Information Returns; Winnings From Bingo, Keno, and Slot Machines, 11600-11607 [2015-04437]

Agencies

• Internal Revenue Service
• Department of Treasury

[Federal Register Volume 80, Number 42 (Wednesday, March 4, 2015)]
[Proposed Rules]
[Pages 11600-11607]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-04437]


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DEPARTMENT OF TREASURY

Internal Revenue Service

26 CFR Parts 1 and 31

[REG-132253-11]
RIN 1545-BL68


Information Returns; Winnings From Bingo, Keno, and Slot Machines

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations under section 6041 
regarding the filing of information returns to report winnings from 
bingo, keno, and slot machine play. The proposed regulations affect 
persons who pay winnings of $1,200 or more from bingo and slot machine 
play, $1,500 or more from keno, and recipients of such payments. This 
document also provides a notice of a public hearing on these proposed 
regulations.

DATES: Written or electronic comments must be received by June 2, 2015. 
Outlines of topics to be discussed at the public hearing scheduled for 
June 17, 2015 at 10 a.m. must be received by June 2, 2015.

ADDRESSES: Send submissions to: CC:PA: LPD:PR (REG-132253-11), Room 
5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
132253-11), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically, via the Federal 
eRulemaking Portal at https://www.regulations.gov (IRS REG-132253-11). 
The public hearing will be held in the IRS Auditorium, Internal Revenue 
Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
David Bergman, (202) 317-6844; concerning submissions of comments, the 
hearing, or to be placed on the building access list to attend the 
hearing, Oluwafunmilayo P. Taylor (202) 317-6901 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed regulations to Title 26 of the Code 
of Federal Regulations under section 6041 of the Internal Revenue Code. 
The proposed regulations would update and simplify the existing 
information reporting requirements under Sec.  7.6041-1 of the 
Temporary Income Tax Regulations under the Tax Reform Act of 1976 for 
persons who make reportable payments of bingo, keno, or slot machine 
winnings. The updated requirements are proposed to be set forth in a 
new Sec.  1.6041-10 of the regulations. Accordingly, when Sec.  1.6041-
10 of the proposed regulations becomes final, the regulations under 
Sec.  7.6041-1 will be removed.
    Section 6041 generally requires information reporting by every 
person engaged in a trade or business who, in the course of such trade 
or business, makes payments of gross income of $600 or more in any 
taxable year. The current regulatory reporting thresholds for winnings 
from bingo, keno, and slot machines deviate from this general rule. 
Prior to the adoption of the current thresholds in 1977, reporting from 
bingo, keno, and slot machines was based a sliding scale threshold tied 
to the amount of the wager and required the wager odds to be at least 
300 to 1. On January 7, 1977, temporary regulation Sec.  7.6041-1 was 
published establishing reporting thresholds for payments of winnings 
from bingo, keno, and slot machine play in the amount of $600. In 
Announcement 77-63, 1977-8 IRB 25, the IRS announced that it would not 
assert penalties for failure to file information returns before May 1, 
1977, to allow the casino industry to submit, and the IRS to consider, 
information regarding the industry's problems in complying with the 
reporting requirements. After considering the evidence presented by the 
casino industry, the IRS announced in a press release that effective 
May 1, 1977, information reporting to the IRS would be required on 
payments of winnings of $1,200 or more from a bingo game or a slot 
machine play, and $1,500 or more from a keno game net of the wager. On 
June 30, 1977, Sec.  7.6041-1 was amended to raise the reporting 
thresholds for winnings from a bingo game and slot machine play to 
$1,200, and the reporting threshold for winnings from a keno game to 
$1,500.
    Section 7.6041-1(c) provides that bingo, keno, and slot machine 
winnings are reported on the Form W-2G, ``Certain Gambling Winnings.'' 
The payor must provide a copy of the Form W-2G to the payee by January 
31 of the year following the year in which the reportable payment is 
made, and the payor must file the Form W-2G with the IRS by February 28 
of the year following the year in which the reportable payment is made. 
The Form W-2G must include, among other things, the name, address, and 
taxpayer identification number of the payee and a general description 
of the two forms of identification used to verify this information.

Explanation of Provisions

    The current regulations governing information reporting of winnings 
from bingo, keno, and slot machine play were published in 1977. There 
have been significant changes in gaming industry technology since that 
time. For instance, today many gaming establishments employ electronic 
slot machines and other mechanisms, such as player's cards, that permit 
electronic tracking of wagers and/or winnings. In addition, there have 
been many changes in the tax information reporting regime since the 
late 1970s, such as the enactment of backup withholding and 
requirements for electronic filing of information returns, including 
the Form W-2G. Current regulations under Sec.  7.6041-1 of

[[Page 11601]]

the Temporary Income Tax Regulations do not take these changes into 
account. Accordingly, the Treasury Department and the IRS think the 
regulations for reporting winnings from bingo, keno, and slot machine 
play need to be updated in light of these developments and that there 
are opportunities to reduce burden and simplify reporting. The changes 
proposed by this document are intended to accomplish these goals. In 
addition, the Treasury Department and the IRS specifically request 
comments on certain topics addressed by the regulations.

