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
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
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
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
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!