The U.S. Treasury Department and the Internal Revenue Service (IRS) announced in September that they would formally adopt modernized regulations regarding the withholding and reporting of pari-mutuel proceeds. The National Thoroughbred Racing Association (NTRA) had long pressed for these updated regulations that will allow horseplayers to keep more of their winnings, thereby increasing the amount wagered on U.S. pari-mutuel racing by as much as 10 percent annually, or upwards of $1 billion, according to independent estimates.
Under the new regulations, the IRS will consider the inclusion of a bettor’s entire investment in a single pari-mutuel pool when determining the amount reported or withheld for tax purposes, as opposed to only the amount wagered on the correct result.
For example, the amount wagered by a Pick Six player who hits with one of 140 combinations on a $1-minimum wager now will be $140, which is the total amount bet into the Pick Six pool. This more accurate calculation will remove the significant reporting and withholding obligations on horseplayers and the unnecessary paperwork for the IRS that was a result of the prior rule that used only the $1 bet on the single winning combination as the amount wagered.
Senior members of the Department of Treasury met with the NTRA and other industry participants to learn more about the horseplayer withholding issue, outlined in a 2014 letter to Treasury. Also in attendance was Rep. John Yarmuth (D-KY), who has been instrumental in building support for modernizing current withholding rules to better and more fairly represent today’s wagering menu.
Treasury Department officials indicated that action may be forthcoming as part of a review of IRS Form W2-G, used by taxpayers to report gambling winnings and any Federal income tax withheld on those winnings. In March 2015, the Treasury Department and Internal Revenue Service (IRS) issued a Notice of Proposed Rulemaking and Public Hearing (Notice) that opens the door to the possible addition of pari-mutuel gambling winnings to updated reporting and withholding requirements being developed for bingo, keno and slot machine players. NTRA continues to work with the Treasury Department as well as supporters on Capitol Hill to change the definition of a bet or a wager.
Seventeen members of Congress joined in supporting a key initiative of the NTRA, a request that the IRS clarify its definition of the “cost of a wager” in determining whether a winning horse player is subject to IRS reporting and withholding. Horseplayers wagering on pari-mutuel races currently are subject to reporting of winnings of $600 or more and automatic Federal tax withholding on pari-mutuel winnings of $5,000 or more at odds of at least 300-1. The “cost of a wager,” now defined simply as the single winning bet the player makes (versus the total investment made), is at the center of these calculations, which frequently trigger reporting and/or withholding for horseplayers. Withholding reduces players’ liquidity during handicapping and adversely impacts pari-mutuel handle and purses. Withholding levels for pari-mutuel winnings were last changed (from $1,000 to $5,000) in 1992. Reporting levels have not changed since the mid-1970s.
A provision that retroactively extended three-year tax depreciation for all racehorses was passed in December by the United States Senate as part of H.R. 5771, the Tax Increase Prevention Act of 2014. The House of Representatives also overwhelmingly passed H.R. 5771 to extend retroactively through the end of 2014 numerous provisions that expired or were reduced at the end of 2013. With the support of Senator Mitch McConnell (R-KY), the three-year depreciation schedule originally passed into law as part of the 2008 Farm Bill, giving the provision a five-year life span. In anticipation of the bill’s sunset, Rep. Andy Barr (R-KY) in 2013 introduced the provision in a standalone bill, the Race Horse Cost Recovery Act, which became part of H.R. 5771.
Legislation that would eliminate the automatic 25 percent Federal withholding tax on pari-mutuel winnings of $5,000 or more if the odds are at least 300 times the amount wagered was introduced on April 28 by Rep. John Yarmuth (D-KY). The “Pari-Mutuel Conformity and Equality Act of 2009” – or PACE Act (H.R. 2140) would end this unfair taxation of horseplayers.
In May 2008, NTRA secured passage of legislation that was first introduced in the 109th Congress. The Equine Equity Act (EEA), part of the broader Farm Bill, allows for accelerated depreciation of racehorses from seven years (in most cases) to 36 months over four tax years. The EEA was effective January 1, 2009. Its initial application extends through the five-year term of the Farm Bill and may be renewed with the next Farm Bill (2012).
After 10 years of attempts, Congress passed an Internet gaming bill that effectively banned the use of credit or other forms of payment for any type of online gaming except intrastate and tribal gaming and pari-mutuel wagering on horse racing, as authorized by the amended Interstate Horseracing Act (IHA).
