Industry Issue Resolution as Submitted to the I.R.S.

Internal Revenue Service
Attn: Alex Shojay
Office of Pre-filing and Technical Services
Large and Mid-Size Business Division LM:PFTG
Mint Building. 3rd Floor M-3-330
1111 Constitution Avenue NW
Washington, DC 20224

RE: IIR Submission; Regarding Interactive Gaming

From: Interactive Gaming Task Force (IGTF)
Las Vegas, Nevada

The proposed issues are as follows:

1) Federal Excise Tax: The Federal Excise Tax of .25% of the handle of any game has been exempted in the case of "Coin Operated" gaming machines. While it is generally assumed that any Electronic Gaming Machine is included in this exemption, there is no extension to the on-line environment or to server based games. While no server based games have been licensed in Nevada, there are organizations that anticipate application in the near future. The issue now is whether these server based games and on-line games emulating an EGM would be considered to fall under the same exemption.

Resolution could be to exempt server based games in Interactive gaming from the Federal Excise Tax.

If server based games are not exempted, application of the Federal Excise Tax becomes a barrier to entry for any United States based operator to enter into Interactive gaming and remain competitive. Another issue is whether the tax would apply only to bets placed from within the United States, or would it apply to all wagers taken in the U.S.?

2) Occupational Tax: We are seeking clarification as to whom the Occupational Tax would apply in an Interactive gaming environment.

Resolution could be to dispose of the Occupational Tax for Interactive Gaming.

The need for guidance is in determining if the Occupational Tax would be applied to on-line operators, and to which individuals the tax would apply.

3) Withholding and Reporting: Currently, casinos are required to report any Electronic Gaming Machine jackpot win in excess of $1200 and any return of a win with odds exceeding 300 to 1 via a W2G filing. Additionally, there is a requirement to withhold 30% of any win if the individual placing the wager is not a U.S. Citizen. From a practical view, this withholding is only applied when one of the previously mentioned thresholds is met, as most gaming is done anonymously. In the interactive environment, it is possible and likely that all transactions can be tracked, and a net result reported.

There are two issues involved:

1. When the regulation was written, the largest practical bet possible on a coin operated machine $.25. Today, within both the casino and the on-line environments, the maximum amount of a single bet is virtually unlimited. For example, a recent addition to the Nevada Gaming Regulations permit private salons in which the minimum bet must be $500 per play. With this minimum applied to an Electronic Gaming Machine, even the smallest win would exceed the $1200 threshold, requiring a W2G to be written each time the player won.

Proposed resolution - allow summation of play during a session, with a W2G filed at the end of a session, if, at any time during the session, these thresholds have been reached, provided that the player can be identified. Identification in the on-line environment is required, while in the casino environment it is at the player's option.

2. Since a player in an on-line is always identified, all foreign players are known at all times. The current requirement to withhold 30% of all win would have to be applied to ALL play, not just jackpot wins. It is our understanding that a failure to comply with this would result in the operator being required to remit the amount that should have been withheld.

Proposed resolution - require the withholding only on jackpots currently requiring a W2G report. Incidental play would be ignored unless the jackpot threshold had been met.