Filing Requirement

    Proposed Sec.  1.6041-10(a) retains the general rule from Sec.  
7.6041-1 of the Temporary Income Tax Regulations that every person 
engaged in a trade or business who, in the course of its trade or 
business, pays reportable gambling winnings must make an information 
return with respect to such payments. Proposed Sec.  1.6041-10(a) 
clarifies that, consistent with current law and as provided in Sec.  
1.6041-1(b) of the regulations, the term ``persons engaged in a trade 
or business'' includes not only those engaged in a trade or business 
for profit or gain, but also organizations whose activities are not for 
profit or gain, such as tax-exempt organizations and governmental 
entities.
    Proposed Sec.  1.6041-10(b) sets thresholds for when winnings from 
bingo, keno, and slot machine play will be treated as reportable 
gambling winnings and subject to reporting. Existing Sec.  7.6041-1(b) 
of the Temporary Income Tax Regulations sets one threshold for bingo 
and slots, and a different threshold for keno. In addition, under Sec.  
7.6041-1(b) of the Temporary Income Tax Regulations, winnings from a 
keno game are reduced by the amount wagered in that game in determining 
whether the reporting threshold is satisfied, whereas for bingo and 
slot machine play winnings are not reduced by the amount wagered in 
determining whether the reporting threshold is satisfied.
    Under the proposed regulations, the reporting thresholds for 
winnings from bingo, keno and slot machine play (other than 
electronically tracked slot machine play) remain the same as under the 
existing regulations. These thresholds are intended to reach a balance 
between reporting burden and compliance risk. Based on over 35 years of 
experience with the current thresholds, the IRS thinks they are 
sufficient at this time to verify correct reporting of wagering income. 
Accordingly, Sec.  1.6041-10(b) of the proposed regulations provides 
that reportable gambling winnings means (i) $1,200 or more in the case 
of one bingo game or slot machine play, and (ii) $1,500 or more in the 
case of one keno game. However, advances in technology in the nearly 
four decades since the existing rules were adopted may overcome the 
compliance concerns that prompted the higher reporting thresholds and 
may warrant reducing the thresholds for bingo, keno, and slots to $600, 
consistent with other information reporting thresholds under Sec.  
6041(a). Accordingly, the IRS and Treasury will continue to monitor the 
effectiveness of the existing (and proposed) reporting thresholds, and 
may propose to reduce those thresholds at a future time. Comments are 
specifically requested regarding the proposed reporting thresholds, 
including the feasibility of reducing those thresholds to $600 at a 
future time, whether electronically tracked slot machine play should 
have a separate reporting threshold, and whether the amounts should be 
uniform for bingo, keno, and slot machine play.
    In addition, the proposed regulations retain the rule from Sec.  
7.6041-1(b) of the Temporary Income Regulations that, in determining 
whether the reporting threshold is satisfied, the amount of the 
winnings from bingo or slot machine play is not reduced by the amount 
wagered, but the amount of winnings from one keno game is reduced by 
the amount wagered in that one game. Allowing the winnings from one 
keno game to be reduced by the amount wagered in that one game has been 
permitted by the regulations for over 35 years. This rule has been 
relied upon by payors and is an established norm in the gaming 
industry. The proposed regulations do not permit the winnings from one 
bingo game or slot machine pull to be reduced by the amount wagered in 
that one game or pull because the IRS does not have data indicating 
that this is feasible. Comments are requested regarding whether 
reportable gambling winnings in the case of bingo and slot machine play 
(other than electronically tracked slot machine play) should be 
determined by netting the wager against the winnings as with keno.
    The proposed regulations also include new rules for determining the 
reporting threshold for electronically tracked slot machine play. Under 
Sec.  1.6041-10(b)(1) of the proposed regulations, electronically 
tracked slot machine play means slot machine play where an electronic 
player system that is controlled by the gaming establishment (such as 
through the use of a player's card or similar system) records the 
amount a specific individual won and wagered on slot machine play. The 
new reporting threshold rules for electronically tracked slot machine 
play rules are intended to simplify reporting by allowing payors to 
leverage their existing technology and processes to report winnings 
from electronically tracked slot machine play. In addition, these 
changes are intended to facilitate reporting that more closely reflects 
gross income that will be reported by payees on their individual income 
tax returns. See Notice 2015-21 for more information on computing gross 
income attributable to electronically tracked slot machine play. 
Comments are specifically requested with respect to the definitions of 
session and electronically tracked slot machine play.
    Under these new rules, gambling winnings for electronically tracked 
slot machine play must be reported when two criteria are met: (i) The 
total amount of winnings earned from electronically tracked slot 
machine play during a single session netted against the total amount of 
wagers placed on electronically tracked slot machines during the same 
session is $1,200 or more; and (ii) at least one single win during the 
session (without regard to the amount wagered) equals or exceeds 
$1,200. The first criterion helps to implement the safe harbor for 
computing gross income attributable to electronically tracked slot 
machine play described in Notice 2015-21. The second criterion is 
intended to be consistent with the casino industry's current practice 
of gathering payee information when a player wins a single jackpot that 
satisfies the reporting threshold. The $1,200 threshold for each 
criterion is intended to balance reporting burden and compliance risk 
as discussed previously. Pursuant to Sec.  1.6041-10(b)(3) of the 
proposed regulations, a session begins when a patron places the first 
wager on a particular type of game at the payor's gaming establishment 
and ends when the patron places his or her last wager on the same type 
of game before the end of the same calendar day at the same 
establishment. Under this rule, reporting with respect to 
electronically tracked slot machine play is not required if no single 
win (without reduction for the amount of the wager) meets the $1,200 
reporting threshold or if the net amount of winnings reduced by the 
amount of all wagers for the session is less than $1,200. However, if 
the $1,200 reporting threshold for a single win is satisfied and all 
winnings from electronically tracked slot machine play during a session 
netted against all

[[Page 11602]]

wagers on electronically tracked slot machine play during that session 
are $1,200 or more, gambling winnings for the session must be reported 
on a Form W-2G.
    Proposed Sec.  1.6041-10(b)(2) also includes several clarifications 
regarding the definition of reportable gambling winnings. First, the 
proposed regulations clarify that all winnings from all cards played 
during one bingo game are combined and that all winnings from all 
``ways'' on a multi-way keno ticket are combined. Second, the proposed 
regulations clarify that winnings from different types of games are not 
combined to determine whether the reporting thresholds are satisfied, 
and that bingo, keno, electronically tracked slot machine play, and 
slot machine play that is not electronically tracked are all different 
types of games.
    Proposed Sec.  1.6041-10(b)(4) also adds a definition of the term 
``slot machine'' to these information reporting regulations. Under this 
definition, a slot machine is a device that, by application of the 
element of chance, may deliver or entitle the person playing or 
operating the device to receive cash, premiums, merchandise, or tokens, 
whether or not the device is operated by inserting a coin, token, or 
similar object. The definition of slot machine in the proposed 
regulations is intended to be consistent with Sec.  44.4402-1(b)(1) of 
the Wagering Tax Regulations.

