The Treasury Inspector General for Tax Administration (TIGTA) recently released a report revealing that between 2018 and 2020, the IRS missed out on nearly $1.5 billion in taxes from unreported gambling winnings.
This shortfall occurred due to approximately 150,000 individuals who won over $15,000 each not filing tax returns for their winnings. The unreported winnings totaled an estimated $13.2 billion.
A key issue highlighted in the report was the difficulty the IRS faced in tracking these winnings. Many tax forms for “Certain Gambling Winnings” were missing essential taxpayer identification numbers, making it challenging for the IRS to verify whether taxes were paid. Additionally, two-thirds of those identified had not received notices from the IRS, meaning their winnings went untaxed.
The boom in sports betting, following the 2018 Supreme Court ruling that legalized it across the U.S., has led to a surge in untaxed gambling winnings. With sports betting operators earning over $11 billion in 2023, the IRS is grappling with how to better enforce tax compliance in this growing industry.
TIGTA made several recommendations to address the issue, including stricter enforcement for those who fail to file taxes on gambling winnings and improvements in tracking systems. The IRS agreed with most of the suggestions, signaling a potential crackdown on unreported gambling income.
Additionally, TIGTA called for more detailed guidelines for sports betting, particularly in the rapidly expanding online sportsbook sector, to help the IRS recoup the uncollected tax revenue and ensure better compliance.
