House Committee on Ways & Means Hearing on Taxes and Internet Gaming on May 19, 2010

14 May 2010 Publication

Legal News Alert: Global Gaming

On May 19, 2010, the House Committee on Ways & Means will hold a hearing on tax proposals related to legislation to legalize Internet gaming. The Ways & Means Committee hearing will focus on “current tax laws and reporting requirements applicable to wagering in the United States” and also will consider tax and other proposals related to legislation pending in Congress to license and regulate Internet gambling activities.

Internet gaming in the United States has been a controversial issue for much of the last decade following a U.S. Fifth District Court of Appeals 2002 ruling (http://tinyurl.com/hzn0) that the Interstate Wire Act of 1961 (commonly referred to as the Federal Wire Act) prohibits electronic transmission of information for sports betting across telecommunications lines but affirmed a lower court ruling that the act "'in plain language' does not prohibit Internet gambling on a game of chance". Legislative efforts to ban Internet gaming culminated in 2006 with the inclusion of provisions in a port security measure (http://tinyurl.com/2b4rm59) that made transactions from banks or similar institutions to online gambling sites illegal. In response to this change, numerous bills have been introduced since 2007 that would repeal or revise the prohibition and once again allow Americans to wager online while taxing the practice. The timing of the hearing is especially important as regulations issued last year by the Treasury Department and the Federal Reserve’s Board of Governors implementing the Unlawful Internet Gambling Enforcement Act of 2006 are set to go into effect on June 1, 2010.

The hearing will likely touch on HR 4976, the Internet Gambling Regulation and Tax Enforcement Act (http://tinyurl.com/26ktw3k), which was sponsored by Ways & Means Committee member Rep. Jim McDermott (D-Wash.). According to a Congressional Research Service summary of the bill, HR 4976 would amend the Internal Revenue Code to:

  • Impose an Internet gambling license fee on Internet gambling operators and an additional tax on unauthorized bets or wagers
  • Require such operators to keep daily records of gambling deposits and file informational returns identifying themselves and the individuals placing bets or wagers with them
  • Require operators to pay state and Indian tribal governments a six-percent fee on gambling deposits
  • Require withholding of tax on net Internet gambling winnings and on the gross amount of winnings of nonresident aliens
  • Extend the excise tax on wagers to include wagers placed with the United States or any commonwealth, territory, or possession by a U.S. citizen or resident

Rep. McDermott’s bill currently has three co-sponsors: fellow Ways & Means Committee members Reps. Earl Blumenauer (D-Ore.) and John Larson (D-Conn.), and House Financial Services Committee Chairman Rep. Barney Frank (D-Mass.), who has authored a measure (HR 2267) to open the Internet gaming industry in the United States to foreign operators. The bill has been referred to both the House Ways & Means Committee and the House Committee on Education & Labor. This hearing could be an important first step toward a markup of the bill in the House Ways & Means Committee. Both Rep. McDermott and Chairman Frank have expressed their hope to move their respective bills through committee markups in June.


Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues.

If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Philip G. Kiko
Washington, D.C.
202.672.5509
pkiko@foley.com

Robert C. Geist, Jr.
Washington, D.C.
202.295.4090
rgeist@foley.com

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