Filing and Form and Content of the Information Return

    Proposed Sec.  1.6041-10(d) retains the requirement in Sec.  
7.6041-1(c) of the Temporary Income Tax Regulations that a payor of 
reportable gambling winnings file a Form W-2G, ``Certain Gambling 
Winnings,'' or successor form, on or before February 28 (or March 31, 
if filed electronically) of the year following the calendar year in 
which the reportable gambling winnings were paid. Outdated references 
to the place of filing have been replaced with a requirement that the 
return is filed with the appropriate Internal Revenue Service location 
designated in the instructions to the form.
    Proposed Sec.  1.6041-10(g) requires a payor of reportable gambling 
winnings to provide a statement of the reportable gambling winnings to 
each payee on or before January 31st of the calendar year after the 
calendar year in which the gambling winnings were paid. Although Sec.  
7.6041-1 of the Temporary Income Tax Regulations does not address when 
to provide statements to the payees, the proposed regulations are a 
restatement of the requirement to furnish statements to payees in 
section 6041(d). In addition, proposed Sec.  1.6041-10(i) clarifies 
that the rules for reporting winnings from bingo, keno, and slot 
machine play under proposed Sec.  1.6041-10 do not apply to payments 
made to foreign persons. Instead, gambling winnings paid to a foreign 
person are generally subject to 30 percent withholding under sections 
1441(a) and 1442(a) and are reportable on Form 1042, Annual Withholding 
Tax Return for U.S. Source Income of Foreign Persons, and Form 1042-S, 
Foreign Person's U.S. Source Income Subject to Withholding. Proposed 
Sec.  1.6041-10(e) retains the rules in Sec.  7.6041-1(c) of the 
Temporary Regulations regarding the information that is required on the 
return, including the requirement that the payor describe on the return 
the two types of identification relied on to verify the payee's 
identity. However, proposed Sec.  1.6041-10(e) now requires that one of 
the forms of identification include the payee's photograph to ensure 
that certain safeguards are in place to properly identify the payee. In 
addition, under proposed Sec.  1.6041-10(f), the type of identification 
that is acceptable has been expanded.

Payee Identification

    Section 7.6041-1(c)(3) of the Temporary Income Tax Regulations, 
which has been in place since 1977, provides that the identification 
verifying the payee's identity must include the payee's social security 
number. According to those regulations, examples of acceptable 
identification include a driver's license, a social security card, or a 
voter registration card. However, today most forms of identification do 
not include a person's social security number. Therefore, many payees 
do not have identification that contains the payee's social security 
number and, even if they do, they may not have this identification with 
them at the time that they receive a payment of reportable gambling 
winnings. To address this issue, Sec.  1.6041-10(f) of the proposed 
regulations provides that, in addition to government-issued 
identification, a properly completed Form W-9 signed by the payee is an 
acceptable form of identification to verify the payee's identifying 
information. This rule is consistent with procedures currently used by 
many payors to address the fact that most forms of identification do 
not contain social security numbers. Accordingly, payors who verify 
payee information using identification set forth in proposed Sec.  
1.6041-10(f) before the date that final regulations implementing these 
provisions are published in the Federal Register will be treated as 
meeting the requirements of Sec.  7.6041-1(c) of the Temporary Income 
Tax Regulations.

Aggregate Reporting Method

    Proposed Sec.  1.6041-10(h) provides an alternative method for 
reporting multiple winnings from bingo, keno, and slots. Under current 
regulations, each payment of gambling winnings from a single bingo or 
keno game, or slot machine play that meets the reporting threshold is 
required to be reported on a Form W-2G to the same payee. To simplify 
reporting, proposed Sec.  1.6041-10(h) would allow a payor who makes 
more than one payment of reportable gambling winnings to the same payee 
from the same type of game during the same session to report the 
aggregate amount of such reportable gambling winnings on one Form W-2G. 
This aggregate reporting method may be used at the payor's option. 
Proposed Sec.  1.6041-10(h)(3) sets forth certain recordkeeping 
requirements for a payor using the aggregate reporting method.

Gambling Winnings Other Than Bingo, Keno, and Slot Machine Play

    These proposed regulations apply to reporting of gambling winnings 
from bingo, keno, and slot machine play. The Treasury Department and 
the IRS are aware that taxpayers required to report winnings from pari-
mutuel gambling may have concerns, similar to those addressed in these 
proposed regulations, relating to when wagers with respect to horse 
races, dog races, and jai alai may be treated as identical. Identical 
wagers are combined and offset against winnings to determine proceeds 
from the wager for purposes of determining whether the reporting 
thresholds are satisfied. The Treasury Department and the IRS intend to 
amend the regulations under Sec.  31.3402(q)-1 in a manner consistent 
with these proposed regulations and request comments from the public on 
this topic. In addition, comments are requested regarding whether the 
aggregate reporting method should be available for gambling winnings 
other than winnings from bingo, keno, and slot machine play.

