Beware of Casinos Gambling With Your Taxes

A while ago, my mother received a letter from the IRS stating she owed tax (plus penalties and interest) on her jackpot winnings at a Delaware casino in a prior year. They included a copy of the W2G form that she (according to them) had neglected to claim on her Federal tax return. Mom had not been to that Delaware casino in that year because there are now more than enough casinos in our state where you can play and lose your money.

My mother did not know where to begin to get this resolved, so she called for my help. As an accountant, my first thought was to see a copy of the receipt the winner had signed when she collected her jackpot. Mom called and asked the accounting department to fax a copy of the receipt to me.

It clearly was not my mother’s signature on the receipt. After a second call to the casino, we learned several things about how the accounting is handled at casinos.

Turns out there is another person with the same name as my mother, but a different address and Social Security number. This person and my mother had both signed up for the casino’s ‘club’ card, and I suppose they each had to supply their Social Security number. This is the card you put into the slot machine you’re playing that is supposed to track your winnings and provide points for free meals, etc.

However, it looks like the casino had not bothered to verify the correct SSN when they filled out the paperwork for the winner, and therefore filed an incorrect W2G to the Internal Revenue Service for that jackpot. Meanwhile, my mother was being billed for the tax on the winnings, plus penalties and interest, while the real winner was not, and the clock kept ticking on the interest until this was resolved.

Another call to the casino was a little frustrating, as the accounting department had no idea how to solve the problem. (As an accountant, I knew they would have to send in a corrected W2G under my mother’s SSN stating no income, along with a new W2G stating the earnings for the winner under the correct SSN.) We called the IRS and they confirmed the need for the casino to file these two forms, and then we had to call the casino to explain how they needed to do their job to correct this.

Weeks later, Mom received a corrected W2G from the casino and I wrote a letter to IRS explaining the situation and asked for the penalties and interest be reversed. Eventually the case with the IRS was resolved, but not without a lot of frustration and time. The casino did not seem too fazed with the error – they did apologize, but we will never go there again. I had Mom call them to cancel her ‘club’ card so this wouldn’t happen again-to her, at least.

The lesson learned here is… if you do enjoy playing the slots or table games at a casino, do be sure to keep track of your winnings. If it’s available to you, ask the casino for a list of your year-to-date winnings at the end of December to make sure it agrees with your actual figures, and question anything that looks wrong. I am sure there are jackpot winners who wind up paying tax on money they didn’t win.

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