC is a way to give back to the equine community and ensure the long term health of the industry.”

    jbroadway@horsecouncil.org

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