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As we previously informed you the local IRS Exempt Organization office
now believes that gaming Excise Taxes are due if licensees pay
real
property taxes for their facility from their gaming account. Indeed
that
office wrote in the January 1999 MN GCB GAMING NEWS (see page 5 for
reprint of article), that such payments are now considered to constitute
"private inurement", and that licensees should be paying Form
730 Excise
Tax even if the IRS refunded previous taxes in the past.
ACM has been working diligently since this change was announced
to get
the IRS to clarify in full how and when this change must be complied
with. As importantly, we have urged the IRS to fairly apply
this new
position to taxpayers back periods if they are unwilling to determine
an
official start date of this major change to the previously negotiated
settlement reached in October of 1995. At this point in time, no
clarification has been issued, and in spite of representations
otherwise, organizations who started paying Form 730 Tax in 1999 have
been sent correspondence asking for prior months excise tax payments
and/or audited. This IRS response to taxpayers who have attempted
compliance is disheartening. ACM's Tax Counsel, Eve Borenstein, has
been
in contact with numerous veterans organizations who have had recent
IRS
audit visits - all of whom have had proposed assessments for back Form
730 Tax made for months in 1996 - 1998 (usually plus penalties and
interest).
It is imperative that the local IRS efforts to again target this
sector, while burdening some through unequal application of
poorly-announced "changes", be brought to the attention of national
authorities. We hope to bring this current situation to the new IRS
Commissioner and the entire Minnesota Congressional Delegation in late
July.
Please send copies of audit notices, proposed Excise Tax assessments,
requests for unfiled Form 730's, or any other IRS action pertaining
to
Federal Excise Tax that your organization has received to King Wilson,
Allied Charities of Minnesota, PO Box 131462, Roseville, MN 55113-0013
as soon as possible. We need to get a better handle on
the extent of the
Federal Excise Tax problem and would appreciate your prompt cooperation.
The Law - The Internal Revenue Code (Code) imposes a tax of 0.25 percent
on any wager
authorized under the laws of the state in which the wager was accepted.
This tax is paid
monthly on Form 730. In Minnesota, examples of such wagers include
raffles and pull-tab
sales. The Code also requires any organization that is liable for the
excise tax on wagering
and anyone who accepts a wager on behalf of an organization liable
for such tax (e.g. paid
pull-tab sellers) to pay a special tax of $50 per year. This tax is
paid with Form 11-C.
Exceptions - Excluded from this tax is any wager for any game of a type
in which usually
the wagers are placed, the winners are determined, and the distribution
of prizes is made,
in the presence of all persons placing wagers (e.g. bingo), and certain
state-authorized
wagering; pari-mutuel wagering, wagers placed in slot machines, and
state-operated
lotteries.
Section 4421(2)(B) of the Code provides an exception to this tax for
any drawing
conducted by an organization exempt from tax under section 501 of the
Code, if no part
of the net proceeds derived from such drawing inures to the benefit
of any private
shareholder or individual.
Meeting the Exceptions - The IRS has concluded that the requirement
that no part of the
net proceeds derived from such drawing inures to the benefit of any
private shareholder or
individual used in section4421(2)(B) must be interpreted literally.
Therefore, if your
organization accepts taxable wagers (e.g. pull-tab sales, raffles,
etc.) from the general
public and uses a portion of the proceeds to pay real estate taxes,
make loan payments on
building improvements, or pay similar expenses, the exception generally
will not apply and
the organization must file Forms 730 and 11-C.
Previously, an exempt organization was deemed to have met this exception
even though it
used a portion of its gambling proceeds for real estate taxes, loan
payments for building
improvements, and similar expenditures as long as the portion of the
gambling proceeds
used for such payments was less than ten percent of its net proceeds.
Many organizations
had their excise taxes refunded based on this interpretation. This
will no longer be the
case.
The fact that your organization filed a claim and received a refund
of the taxes you
previously paid does not necessarily mean that you are now exempt.