Proposed Effective/Applicability Date

    These regulations are proposed to apply to payments made on or 
after the date of publication of the Treasury decision adopting these 
rules as final regulations in the Federal Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined

[[Page 11603]]

in Executive Order 12866, as supplemented by Executive Order 13563. 
Therefore, a regulatory assessment is not required. It has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. It is hereby 
certified that this rule will not have a significant economic impact on 
a substantial number of small entities. This certification is based on 
the fact that this rule merely provides guidance as to the timing and 
filing of information reporting returns for payors who make reportable 
payments of bingo, keno, or slot machine winnings and who are required 
by section 6041 to make returns reporting those payments. The 
requirement for payors to make information returns is imposed by 
statute and not these regulations. In addition, this rule is reducing 
the existing burden on payors to comply with the statutory requirement 
by simplifying the process for payors to verify payees' identities 
using a broader range of documents that are more readily available and 
also by allowing payors to reduce the number of information returns 
they issue if they adopt the new aggregate reporting methodology in the 
regulations. Therefore, 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, this notice 
of proposed rulemaking has been submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are submitted timely 
to the IRS. In addition to the requests for comments noted in the 
Background Section, Treasury and the IRS request comments on any other 
aspects of the proposed rules, and any other issues relating to the 
payment of bingo, keno, and slot machine winnings that are not 
addressed in the proposed regulations. All comments will be available 
at www.regulations.gov for public inspection and copying.
    A public hearing has been scheduled for June 17, 2015, beginning at 
10 a.m. in the IRS Auditorium, Internal Revenue Building, 1111 
Constitution Avenue NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. For information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of Sec.  601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit electronic or 
written comments and an outline of the topics to be discussed and the 
time to be devoted to each topic (signed original and eight (8) copies) 
and an outline of the topics to be discussed and the time to be devoted 
to each topic by June 2, 2015. A period of 10 minutes will be allotted 
to each person for making comments. An agenda showing the scheduling of 
the speakers will be prepared after the deadline for receiving outlines 
has passed. Copies of the agenda will be available free of charge at 
the hearing.

Drafting Information

    The principal author of these proposed regulations is Charles W. 
Gorham, formerly of the Office of the Associate Chief Counsel 
(Procedure and Administration).

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 31

    Employment Taxes and Collection of Income Tax at Source.

Proposed Amendment to the Regulations

    Accordingly, 26 CFR parts 1 and 31 are proposed to be amended as 
follows:

PART 1--INCOME TAXES

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

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

0
Par. 2. Section 1.6041-10 is added to read as follows:


Sec.  1.6041-10  Return of information as to payments of winnings from 
bingo, keno, and slot machine play.

    (a) In general. Every person engaged in a trade or business (as 
defined in Sec.  1.6041-1(b)) and who, in the course of such trade or 
business, makes a payment of reportable gambling winnings (defined in 
paragraph (b)(2) of this section) must make an information return with 
respect to such payment. Unless the provisions of paragraph (h) of this 
section (regarding aggregate reporting) apply, a separate information 
return is required with respect to each payment of reportable gambling 
winnings.
    (b) Definitions--(1) Electronically tracked slot machine play. For 
purposes of this section, the term ``electronically tracked slot 
machine play'' means slot machine play using an electronic player 
system that is controlled by the gaming establishment (such as through 
the use of a player's card or similar system) that records the amount a 
specific individual won and wagered on slot machine play.
    (2) Reportable gambling winnings. (i) For purposes of this section, 
the term ``reportable gambling winnings'' is defined as follows:
    (A) For bingo, the term ``reportable gambling winnings'' means 
winnings of $1,200 or more from one bingo game, without reduction for 
the amount wagered. All winnings received from all wagers made during 
one bingo game are combined (for example, all winnings from all cards 
played during one bingo game are combined).
    (B) For keno, the term ``reportable gambling winnings'' means 
winnings of $1,500 or more from one keno game reduced by the amount 
wagered on the same keno game. All winnings received from all wagers 
made during one keno game are combined (for example, all winnings from 
all ``ways'' on a multi-way keno ticket are combined).
    (C) For slot machine play (other than electronically tracked slot 
machine play as defined in paragraph (b)(1) of this section), the term 
``reportable gambling winnings'' means winnings of $1,200 or more from 
one slot machine play, without reduction for the amount wagered.
    (D) For electronically tracked slot machine play (as defined in 
(b)(1) of this section), the term ``reportable gambling winnings'' 
means net winnings of $1,200 or more, but only if the winnings from at 
least one electronically tracked slot machine play during the session, 
without reduction for any amount wagered, is $1,200 or more. For 
purposes of this paragraph (b)(2)(i)(D) of this section, net winnings 
is determined by combining the amount of all winnings from all 
electronically tracked slot machine play during the session reduced by 
the amount of all wagers from all electronically tracked slot machine 
play during the same session.
    (ii) Winnings and wagers from different types of games are not 
combined to determine if the reporting threshold is satisfied. Bingo, 
keno, and

[[Page 11604]]

slot machine play are different types of games. Electronically tracked 
slot machine play and slot machine play that is not electronically 
tracked are different types of games.
    (iii) Winnings include the fair market value of a payment in any 
medium other than cash.
    (iv) The amount wagered in the case of a free play is zero.
    (v) For purposes of paragraph (b)(2)(i)(D) of this section, with 
respect to electronically tracked slot machine play, if the amount 
wagered during a session exceeds the amount won during the same 
session, the amount of winnings is zero.
    (3) Session. For purposes of this section, a session of play begins 
when a patron places the first wager on a particular type of game at a 
gaming establishment and ends when the patron places his or her last 
wager on the same type of game before the end of the same calendar day 
at the same gaming establishment. For purposes of this section, the 
time is determined by the time zone of the location where the patron 
places the wager. A session of play is always determined with reference 
to a calendar day (24-hour period from 12 a.m. through 11:59 p.m.) and 
ends no later than the end of that calendar day. Nothing in this 
section prohibits a payor from terminating a session for any reason 
before the end of that calendar day.
    (4) Slot machine. The term ``slot machine'' means a device that, by 
application of the element of chance, may deliver, or entitle the 
person playing or operating the device to receive cash, premiums, 
merchandise, or tokens whether or not the device is operated by 
insertion of a coin, token, or similar object.
    (c) Examples. The following examples illustrate the provisions of 
paragraphs (a) and (b) of this section:

