Canadian Gambler Sentenced After Falsifying U.S. Gambling Losses
William Woo, a Toronto resident, frequented the U.S. from 2006-2010. During his time visiting, he actively gambled at casinos near the border. Whenever he hit a jackpot larger than the reporting threshold, the casino rightfully withheld tax at 30% and remitted it to the U.S. government.
As a Canadian resident, Mr. Woo is able to file a U.S. tax return at the end of the year. He can offset his U.S. losses against his U.S. winnings. His net winnings are then assessed tax at 30%, with any excess amount withheld throughout the year refunded.
Mr. Woo did file U.S. tax returns for the years in question. The problem? He falsified his losses and submitted duplicate refund requests, totaling $1.8 million in tax refunds. When the IRS caught on, Mr. Woo was unable to provide substantiation for his claimed losses and pled guilty. He was sentenced to 30 months in federal prison.
Non-Residents and Gambling Winnings
If you are not a U.S. citizen or resident, all U.S. gambling winnings that exceed the required reporting thresholds are subject to withholding at 30%, unless you are a resident of a country with an applicable tax treaty. Proving your residency varies on a casino-by-casino basis. Some will require a passport, others will allow for proof of residence (utility bill, national ID card, etc.).
Countries Exempt From Tax: Austria, Belgium, Bulgaria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Tunisia, Turkey, Ukraine, United Kingdom
If you live in one of these countries, and already have an Individual Taxpayer Identification Number (ITIN), you are exempt from withholding and should receive 100% of funds at the time of your win. If you do not have an ITIN, check with the casino before you gamble to see if they are able to facilitate the application process on property. This will prevent confusion in the case of a win over the reporting threshold.
Canadian Exception: If you are a recreational gambler from Canada, you will still have 30% withheld at the time of your win. However, you may file a tax return at the end of the year and offset your U.S. losses against your U.S. winnings. The net winnings are subject to tax at 30%. It is critical to document your winnings and losses for reporting purposes.
Recreational gamblers that reside in any other country beside Canada cannot offset their U.S. gambling winnings with U.S. gambling losses.
Note: Once a casino has withheld tax and remitted it to the IRS, they will not be able to reverse the process. You will need to wait until the end of the tax year to file a U.S. tax return and claim a treaty benefit. If you are unsure of your residency status, please confirm with the cage or payout attendant before accepting your winnings. It is important to review these details and understand the tax consequences of gambling in the U.S. before doing so.