One aspect of Treasury’s rules governing withholding was blatantly unfair: the way it chose to define what constitutes a 300-1 return. Bettors almost always play a multiplicity of combinations in pursuit of a big payoff in the exotics. If a player boxes six horses in a superfecta with a $1 base unit, the cost is $360. If he catches a $7,200 payoff, he’s getting a return of 20-1 on his money, well below the 300-1 threshold that triggers withholding. Yet the IRS ignores $359 of the investment and maintains the fiction that this was a $1 bet returning $7,200.
Individual racetracks have tried to reduce the frequency of withholding by offering wagers with lower base units – 10-cent superfectas, 50-cent pick fours, for example – so that they pay less than $5,000 and are exempt from withholding. The industry has for years sought legislative remedies for the policies that govern withholding. But Alex Waldrop, the NTRA’s president, acknowledged, “With the gridlock in Washington, it was a waste of time.”
So, the NTRA altered its strategy and asked Treasury to change its “definition of the amount wagered” and recognize the entire size of the investment that produced a payoff. Congressmen wrote to Treasury seeking to modernize the treatment of racetrack winnings, as did Kentucky Gov. Steve Beshear. The NTRA wants racing fans to do the same.
In a perfect world, Treasury would instantly recognize that a $360 bet on a superfecta is a $360 bet, not a $1 bet. But in case the regulators do not understand this fact, racing fans ought to remind them. From now until June 2, they can submit comments that will reach Treasury at www.ntra.com/legislative/tax-reg-modernization/.
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