    Example 1.  At 10 a.m., A wagers $20 at casino R on one play on 
a slot machine that is not electronically tracked. A wins $1,200 
from this wager. At 2 p.m. on the same day, A wagers $100 on one 
keno game at casino R. A wins $1,550 from that wager. A makes no 
other wagers that day:
    (i) Under paragraph (b)(2)(i)(C) of this section, A's $1,200 in 
winnings from slot machine play that is not electronically tracked 
are not reduced by the amount wagered. Therefore, the $1,200 
winnings from slot machine play that is not electronically tracked 
are reportable gambling winnings. R must report the $1,200 in 
winnings from slot machine play that it pays to A.
    (ii) Under paragraph (b)(2)(ii) of this section, because 
winnings from different types of games are not combined to determine 
whether the threshold for reportable gambling winnings is satisfied, 
A's winnings from slot machine play that is not electronically 
tracked are not combined with A's winnings from keno. A's winnings 
from keno are below the $1,500 reporting threshold for keno, because 
the gross amount of $1,550 that A won is reduced by the $100 amount 
that A wagered. R is therefore not required to report the winnings 
from keno that it pays to A under paragraph (b)(2)(i)(B) of this 
section.
    Example 2.  Between 11 a.m. and 11 p.m. on the same day, B 
places five wagers of $20 each at casino Q on slot machine play that 
is not electronically tracked. B wins a total of $1,600 during that 
period of time as follows: an $800 win on the first play, no win on 
the second play, no win on the third play, a $600 win on the fourth 
play, and a $200 win on the fifth play. Under paragraph (b)(2)(i)(C) 
of this section, winnings from slot machine play that is not 
electronically tracked are not combined to determine whether the 
reporting threshold is satisfied. Therefore, none of B's winnings is 
a reportable gambling winning and Q is not required to report 
winnings from slot machine play that it pays to B.
    Example 3.  During one session at casino R, C places two $20 
wagers on one electronically tracked slot machine and three $20 
wagers on a different electronically tracked slot machine. The first 
four wagers result in no wins. The fifth wager results in a win of 
$2,000. C makes no further wagers on any games at R during the same 
session. C's combined winnings for the session ($2,000) reduced by 
C's combined wagers for the session ($100) is $1,900, which is over 
the $1,200 threshold described in paragraph (b)(2)(i)(D) of this 
section. In addition, C had one win in the same session of $1,200 or 
more ($2,000 win). Therefore, under paragraph (b)(2)(i)(D) of this 
section, R paid reportable gambling winnings with respect to 
electronically tracked slot machine play of $1,900. Accordingly, R 
must report the winnings of $1,900 that it paid to C.
    Example 4.  Assume the same facts as in Example 3, except that 
the fourth wager results in an $800 win and the fifth wager results 
in a $1,000 win. C's combined winnings for the session of $1,800 
($800 + $1,000) reduced by C's combined wagers placed during the 
session of $100 is $1,700. However, C did not have a single win 
during that session of $1,200 or more, as required under paragraph 
(b)(2)(i)(D) of this section, for there to be reportable gambling 
winnings from electronically tracked slot machine play. Accordingly, 
R is not required to report the winnings from the session from 
electronically tracked slot machine play that it pays to C.
    Example 5. During one session, D places ten $200 wagers on 
electronically tracked slot machine play at casino S. The first nine 
wagers result in no wins. The last wager results in a $1,500 win. 
D's combined winnings for the session ($1,500) reduced by D's 
combined wagers placed during the session ($2,000) did not result in 
any net winnings from electronically tracked slot machine play 
during the session. Under paragraph (b)(2)(i)(D) of this section, 
gambling winnings from a session of electronically tracked slot 
machine play are not reportable gambling winnings unless they 
include a single win of $1,200 or more and the net amount of all 
winnings during the session reduced by all wagers placed during the 
session is $1,200 or more. Here, there was a single win of $1,500, 
which exceeds the threshold for a single win under paragraph 
(b)(2)(i)(D) of this section. However, because the net amount of the 
winnings reduced by all the wagers placed during the session is not 
$1,200 or more, paragraph (b)(2)(i)(D) of this section is not 
satisfied. Therefore, during the session, D did not have reportable 
gambling winnings with respect to electronically tracked slot 
machine play during the session and S is not required to report the 
winnings it pays D with respect to electronically tracked slot 
machine play during this session.
    Example 6.  During one session, E places five $20 wagers at 
casino T on slot machine play that is not electronically tracked. 
The first four wagers result in no wins. The fifth wager results in 
a win of $1,200. During the same session, E also places five $20 
wagers at casino T on slot machine play that is electronically 
tracked. The first four wagers result in no wins. The fifth wager 
results in a win of $1,400. E makes no wagers on any other games at 
T during that session. Under paragraph (b)(2)(ii) of this section, 
winnings from slot machine play that is not electronically tracked 
and winnings from electronically tracked slot machine play are not 
combined. However, even without combining the winnings from both 
types of slot machine play, T paid reportable gambling winnings with 
respect to both the slot machine play that is not electronically 
tracked, and electronically tracked slot machine play as follows:
    (i) Under paragraph (b)(2)(i)(C) of this section, E's $1,200 of 
winnings from slot machine play that is not electronically tracked 
is not reduced by the amount wagered, even though all of E's wagers 
were placed during the same session. Accordingly, the $1,200 of 
winnings from slot machine play that is not electronically tracked 
meets the threshold in paragraph (b)(2)(i)(C) of this section and T 
must report the $1,200 in winnings from slot machine play that is 
not electronically tracked that it pays to E.
    (ii) Because E's combined winnings from electronically tracked 
slot machine play during the session ($1,400) reduced by E's 
combined wagers on electronically tracked slot machine play placed 
during the session ($100) is $1,200 or more ($1,400 - $100 = $1,300) 
and E had at least one win during the same session of $1,200 or more 
(a win of $1,400), under paragraph (b)(2)(i)(D) of this section, T 
paid E reportable gambling winnings with respect to electronically 
tracked slot machine play. Accordingly, T must also report winnings 
from the electronically tracked slot machine play during the session 
of $1,300 that it pays to E.
    Example 7.  During the same session, F makes five $20 wagers at 
casino V on slot machine play that is electronically tracked on the 
same slot machine. The first three wagers result in no wins. The 
fourth wager results in a win of $900. The fifth wager results in

