To those who are interested in such matters. Here is an example of a write up for one country taken from my tax treaty book:

CZECH REPUBLIC

May 25, 2005

Ms. X
X Casino Resort
X
Las Vegas, Nevada X

Ms. X,

I have reviewed the current “Income Tax Treaty” existing between the Government of the United States of America and the Government of the Czech Republic.

My review of the treaty signed September 16, 1993 and ratified December 23, 1993, comprises but is not limited to the following:

1) Reviewing the complete Treaty.

2) Determining whether poker gaming winnings received by a nonresident Czech citizen while in the United States is subject to the Thirty Percent (30%) withholding provisions of the U.S. Internal Revenue Code and its applicable regulations.

Based upon my review, it appears Article 22 – Other Income - as written in the Czech Income Tax Treaty, exempts poker gaming winnings from the 30% withholding provisions of the Internal Revenue Code and its applicable regulations, as long as the following criteria are met:

1) The nonresident Czech citizen has not carried on, nor currently carries on, a business - if applicable - of professional poker player in the Unites States through a “permanent establishment” (as defined in the treaty) within the United States, and the income paid is not attributable to such permanent establishment.

OR

2) The nonresident Czech citizen does not perform independent personal services for his business - if applicable - of professional poker player from a “fixed base” (as defined in the treaty) within the United States, and the income received is not attributable to such fixed base.

The nonresident Czech citizen bears the responsibility for reporting his/her poker gaming winnings - if applicable - to the Czech Government. To be consistent with Binion’s IRS closing agreement concepts involving poker tournaments I recommend issuing a W2-G – even though withholding does not appear to be required.

It has come to my attention certain gaming establishments across the United States are incorrectly applying Federal tax law as it pertains to nonresident aliens who are fortunate to experience a reportable gaming win while visiting their State. It appears these gaming establishments are withholding 30% from the W2-G reportable win proceeds of slot, keno and bingo as well as significant poker payouts involving these residents that come from any of the 23 gaming income tax exempt countries.

The casino justification for removing the 30% and forwarding it to the Internal Revenue Service stems from the confusion created by the Internal Revenue Service in attempting to provide guidance involving the changing withholding rules for nonresident aliens under Internal Revenue Code section 1441; and trying to conform these changes to the regulations under IRC section 6109. In its simplest form it creates a false conclusion that a gaming establishment MUST withhold 30% from the winning proceeds of a visiting nonresident alien if, upon request, he/she can not present an Individual Tax Identification Number (ITIN) in filing out federal form W-8BEN. I find it ironic form W-8BEN is not sent to the IRS but is kept by your casino in a file that MIGHT be requested by the IRS at a later date if the X Casino Resort should ever be audited for its federal income tax return.

From a cursory reading of the applicable code section and supporting regulations, I can see how this incorrect conclusion could be reached by the casinos. The general rule as outlined and its supporting examples demonstrating application of the general rule clearly layout what procedures should be followed when our foreign “winner” cannot present the required ITIN. It is not the general rule that is applicable too gaming establishments. The gaming establishments must look to the SPECIAL RULE within the regulation for application to residents of any of the 23 gaming income tax exempt countries.

It seems to be always easier and safer to follow conservative corporate concepts and withhold. However, the damage done in terms of casino public relations involving the nonresident alien often cannot be measured; let alone the lost opportunity for the casino to “win” back the withheld 30% monies.

The correct conclusion and its application require an arduous effort in sifting through the entire 1441 regulations (1.1441-1 through 1.1441-10) as well as regulation 6109 and obtaining an understanding on HOW these regulations pertain to gaming establishments. From my research it appears withholding is not required by the casino even if the nonresident alien can not produce an ITIN.

I call your attention to Internal Revenue Service Regulation 1.1441-6(g) (2) (ii).

It states…………. “(2) SPECIAL RULE. For purposes of satisfying the TIN requirement of paragraph (b) (1) of this section, a withholding agent may rely on a beneficial owner withholding certificate, described in such paragraph, without regard to the requirement that the withholding certificate include the beneficial owner’s TIN,
if…….
(ii) The payor was required to make an unexpected payment to the beneficial owner who is a foreign individual;”

Certainly a poker win and its corresponding payment is unexpected. In addition, no one will argue that your State Gaming Enforcement agency “requires” legitimate and legal poker wins to be paid quickly and without conditions. It is very important to note that “required” infers the element of choice, as to pay or not pay, is eliminated from decision making process for the payor.

Unless the above portion of the regulation has been repealed or superseded it remains The Internal Revenue Service official interpretation of existing law. I cannot find any evidence of where it has been changed. The withholding certificate referred too in small (ii) above is form W-8BEN. In addition, any income tax treaty takes precedent over U.S. tax law within the ranking of authority. Only applicable tax law passed by Congress and signed by the President after ratification of a specific treaty could be applicable to that treaty within its application. It is my opinion; the SPECIAL RULE quoted above was included in the regulations by the Secretary to remove the administrative burden on foreign individuals receiving unexpected payments (wins) and to provide a limited exception while maintaining the integrity and authority of respective tax treaties within the framework of IRS regulations.

It is interesting to note item (v) of the SPECIAL RULE detailed below ALSO provides an exception to the ITIN requirement if ……..

“(v) The payor satisfies the provisions of paragraph (g) (3) of this section.”

“(g) (3) REQUIREMENT THAT AN ITIN BE REQUESTED DURING THE FIRST BUSINESS DAY FOLLOWING PAYMENT.
The payor must submit a beneficial owner payee application for an ITIN (Form W-7 "Application for IRS Individual Taxpayer Identification Number") that complies with the requirements of Sec. 301.6109-1(d) (3) (ii) of this chapter, and also the certification described in Sec. 301.6109-1(d) (3) (iv) (A) (4) of this chapter, to the IRS during the first business day after payment is made.”

Notice the requirement is placed upon the payor (casino) to submit the “request for ITIN” of the foreign winner and is not the responsibility of the foreign winner as was the case in (ii) above. Either provision previously detailed can be followed so as to assure no 30% withholding will be taken from the “win”. In view of the existing regulations, for any gaming entity to take out 30% based upon the application of these regulations is technically incorrect.

The foreign player who comes to Nevada to enjoy its facilities and provided entertainment takes it for granted that he/she will be treated fairly. Removing 30% of a win to send to the IRS when it is not necessary is not, in my opinion, treating the person fairly. It is taking a players money unjustifiably only because it is an easy alternative to having to learn what should be done.

Much confusion has been created in the application of these laws. To help alleviate some of the confusion I am providing you with information that was the result of a great deal of work. It will allow you to properly apply United States tax law to our foreign nationals visiting from the 23 gaming income tax exempt countries.

Respectfully submitted,

James L. Perlowski, CPA