From a National Thoroughbred Racing Association Release

The National Thoroughbred Racing Association (NTRA) today released a copy of a bipartisan letter from key members of Congress asking the Department of Treasury to clarify regulations regarding the way pari-mutuel winnings are calculated for tax purposes.

The NTRA is also calling on horse racing industry participants and customers to express their support of the effort by signing a petition available here:

The letter to the Secretary of the Department of Treasury was co-authored by Rep. Charles Boustany (R-LA) and Rep. John Yarmuth (D-KY) and co-signed by more than a dozen other congressmen.

The request for clarification urges the inclusion of a bettor’s entire investment in a single pari-mutuel pool to determine the amount reported or withheld for tax purposes, as opposed to only the amount wagered on the correct result. This issue typically arises in the context of increasingly popular exotic wagers.

For example, under the proposed clarification, the amount wagered by a Pick 6 player who hits with one of 140 combinations on a $1-minimum wager would be $140, which is the total amount bet into the Pick 6 pool. Currently the amount wagered is calculated using only the $1 bet on the single winning combination.  By understating the amount wagered in this manner, the Internal Revenue Service is erroneously imposing significant additional reporting and withholding obligations on horseplayers. The clarification would directly benefit pari-mutuel customers by reducing burdensome tax obligations and allowing them to retain more of their winnings, some of which will likely be reinvested through increased handle.

The proposal also aims to lessen racing’s competitive disadvantage against other forms of gaming that have never been subject to such an aggressive tax ruling.

“Under an archaic IRS ruling currently in place, players’ winnings are being erroneously reported or withheld without regard for how much they actually wagered,” said NTRA President and CEO Alex Waldrop. “If granted, the clarification will allow horseplayers to keep more of their winnings, reduce the administrative burden on tracks and ADWs and ultimately generate more revenue for tracks, horsemen and government.

“We applaud congressmen Boustany, Yarmuth and others for their leadership and their awareness of the significant economic contributions that horse racing and breeding make in their states. We look forward to working with them on this important issue.”

Current guidelines regarding the calculation of pari-mutuel winnings for tax purposes are based largely on a 1978 ruling by the IRS that pre-dates the expansion of simulcasting and exotic wagering. However, that ruling, which was issued in response to an inquiry over a “box” wager totaling $6, is in conflict with Treasury regulations stating that wagers in the same pool shall be treated as one bet.

“This ruling appears to ignore the fact that even though the $6 box ticket represented the placing of a $1 bet on each of six different combinations, all of those wagered amounts were part of a single pari-mutuel pool,” the letter states.

Boustany and Yarmuth go on to explain the impact current regulations have on the racing industry:

Statistics show that each pari-mutuel dollar returned to the bettor in the form of winnings is re-bet seven times throughout the course of the day. Tax withholding reduces the amount of re-betting, which not only has an effect on the bettor and the track but also serves to reduce the collection of additional tax revenues that are paid by each racetrack operator on its net revenues. The ultimate adverse impact is a downward economic spiral for the industry with reduced purses, less wagering, less tax and economic benefit to localities and states and job losses at tracks, farms, breeding operations and related entities.