Legislation to provide horse owners and breeders significant tax benefits was introduced by Senator Mitch McConnell (R-KY). The Equine Equity Act (EEA), introduced as Senate Bill 1528, was later introduced in the House by Representative Ron Lewis (R-KY) as H.R. 4151. The EEA included changes in the depreciation schedule and capital gains holding period for racehorses, benefiting horse owners and breeders. These two tax components of the legislation failed to move during the 109th Congress; however, accelerated by the devastation of Hurricanes Katrina and Rita, horse breeders became eligible for Federal disaster assistance during droughts and other farm-related emergencies with a provision in the Agriculture Appropriations bill. This legislation was originally included in EEA and put horse breeders on equal terms with producers of most types of livestock with respect to disaster-assistance programs offered by the U.S. Department of Agriculture.
International simulcasting received a boost when the NTRA secured passage of legislation to eliminate a 30% withholding tax on winnings by foreign nationals wagering into U.S. pools. This allowed U.S. tracks to accept wagers from countries such as Canada, which previously had been forced to create their own wagering pools on U.S. racing. As of 2007, all racing jurisdictions are now offering co-pooled wagering with Canada.
To promote and facilitate the accumulation of voluntary contributions from members of the NTRA for the support of political parties and candidates for elective office in the United States, the NTRA activated the Federal Political Action Committee (PAC) now known as Horse PAC. It has become the nation’s largest gaming PAC in terms of annual contributions and is dedicated to the support of candidates who understand horseracing’s issues.
Industry foresight led to an important amendment to the Interstate Horseracing Act (IHA). Along with the American Horse Council, lobbyists and other industry organizations, the NTRA helped secure the IHA amendment that legalized pari-mutuel wagering on horse racing via the Internet. Years later, this move made the IHA a focal point of legislation designed to ban online wagering.
How can Federal lobbying help make our industry more competitive?
Primarily by seeking tax legislation that benefits industry stakeholder groups such as horse owners, breeders, racetracks, advance deposit wagering service providers and players but also by addressing select issues that directly impact the economics of racing, such as Internet wagering, immigration and matters that affect farmers, ranchers and other agricultural producers.
How does the NTRA lobby on Capitol Hill?
NTRA retains Washington, D.C.-based The Alpine Group to lobby on issues specific to pari-mutuel horse racing and breeding. The Alpine Group coordinates its efforts with the NTRA’s in-house legislative team and with the American Horse Council, a national association representing more than 160 equine breeds.
How is the Legislative Action Campaign funded?
The Legislative Action Campaign raises funds through three programs: the ¼% Sales Check-off, NTRA Foal Program and Horseplayers’ Coalition membership. For the former, buyers, sellers and consignors may support the Campaign by pledging ¼ of one percent on the price of their horses sold at Keeneland, Fasig-Tipton, Ocala Breeders’ Sales Company, Barretts, Breeders’ Sales Company of Louisiana and the Washington Thoroughbred Breeders and Owners Association. Every $1,000 in a horse’s sale price equals $2.50 to the Campaign. Individuals who choose not to participate in auction sales may pledge contributions through the NTRA Foal Program. Others may support the Campaign by joining the Horseplayers’ Coalition, a group whose objective is to seek legislative and regulatory solutions to tax and business issues that impact pari-mutuel racetracks and their customers.
How do I participate?
Sellers, consignors and designated agents may “pre-commit” their pledge on sales entry forms. Buyers, and sellers who miss the deadline for pre-commitments, can pledge until the close of the sale billing. Owners and breeders may contribute through the Foal Program by regular mail. Horseplayers and other individuals may become members of the Horseplayers’ Coalition by joining the National Horseplayers Championship (NHC) Tour.
Who is eligible to participate?
The Campaign’s supporting programs are open to participation by individuals, corporate entities (partnerships, farms, etc.), U.S. citizens and foreign nationals.
How much can I contribute?
There is no limit on the amount that can be contributed.
Use the links below to access current bills and legislation affecting the horse racing industry and to contact your Federal representatives in Congress.
Ask your representative to join the Congressional Horse Caucus. This bipartisan group was formed to educate members of the House of Representatives and their staffs about the importance of the horse industry in the economic, agricultural, sporting, gaming and recreational life of the nation.
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