The Perlowski Files

One of the most significant third parties contributing to the destruction of my Las Vegas was the Federal government, specifically the Internal Revenue Service (IRS).

To appreciate the point one must understand the fundamental concept or belief held by the Federal Government, during the early years, located in the National Office of the Internal Revenue Service. It was “Gambling is evil and therefore the people involved with gambling are also probably evil. In addition, prostitution is evil so the people involved with prostitution must also be evil.” So it is therefore government’s responsibility to protect those living in Nevada and the rest of the United States from these evil people.

To be fair, I do not believe this is the belief of those in power within the IRS today but back when I transferred to Nevada it was.

When you initiate your thought process from this ridiculous foundation you can begin to understand the distortion in the approach to the compliance programs initiated over the years.

Let’s take a look at the W2-G compliance program initiated by the IRS in 1977. The purpose of this compliance program was to prevent slot machine, bingo and keno winners from escaping responsibility of reporting these wins on their federal tax return.

To begin, the reader must fundamentally understand a concept fully understood by those who operate any gaming facility in the world: It is:

Individuals who gamble cannot, in the long run, win. They can and do win in the short run; but if they continue to gamble beyond a short run, they eventually lose. They will not only lose their initial gaming bankroll but can and will lose everything they have and own.

This statement is true. Everyone who has anything to do with the gaming industry knows it is true.

The reason it is true is because it employs a concept inherent in every game of chance provided the gambling public by casinos. This inherent principle is known as “theoretical hold,” or the casino advantage. It represents the amount of hidden fees casinos charge a player for the privilege of participating in each and every financial transaction within a provided game.

Now, recognizing that people who gamble lose, why anyone would establish dollar guidelines so low as to create mounds of paper work for the casinos and the IRS without EVER reaching the true winner is beyond me. In addition, the hotel casinos in Las Vegas were not built with monies from winners. Somehow this obvious concept always falls by the wayside when dealing with Government geniuses.

The current winning levels of $1,200 or more for slot machine and bingo payouts and $1,500 or more for keno were established in 1977.

I was given the task to report on whether these dollar limits should be adjusted and whether or not the program was effective in gaining tax compliance.

The report I submitted to my District Director for submission to the National Office was obviously ignored. I made a simple recommendation. Increase the dollar limitations to $50,000 across the board and it’s more likely that an individual will be a true winner, likely will be a true winner but probably not. The reason probably not was the individual would continue to play and eventually lose it all back.

I also concluded, the current program was a disaster and creating logistical reporting nightmares. Guess what? My report was completely ignored. The Chief of Audit at that time joked that the National Office probably thought I was a casino gambling sympathizer.

I wanted to call the regional analyst in the National Office who was in charge of this program and tell him what I thought. I was going to give him a little Mark Twain….

I was going to inform him that I should never debate with someone who is stupid; they will drag me down to their level and win the debate with experience.

In fact the IRS recently was planning upon introducing regulations to change the reporting requirements at a future time. Good news until I read what was proposed.

Here is a quote from them I discovered in the periodical: “But in the subsequent 38 years, notes the IRS, things have changed. So, says the agency, it might be better -- at a future time, the agency stresses -- if a Form W-2G, Certain Gambling Winnings, was required when those winnings hit just $600”.

I kid you not. I almost swallowed my tongue when I read it. The more things change, the more ridiculous things become.

See you next week!

Jim