The IRS taxes Americans on their gains. If we make more money than we spend or lose, we will be taxed on it, above a certain threshold that is. Gambling is a unique situation in that we are “gaining” money and losing money, possibly a lot of money, in a short period of time, and in a variety of ways, in one sitting. It would only seem fair that the IRS would calculate whether you gained or lost money in a whole gambling sitting, right? This was not the case for non-resident foreign gamblers up until a recent ruling by the U.S. Court of Appeals in Washington.
Foreign gamblers were being taxed by the IRS on every winning bet they made regardless of whether they came out ahead or not. Sang J. Park, a South Korean businessman and the plaintiff in this lawsuit, visited Pechanga Casino and Resort in California in 2006 and 2007. While Park won over $500,000 playing the slots, he lost even more, and ended up down near $50,000. Park later faced a tax bill from the IRS of over $150,000 on his winnings and later challenged the bill. The U.S. Tax Court upheld the IRS policy before the U.S. Court of Appeals struck it down.
The Appeals Court said that, “the fact that non-resident aliens may not deduct gambling losses from gambling winnings does not tell us how to measure those losses and winnings in the first place.”
I agree with the ruling of the Court as it seems quite unfair to have treated foreigners this way. It seems that this ruling will be good for non-resident foreigners and will be good for the Casino and Gambling industries. Do you think the court came out the right way? What are some legitimate arguments that the IRS could have made that you would agree with?
Source: Bloomgberg.com
Source: Reuters.com
If Sang Park won $500,000 but ended up losing more than $50,000 after taxes why did he come back the next year to gamble some more? Why do foreigners gamble in the U.S. with the seemingly increased chances of ending up at a loss? I am guessing most don’t really think about it until after they gamble and then are surprised when they have to pay taxes. Anyway, I had no idea that non-resident foreigners were experiencing this problem with the IRS. It was definitely unfair that U.S. citizens can go into a casino and calculate their taxes based on their net winnings over the course of a gambling session while foreigners can walk into that same casino but were taxed on each individual bet. I believe the U.S. Court of Appeals did get it right but the IRS will be missing out on a lot of cash due to this ruling and I will be curious to see what it does to make up for it.
Most casinos now carry a player club card or similar which tracks essentially every bet that is made electronically. Additionally, the card is taken by the dealer and given to the table manager when a player elects to play a table game. The amount of money that is changed over and the amount of money that is won is tracked accordingly.
In response to the inquiry, the appellate court did render the right decision and does point out the IRS has not provided a foreign taxation clause for tourists. The IRS in response may argue in futility that nearly $1,050,000 in gambling transactions took place to which they’re only receiving roughly 10% or $150,000. If tourists were to gamble at U.S. casinos only to pay taxes on the combined activities of winning & losing, they would choose a destination outside of the U.S. to gamble.
@Vidia R Here in South Africa we also have the Electronic Player Cards at Casino’s now. Being a country that is greatly dependent on Tourism, Holiday Accommodation being one of our biggest incomes, we do not tax foreigners on their winnings at Casino’s. I think the IRS need to reconsider this harsh practice, it will hurt the industry. Casino’s are taxed so heavily as is, why also tax the customer to death.
I have to agree with the Court of Appeals, especially with this statement made by Judge Brett Kavanaugh: “After a night of gambling, it’s no fun to walk out of the casino a loser…but it’s even worse when the IRS, on your way out, tries to tax you on each individual bet that you happened to win over the course of your losing night.” It seems that Judge Kavanaugh, who sat on the unanimous three-judge panel, understood that taxing foreign gamblers on their occasional wins would only discourage gambling within our borders. This would deter a fairly significant tourist population from making their returns to our booming casinos. The IRS policy, which taxed foreign gamblers on every winning bet (even if they walked away with net losses) had been based upon the fact that foreigners, who cannot deduct gambling losses from their income, as U.S. residents can, should not be allowed to deduct during individual gambling sessions. As Matt said, the Court of Appeals described the IRS’s resulting policy as “non sequitur.” The Judges are making a great deal of sense here.
See Park v. Commissioner of Internal Revenue Service, U.S. Court of Appeals for the District of Columbia Circuit, No. 12-1058.