[[Page 11605]]

a win of $1,100. After the fifth wager, F uses free play to make a 
wager. The free play wager occurs during the same session as the 
five wagers and is also electronically tracked. As a result of the 
free play, F wins $1,200. In this case, there are reportable 
gambling winnings from electronically tracked slot machine play. 
Under paragraph (b)(2)(i)(D) of this section, F's combined winnings 
from electronically tracked slot machine play during the session 
($3,200) reduced by F's combined wagers placed on electronically 
tracked slot machine play during the session (($20 x 5) + 0 = $100) 
is $3,100, and F had at least one win in the same session of $1,200 
or more (a win of $1,200 from the free play). Accordingly, V must 
report the $3,100 of winnings from the electronically tracked slot 
machine play during the session that it pays to F.
    Example 8.  Between 11 p.m. and 11:59 p.m. on Day 1, G makes 
five $20 wagers at casino W on slot machine play that is 
electronically tracked. The first four wagers placed on Day 1 result 
in no wins. The fifth wager placed on Day 1 results in an $800 win. 
Between 12:00 a.m. and 12:15 a.m. on Day 2, G makes two $20 wagers 
on the same slot machine at casino W that is electronically tracked. 
The first wager placed on Day 2 results in a win of $600. The second 
wager placed on Day 2 results in a win of $900.
    (i) Under paragraphs (b)(2)(i)(D) and (b)(3) of this section, 
the winnings from one session of electronically tracked slot machine 
play are not combined with the winnings from another session of 
electronically tracked slot machine play for purposes of determining 
reportable gambling winnings. In this case, G engaged in 
electronically tracked slot machine play during two sessions, even 
though he played the same type of game on the same machine at the 
same gambling establishment. Therefore, each session must be 
analyzed to determine whether there were reportable gambling 
winnings from electronically tracked slot machine play.
    (ii) During the session on Day 1, G won $800. Because no single 
win was $1,200 or more on Day 1, there were no reportable gambling 
winnings from electronically tracked slot machine play on Day 1 
under paragraph (b)(2)(i)(D) of this section, and W does not have to 
report the winnings from electronically tracked slot machine play on 
Day 1 that it paid to G.
    (iii) During the session on Day 2, G won $600 and $900. Because 
no single win was $1,200 or more on Day 2, there were no reportable 
gambling winnings from electronically tracked slot machine play on 
Day 2 under paragraph (b)(2)(i)(D) of this section, and W does not 
have to report the winnings from electronically tracked slot machine 
play on Day 2 that it paid to G.

    (d) Prescribed form; time and place for filing the return. The 
return described in paragraph (a) of this section is a Form W-2G, 
``Certain Gambling Winnings'' or successor form. The Form W-2G must be 
filed with the appropriate Internal Revenue Service location designated 
in the instructions to the form on or before February 28 (March 31, if 
filed electronically) of the year following the calendar year in which 
the reportable gambling winnings were paid. See section 6011 and Sec.  
1.6011-2 for requirements to file electronically.
    (e) Information included on the return. Each return required by 
paragraph (a) of this section must contain:
    (1) The name, address, and taxpayer identification number of the 
payor;
    (2) The name, address, and taxpayer identification number of the 
payee;
    (3) A general description of the two types of identification (as 
described in paragraph (f) of this section), one of which must have the 
payee's photograph on it, that the payor relied on to verify the 
payee's name, address, and taxpayer identification number;
    (4) The date and amount of payment;
    (5) The type of wagering transaction (bingo, keno, slot machine 
play, or electronically tracked slot machine play);
    (6) In the case of a bingo or keno game, any number, color, or 
other designation assigned to the game for which the payment is made;
    (7) In the case of slot machine play (including electronically 
tracked slot machine play), the identification number of the slot 
machine(s) (for example, location and asset number);
    (8) Any other information required by the form, instructions, 
revenue procedure, or other applicable guidance published in the 
Internal Revenue Bulletin. In the case of aggregate reporting under 
paragraph (h) of this section, the amount of the payment in paragraphs 
(e)(4) is the aggregate amount of payments of reportable gambling 
winnings from the same type of game (bingo, keno, slot machine play, or 
electronically tracked slot machine play) made to the same payee during 
the same session (as defined in paragraph (b)(3) of this section). 
Unless otherwise provided in forms, instructions, or other guidance, in 
the case of aggregate reporting under paragraph (h) of this section the 
information required by paragraphs (e)(5), (6), (7) of this section, 
and this paragraph (e)(8) must be maintained by the payor as described 
in paragraph (h)(3) of this section.
    (f) Identification. The following items are treated as 
identification for purposes of paragraph (e)(3) of this section--
    (1) Government-issued identification (for example, a driver's 
license, passport, social security card, military identification card, 
or voter registration card) in the name of the payee; and
    (2) 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.
    (g) Furnishing a statement to the payee. Every payor required to 
make a return under paragraph (a) of this section must also make and 
furnish to each payee, with respect to each payment of reportable 
gambling winnings, a written statement that contains the information 
that is required to be included on the return under paragraph (e) of 
this section. The payor must furnish the statement to the payee on or 
before January 31st of the year following the calendar year in which 
payment of the reportable gambling winnings 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.
    (h) Aggregate reporting of bingo, keno, and slot machine winnings--
(1) In general. In lieu of filing a separate information return for 
each payment of reportable gambling winnings as required by paragraph 
(a) of this section, a payor may use the aggregate reporting method 
(defined in paragraph (h)(2) of this section) to report reportable 
gambling winnings from bingo, keno, or slot machine play (including 
electronically tracked slot machine play). A payor using the aggregate 
reporting method to file information returns under paragraph (a) of 
this section must also furnish statements to the payee under paragraph 
(g) of this section using the aggregate reporting method.
    (2) Aggregate reporting method defined. (i) The aggregate reporting 
method is a method of reporting more than one payment of reportable 
gambling winnings from the same type of game (bingo, keno, slot machine 
play, or electronically tracked slot machine play) made to the same 
payee during the same session (as defined in this paragraph (b)(3) of 
this section) on one information return or statement.
    (ii) A payor may use the aggregate reporting method for payments to 
some payees and not others, at its own discretion. In addition, with 
respect to a single payee, the payor may use the aggregate reporting 
method to report

