After the Treasury Inspector General for Tax Administration (TIGTA) found the IRS has not applied tax filing requirements related to reported gambling winnings, the IRS is beginning to take enforcement actions and conduct a review of the reasons non-filers have not been identified. TIGTA found the IRS has not enforced income tax return filing requirements for the recipients of millions of Forms W-2G, Certain Gambling Winnings, that reported millions of dollars in gambling winnings.

TIGTA reached its conclusions after reviewing all the Forms W-2G issued to individuals during tax years 2018 through 2020 and found 148,908 individuals with gambling winnings totaling $15,000 each who were issued Forms W-2G, but did not file a tax return. In total, these nonfilers were associated with approximately $13.2 billion in total gambling winnings.

Following TIGTA’s review, the IRS analyzed 17,436 high-income nonfilers with a total positive income of $100,000 or more for the 2018 tax year and calculated that it could increase tax revenue by roughly $1.4 billion by addressing 139,045 nonfilers with gambling winnings that were included in the agency’s nonfiler case creation process inventory. The IRS also said it will begin appropriate enforcement actions for nonfilers with gambling winnings for the 2018 through 2020 tax years, including against the top 100 nonfiler cases identified by TIGTA.

The IRS also agreed to review and profile the population of nonfilers with gambling winnings for the 2018 through 2020 tax years that were not identified by the agency’s Individual Master File Case Creation Nonfiler Identification Process (IMF CCNIP). The research will determine potential reasons why nonfiler returns were not identified and assess the current state of the returns to determine whether filing requirements have been satisfied. If a taxpayer has not satisfied the filing requirement and enforcement is applicable, then the Collection or Exam divisions will consider manual enforcement.

While TIGTA found hundreds of the Forms W-2G it reviewed did not include the taxpayer identification numbers (TINs) necessary to trace income to the recipient, the IRS disagreed with TIGTA’s recommendation that it conduct an analysis of forms missing TINs. IRS officials maintained that Forms W-2G that were issued with missing or invalid TINs do not contribute significantly to the tax gap. Additionally, it said the percentage of Forms W-2G filed without TINs were an insignificant percentage of the total annual volume of Forms W-2G it receives.

For tax professionals looking to enhance their understanding the federal income tax implications of gambling, check out our Tax Consequences of Gambling on-demand webinar. This session offers 2 CPE for AFSP, EA, CPA, and CRTP and covers essential insights into reporting requirements for both recreational and professional gamblers. From differentiating between casual and professional gambling to addressing foreign tax reporting obligations, this course will equip you with the knowledge to navigate these complex tax scenarios confidently.