The IRS is preparing a tax-enforcement push to address $1.4 billion in unpaid gambling taxes.
A recent audit by the Treasury Inspector General for Tax Administration (TIGTA) revealed that nearly 150,000 Americans with gambling winnings of $15,000 or more from 2018 to 2020 failed to file tax returns. This lack of compliance has left $1.4 billion in potential tax revenue uncollected.
IRS Steps Up Enforcement on Unpaid Gambling Taxes
In response to the TIGTA audit, the IRS pledged to improve enforcement. Lia Colbert, commissioner of the IRS Small Business Self-Employed Division, stated that the agency would identify high-income nonfilers with significant gambling winnings. The IRS plans to issue return delinquency notices to bring these individuals into compliance.
Missing TINs Add to Unpaid Gambling Taxes Problem
The audit also revealed gaps in reporting, such as missing taxpayer identification numbers (TINs) on hundreds of W-2G forms, which are used to report gambling winnings. These issues hinder the IRS's ability to track gambling income and enforce tax compliance.
Online Sports Betting Faces Increased Scrutiny
The rapidly expanding online sports-betting market presents additional challenges for tax compliance. TIGTA highlighted that the IRS has limited processes to enforce excise tax compliance among gambling operators. Addressing these gaps could significantly increase revenue and reduce unpaid gambling taxes in this growing industry.
Broader Tax Compliance Issues Highlighted
While unpaid gambling taxes are a key focus, the TIGTA audit also uncovered gaps related to early retirement withdrawals. A separate report estimated that 2.8 million taxpayers might owe $1.6 billion in additional taxes and penalties on early withdrawals between 2018 and 2022. Although the IRS disputed some findings, it agreed to investigate specific cases.
Protect Yourself from Tax Penalties
The IRS’s renewed enforcement efforts aim to close the “tax gap”—the difference between taxes owed and taxes paid. If you have significant gambling winnings or early retirement withdrawals, ensure that your tax filings are accurate to avoid penalties. For more information on reporting gambling winnings, refer to the IRS’s official guidelines.
Always report any winnings!
Taxpayers involved in sports betting are required to report their winnings on their annual tax return using Form W-2G. The IRS also wants individuals to keep detailed records of all their gambling transactions, including bets placed, winnings received, and losses incurred.
Just be aware that any winnings must be reported, and the IRS is getting very fine-tuned in their searches and investigations with the help of AI. Failure to report your winnings puts them in the category of illegal sports betting and it will only be a matter of time before you find yourself in the IRS's crosshairs.
If you have any gambling or sports betting issues that need resolving, you can contact me by one of the methods below in the blue box, or email me at Larry@TaxProblemSolver.com and we can review your specific situation and take care of it for you. You can also click here to book a free consultation. My team and I are always here for any of your tax resolution matters.
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