Daniel L. Cox
Editor, Poker Insider Magazine
©  November 1, 2008

In early May 2009, Representatives Jim McDermott (D - WA) and Barney Frank (D - MA) introduced House Bill 2268, Internet Gambling Regulation and Tax Enforcement Act of 2009 (IGRTEA). The purpose of IGRTEA is to overturn the impact of UIGEA. The bill amends the Internal Revenue Code to: (1) impose an Internet gambling license fee on Internet gambling operators and an additional tax on unauthorized bets or wagers; (2) require such operators to file informational returns identifying themselves and the individuals placing bets or wagers with them; (3) require withholding of tax on net Internet gambling winnings and on the winnings of nonresident aliens; and (4) extend the excise tax on wagers to include wagers placed within the United States or any commonwealth, territory, or possession by a US citizen or resident. HR 2268 is one of a continuing number of submissions by McDermott to make Internet gambling legal in the US.

In February of this year, the Big 4 Accounting Firm of PriceWaterhouseCoopers released a revision of an earlier study¹ on the profitability of online gambling in the US. According to the new study, the US would be able to raise as much as $52 billion in tax over the coming ten years by regulating online gambling venues and taxing both corporations and players. In the 2007 study, the estimated the US would be able to make a revenue of $42.8 billion in the next 10 years.

Since the UIGEA was introduced in 2006 it has been difficult for US players to find legal venues to play poker online. By making it illegal to play poker or other casino games online, the government is missing out on a lot of potential tax revenue. The current law that prohibits the transfer of funds for Internet gambling activities has proven to be a failure. Notwithstanding the UIGEA prohibition, millions of Americans are still able to gamble online. In addition, proposed rules by the Treasury Department to implement the current prohibitions have been severely criticized by many parties, including the American Bankers Association, Credit Union National Association, Financial Services Roundtable, and other leading financial services companies and groups.

Talking about the original legislation, Rep. McDermott stated, "Instead of this ineffective attempt to prevent adults from gambling over the Internet, we need a more sensible approach to protect consumers and ensure that revenues that now flow offshore stay here in the U.S. and are therefore subject to taxation." He added, "A new, safer, more sensible approach is needed to regulate Internet gambling and protect consumers."

McDermott's legislation functions as a companion bill to the Internet Gambling Regulation and Enforcement Act (H.R. 2046), legislation introduced by Representative Barney Frank (D-MA) which would establish a licensing and enforcement framework for regulated Internet gambling in the U.S. The legislation would allow States to retain full control over the regulation of Internet gambling within their borders, applying additional taxes, protections and limitations as determined necessary and appropriate.

In a companion bill to the original HR 2607, Rep. McDermott introduced legislation to direct the potential $40 -$50 billion over the next 10 years to be spent on job training for those in the declining sectors of the economy and educational assistance for foster care youth. The legislation, Investing in our Human Resources Act of 2008 (HR 6501), would be funded through new revenue generated by the regulation of Internet gaming.

¹ Synopsis of PWC Study
The PricewaterhouseCoopers numbers take into consideration the myriad revenue sources, such as licensing fees, wagering taxes, and individual and corporate income taxes on Internet gambling activities. The study was done assuming that Internet gaming regulation legislation would be passed in the houses of Congress by October of 2009, with specific references to bills proposed by Reps. Barney Frank (D-MA) and Jim McDermott (D-WA). For the year 2010, revenue generated only came to just over $1 billion, as time would be required for companies to become compliant and taxpayers would need time to become familiar with filing obligations. Each year, there is a steadily increasing projected revenue possibilities, putting the ten-year total at $51.9 billion.

These estimates assume that no professional sports leagues or individual states opt out of the legislation. A decrease in projected revenue by more than $10 billion would occur if sports leagues remove themselves from Internet regulation and the refusal of any states to participate would also cause a drop in the revenue estimates.