IRS CI Issues Warning to Sports Gamblers as Football Season Begins
With football season underway, the Internal Revenue Service’s Criminal Investigation Division (IRS CI) is warning U.S. taxpayers to make sure they have a clear understanding of the tax implications of sports gambling. As IRS CI explains, “Individuals who engage in sports betting activities are required to report their winnings on their annual tax return . . . . [and s]ports enthusiasts who are unsure about their tax obligations or have questions about reporting gambling income are encouraged to consult tax professionals or visit the official IRS website for guidance. Ignorance of the tax law does not exempt individuals from their responsibilities.”
If you have questions or concerns about your gambling-related federal tax obligations, you should consult with a Texas IRS lawyer promptly. Not only can failing to accurately report gambling winnings lead to liability for back taxes, interest, and penalties, but it can also lead to criminal charges in some cases.
Understanding the Risks of Failing to Accurately Report Gambling Winnings to the IRS
IRS CI has been active in pursuing gambling-related criminal charges in recent years. Whether legal or illegal, gambling winnings are supposed to be reported to the IRS. While IRS CI has pursued some high-profile gambling-related enforcement cases in recent years (including the case against Shohei Ohtani’s former interpreter), it also routinely pursues investigations targeting taxpayers who are not in the public eye.
As sports betting has grown increasingly popular in the United States, enforcing taxpayers’ gambling-related obligations has become a growing priority for the IRS and IRS CI. According to a September 5, 2024 News Release, “[b]etween fiscal years 2020 and June 2024, IRS CI initiated 151 investigations into illegal gambling activity totaling more than $178.8 million and resulting in 71 sentencings with an average prison term of over two years.” Note that this includes illegal gambling activity only. It does not include tax fraud and tax evasion related to legal sports betting activities. IRS CI pursues criminal charges in both types of cases—and, with tens of millions of U.S. taxpayers betting on the Super Bowl alone, there is almost certainly a substantial amount of sports betting-related income that goes unreported.
While uncovering illegal gambling activities poses some challenges for IRS CI (though it can overcome these challenges in many cases), uncovering taxpayers’ failure to report legal gambling income is generally much more straightforward. This is because casinos, betting app companies, and other entities that offer legal gambling opportunities are generally required to report their customers’ winnings of $600 or more to the IRS. If a third party reports your gambling winnings to the IRS and you do not, this can substantially increase your risk of facing an IRS tax audit or a criminal tax fraud investigation.
5 Tips for Documenting Sports Betting Transactions and Reporting Them to the IRS
With all of this in mind, what do you need to know if you are thinking about betting on football (or have already bet on football) this season? Here are five tips from Texas IRS lawyer Lawrence Brown:
1. Make Sure You Are Using a Betting Platform that is Legal in Your State
First and foremost, you should make sure you are using a betting platform that is legal in your state. Even in states that have legalized sports betting generally (which currently does not include Texas), there are various rules, restrictions and limitations in place. If you travel to a state where betting is legal, you should be sure to comply with that state’s requirements—in addition to complying with the requirements imposed by the IRS.
2. Keep Documentation of Your Wagers, Winnings Received and Losses Incurred
The IRS encourages taxpayers to “keep detailed records of all gambling transactions, including bets placed, winnings received, and losses incurred.” If you don’t have detailed records, not only will you struggle to complete your federal returns accurately, but you will also struggle to substantiate the numbers on your returns in the event of an IRS audit or IRS CI investigation.
3. Make Sure Your Records Match Those from the Betting Platform
If you win $600 betting on sports in a tax year, you should receive a Form W-2G from each casino or platform that paid you more than this threshold amount. When you receive a Form W-2G, you should compare the casino or platform’s numbers—which are also being sent to the IRS—with your own. If you cannot account for any discrepancies, you will want to address this before you file your federal income tax return.
4. Timely Report Your Sports Betting Wins and Losses to the IRS
After ensuring the accuracy of the gambling wins and losses disclosed on your return, you should be sure to timely file your return with the IRS. While you can request an extension (and should request an extension if necessary), interest begins to accrue immediately once the filing deadline passes.
5. Take Action Promptly if You Need to Address a Tax Filing Error or Omission
If you have concerns about your past federal income tax returns, you should take action promptly. Not only could you be facing interest and penalties, but you could also be at risk for criminal prosecution. As discussed above, IRS CI takes gambling-related cases seriously, and it pursues charges not only for tax evasion and tax fraud but for other federal crimes as well. Waiting to see if the IRS CI opens an investigation can be very risky, and there are options available (including voluntary disclosure) for avoiding this outcome.
Request an Appointment with an Experienced Texas IRS Lawyer at Brown Tax, P.C.
We represent high-income and high-net-worth taxpayers in significant federal tax controversies, including IRS CI investigations. If you have questions or concerns about your gambling-related federal tax liability, we invite you to contact us for more information. To request an appointment with an experienced Texas IRS lawyer at Brown Tax, P.C., please call 888-870-0025 or tell us how we can reach you online today.