Gambling winnings are taxable income
March Madness is in the air. That means that in addition to watching televised National Collegiate Athletic Association basketball games and tracking online scores, a lot of folks are keeping a close eye on the betting lines.
True, unless you're in Nevada, putting a few bucks on NCAA basketball championship games is illegal. That technicality, however, doesn't stop avid roundball fans and inveterate bettors. For U.S. gamblers, the annual college basketball tournament is second only to the Super Bowl.
Many bets are just friendly wagers -- a dollar in the office pool or a good-natured bet with that neighbor who's a North Carolina graduate.
But other basketball fans take the games more seriously and hand over big bucks to bookmakers, legal and not-so-legal.
Nevada is the only state in which legal sports bets can be placed. The Nevada Gaming Commission estimates March Madness wagering will be around $90 million. But you can be sure that much or more will be wagered illegally.
All this betting interest prompted the NCAA to send representatives to meet with sports-book operators in Las Vegas to watch for suspicious wagering patterns as the tournament began last month.
Another group also is carefully watching the NCAA betting action: the Internal Revenue Service. All these sports wagers spotlight the persistent problem that the agency faces in tracking and taxing gambling winnings. It's a challenge the agency faces daily because many people don't realize that gambling winnings, even the illegal payouts, are taxable. Of those who do know, a good portion simply choose to ignore the tax law.
the IRS is playing catch-up
here. While the U.S. income
tax is a 19th century creation,
gambling has been around at
least since man was able to
record his activities. Dice
almost identical to those
used on today's gaming tables
have been recovered from Egyptian
tombs, and the Chinese, Japanese,
Greeks and Romans all were
known to play games of chance
as early as 2300 B.C.
Nowadays, in addition to the well-publicized offerings of Las Vegas, Reno and Atlantic City, betting is commonplace throughout the United States. The choices range from off-track betting parlors to tribal bingo games to riverboat casinos to state-operated lotteries.
gambling down, but not out
Then there's online gambling. A decade ago, The Washington Post reported "at least 140 Web sites now offer some form of wagering to online users -- an expansion in recent years that has alarmed opponents and put increased focus on the laws that govern Internet gambling." By 2005, research firm Christiansen Capital Advisors estimated that nearly 23 million people gambled on the Internet, with approximately 8 million of those gamblers from the United States.
It's easy to see why the numbers have grown so much. Type "online gambling" into any Internet search engine and within seconds you'll have a list of hundreds of thousands of potential gambling sites. This is in spite of the Unlawful Internet Gambling Enforcement Act, which was passed without much fanfare and signed into law in late 2006 in an effort to restrict U.S. gamblers' access to these typically foreign-based Web sites. It is now a federal crime for U.S. banks and credit card companies to process Internet-bet payments.
Some companies have curtailed their U.S. betting operations, but in reality, the law has had little effect. And in the global arena, America is coming up short. The World Trade Organization, or WTO, has ruled against the United States in a dispute over Internet gambling operations based in Antigua.
Updated: April 3, 2009