[[Page 11606]]

winnings from one type of game, but not for winnings from another type 
of game.
    (iii) Failure to report some reportable gambling winnings from a 
particular type of game during one session to a particular payee under 
the aggregate reporting method (for whatever reason, including because 
the winnings are not permitted to be reported using the aggregate 
reporting method under paragraph (h)(4) of this section) will not 
disqualify the payor from using the aggregate reporting method to 
report other reportable gambling winnings from that type of game during 
that session to that payee.
    (3) Recordkeeping under the aggregate reporting method. A payor 
using the aggregate reporting method must maintain a record of every 
payment of reportable gambling winnings from the same type of game made 
to the same payee during the session that will be reported using the 
aggregate reporting method. Every individual that the payor has 
determined is responsible for an entry in the record must confirm the 
information in the entry by signing the record in a manner that will 
enable the signature to be associated with the relevant entry. Each 
payment of a reportable gambling winning made to the same payee and 
reported under the aggregate reporting method must have its own entry 
in the record, however, the information required by paragraphs (e)(1), 
(2), and (3) of this section is not required to be recorded more than 
one time per session. A payor that uses the aggregate reporting method 
must retain a copy of the record in its files. The record (which may be 
electronic provided the requirements set forth in forms, instructions, 
or guidance published in the Internal Revenue Bulletin are met) must 
include the following information about each payment:
    (i) The payee's signature confirming the information in the record;
    (ii) The information required under paragraph (e) of this section;
    (iii) The time of the win resulting in the reportable gambling 
winnings;
    (iv) Except in the case of electronically tracked slot machine 
play, the total amount of reportable gambling winnings;
    (v) In the case of electronically tracked slot machine play--
    (A) The total amount of the winnings during the session from 
electronically tracked slot machine play; and
    (B) The total amount of the wagers placed during the session on 
electronically tracked slot machine play;
    (vi) The amount of reportable gambling winnings;
    (vii) The method of payment to the payee (for example, cash, check, 
voucher, token, or chips); and
    (viii) The name and gaming license number of the individual that 
the payor has determined is responsible for ensuring that the entry 
with respect to the reportable gambling winnings (including the general 
description of two types of identification used to verify the payee's 
name, address, and taxpayer identification number) is complete and 
accurate. Such individual may or may not be the same individual who 
prepared the entry.
    (4) When the aggregate reporting method may not be used. A payor 
cannot use the aggregate reporting method if--
    (i) The payee is a foreign person;
    (ii) The payor knows or has reason to know that the person making 
the wager is not the person entitled to the winnings or is not the only 
person entitled to the winnings (regardless of whether the person 
making the wager furnishes a Form 5754, ``Statement by Person(s) 
Receiving Gambling Winnings,'' or successor form); or
    (iii) Backup withholding under section 3406(a) applies to the 
payment.
    (5) Examples. The following examples illustrate the provisions of 
this paragraph (h):

