Former DRF publisher talks about new withholding regulations

Last week, new tax rules went into effect allowing horseplayers to treat the entire amount wagered in a pool for the purposes of determining tax liability, dramatically limiting the number of payouts that will now qualify for automatic tax reporting and withholding. The revisions, which were approved by the IRS and Treasury after a lobbying campaign spearheaded by the National Thoroughbred Racing Association, had long been advocated by horseplayers, including Steven Crist, the former publisher of the Daily Racing Form who retired last year. Crist, who was known as the King of the Pick Six, is still playing the races from his home near Belmont Park on Long Island, and earlier this week he took a break from walking his greyhounds to speak to DRF Reporter Matt Hegarty about the tax changes and how they will affect horseplayers and the industry.

Q: The revisions are universally being described as a win for horseplayers. How far do you have to go back to find an impact on horseplayers of this magnitude, and what was it?

There’s really not a comparable case where horseplayers finally were relieved of a massive burden like this. These revisions corrected a truly crazy tax policy that had depressed business and driven people away from the game. Until recently, I don’t think many people in the industry understood what a negative effect it had on their customers, but then the NTRA really got behind it and, almost amazingly, got the U.S. Treasury Department to change a 45-year-old policy.

Q: You suggested in a column way back in 2009 that tax revisions could lead to an increase in handle of perhaps $1 billion, or approximately 10 percent of current handle levels. Do you still stand by that figure, and if so, what makes you think the impact could be that large?

I know it sounds optimistic, but the math says it really could be that much. There are several reasons why handle should increase. First, you’re freeing up tens of millions of dollars that were being wrongly withheld from bettors every year, and putting that money back into circulation to be churned repeatedly. Second, you’re keeping people in action instead of making them wait a year to get back their withholdings that never should have been taken from them in the first place. Third, you’re wiping out the whole criminal enterprise of “10 percenters,” who took additional millions of dollars every year out of action. You’re keeping customers more liquid and eliminating their annual taxtime nightmare of dealing with phantom “winnings” that had been unfairly reported to the IRS.

Q: What would be your suggestions to horseplayers about how to take advantage of the revisions? Should bettors shift focus to any specific bet types? How should they most optimally structure their tickets?

People should bet whatever they’re most comfortable with, but I think there are a lot of people who stayed away from bets such as the pick five and pick six, or even superfectas and trifectas, because they didn’t want to incur tax liabilities if they hit something. They might now want to reconsider. Also, everyone can now stop the charade of punching out multiple 50-cent tickets to duck taxation. Since the tax threshold is now based on the odds relative to your total investment into a pool, and not on an arbitrary and artificially low dollar amount, there’s usually no need to do that.

Q: Do the revisions have the potential to attract new players to racing?

No, I don’t think this is something that can be used to attract novices, but it could win back some customers who walked away from racing or from bets like the pick six because of tax issues.

Q: This is maybe getting a little arcane, but the current tax treatment of gambling winnings still requires offsetting the winnings with losses as an itemized deduction at the end of the year, and that hasn’t changed. How will the tax revisions impact the IRS returns for those horseplayers who are currently itemizing the offsetting losses, if at all?

The problem will go away in the vast majority of cases because so many players will not have any winnings reported going forward. They also aren’t going to run into the problems created when these phantom “winnings” trigger the Alternative Minimum Tax, or when some states limit itemized deductions when calculating state taxes.

Q: Personally, how will the revisions impact how you play?

Three days after the new rules took effect, I was fortunate enough to hit an $11,321 (for 50 cents) pick five at Belmont. Previously, the IRS would have said I had bet 50 cents and won $11,320.50 on a 22,641-1 shot, and I would have had over $2,500 withheld. Now, because I had invested $500 into the pool, the payoff was correctly treated as a 22-1 win, far less than the 300-1 threshold for withholding, so I had nothing withheld or reported. That’s extra money in my account, and no W-2G to file at tax time. So to answer your question: I expect my handle to increase.