    Example 1.  On Day 1, C places five wagers at casino R on five 
different slot machines that are not electronically tracked. The 
first two wagers result in no win. The third wager results in a 
$1,500 win. The fourth wager results in a $2,500 win. The fifth 
wager results in an $800 win:
    (i) Under paragraph (b)(2)(i)(C) of this section, there are 
reportable gambling winnings from the slot machine play that is not 
electronically tracked of $4,000 ($1,500 + $2,500). The $800 win is 
not a reportable gambling winning from slot machine play that is not 
electronically tracked because it does not equal or exceed the 
$1,200 threshold.
    (ii) Because all of the amounts were won on the same type of 
game (even though each of the winnings occurred on different 
machines) during the same session, R is permitted to use the 
aggregate reporting method under this paragraph (h). If R decides 
not to use the aggregate reporting method and meets the requirements 
of paragraph (h), a separate Form W-2G would have to be filed and 
furnished for the payment of reportable gambling winnings of $1,500 
and for the payment of reportable gambling winnings of $2,500. 
However, if R decides to use the aggregate reporting method, R may 
report total reportable gambling winnings from slot machine play 
that is not electronically tracked of $4,000 ($1,500 + $2,500) on 
one Form W-2G.
    Example 2. Assume the same facts as Example 1, except that in 
addition to the winnings described in Example 1, at 1 a.m. on Day 2, 
C wins $3,250 from one slot machine play that is not electronically 
tracked at casino R. Even though C played the same type of game 
(slot machines that are not electronically tracked) on Day 1 and Day 
2, because under paragraph (b)(3) of this section the win at 1 a.m. 
on Day 2 is a win during a new session, under paragraph (h)(2)(i) of 
this section the $3,250 of reportable gambling winnings cannot be 
aggregated with the reportable gambling winnings of $4,000 from Day 
1 on a single Form W-2G. Accordingly, if R uses the aggregate 
reporting method, R must file two Forms W-2G with respect to C's 
reportable gambling winnings on Day 1 and Day 2. R must report 
$4,000 of reportable gambling winnings from slot machine play paid 
to C on Day 1 on the first Form W-2G, and $3,250 of reportable 
gambling winnings from slot machine play paid to C on Day 2 on the 
second Form W-2G.
    Example 3.  At 2 p.m. on Day 1, D won $2,000 (after reducing the 
amount of the win by the amount wagered) playing one keno game at 
casino S. D provides S with his driver's license. The driver's 
license has D's photograph on it, as well as D's name and address. 
The driver's license does not include D's social security number. D 
cannot remember his social security number and has no other 
identification at the time with his social security number on it. D 
does not provide S with his social security number before S pays the 
winnings to D. Because D cannot remember his social security number, 
D cannot complete and sign a Form W-9. S deducts and withholds $560 
(28 percent of $2,000) under the backup withholding provisions of 
section 3406(a) and pays the remaining $1,440 in winnings to D. D 
returns to casino S and at 6 p.m. on Day 1 wins $1,500 (after 
reducing the amount of the win by the amount wagered) in one keno 
game. D provides S with his driver's license as well as D's social 
security card. S generally uses the aggregate reporting method and 
in all cases where it is used, S complies with the requirements of 
this paragraph (h). At 8 p.m. and 10 p.m. on Day 1, D wins an 
additional $1,800 and $1,700 (after reducing the amount of the win 
by the amount wagered), respectively, from two different keno games. 
For each of these two wins, an employee of S obtains the information 
from D required by this paragraph (h):
    (i) Under paragraph (b)(2)(i)(B) of this section, each of D's 
wins from the four games of keno on Day 1 ($2,000, $1,500, $1,700, 
and $1,800) are reportable gambling winnings. Because D's first win 
on Day 1 was at 2 p.m. and D's last win on Day 1 was at 10 p.m., all 
of D's reportable gambling winnings from keno are won during the 
same session. Because S satisfies the requirements of paragraph 
(h)(2)(i), S may use the aggregate reporting method to report D's 
reportable gambling winnings from keno. However, pursuant to 
paragraph (h)(4)(iii) of this section, the $2,000 payment made to D 
at 2 p.m. cannot be reported under the aggregate reporting method 
because that payment was subject to backup withholding. Accordingly, 
if S uses the aggregate reporting method under this paragraph (h), S 
will have to file two Forms W-2G with respect to D's reportable 
gambling winnings from keno on

[[Page 11607]]

Day 1. On the first Form W-2G, S will report $2,000 of reportable 
gambling winnings and $560 of backup withholding with respect to the 
2 p.m. win from keno, and on the second Form W-2G S will report 
$5,000 of reportable gambling winnings from keno (representing the 
three payments of $1,500, $1,700, and $1,800 that D won between 6 
p.m. and 10 p.m. on Day 1).
    Example 4.  In one session on Day 1, E won five reportable 
gambling winnings from five different bingo games at a casino T. T 
generally uses the aggregate reporting method and in all cases where 
it is used, T complies with the requirements of this paragraph (h). 
Although E signed the entry in the record T maintains for payment of 
the first four reportable gambling winnings, E refuses to sign the 
entry in the record for the fifth payment of reportable gambling 
winnings. T may use the aggregate reporting method for the first 
four payments of reportable gambling winnings to E. However, because 
the entry in the record for the fifth payment of reportable gambling 
winnings does not include E's signature, that payment may not be 
reported under the aggregate reporting method. Accordingly, if T 
uses the aggregate reporting method under paragraph (h) of this 
section, T must prepare two Forms W-2G as follows: On the first Form 
W-2G, T must report the first four payments of reportable gambling 
winnings from bingo made to E on Day 1. On the second Form W-2G, T 
must report the fifth payment of reportable gambling winnings from 
bingo made to E on Day 1.

    (i) Payments to foreign persons. See Sec.  1.6041-4 regarding 
payments to foreign persons. See Sec.  1.6049-5(d) for determining 
whether the payee is a foreign person.
    (j) Effective/applicability date. This section applies to payments 
of reportable gambling winnings from bingo, keno, slot machine play, 
and electronically tracked slot machine play made on or after the date 
these regulations are published as final regulations in the Federal 
Register. For payments made before that date, other than payments from 
electronically tracked slot machine play, payors may rely on the 
provisions of these proposed regulations.

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

0
Par. 3. The authority citation for part 31 continues to read in part as 
follows:

    26 U.S.C. 7805 * * *


Sec.  31.3406(g)-2  [Amended]

0
Par. 4. In Sec.  31.3406(g)-2, paragraph (d)(3) is amended by removing 
the text ``Sec.  7.6041-1'' and adding the text ``Sec.  1.6041-10'' in 
its place.
* * * * *

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2015-04437 Filed 3-3-15; 8:45 am]
BILLING CODE 4830-01-P