In the United States and prominent daily fantasy sports operators FanDuel Group and DraftKings Incorporated could reportedly be in trouble after the Internal Revenue Service (IRS) ruled that such firms are to be required to pay federal excise tax on their entry fees.
According to a Friday report from the Bloomberg news service, the decision was revealed via an internal memo from the federal authority and could result in the two daily fantasy sports behemoths becoming liable for millions of dollars in unpaid taxes and late payment fees.
Bloomberg reported that American daily fantasy sports firms charge entry fees that subsequently allow punters to compete for cash prizes based on the performance of athletes in a virtual line-up. The domestic industry as a whole purportedly generated about $3.2 billion in such duties in 2018 alongside around $335 million in total revenues.
The news service reported that the IRS now looks set to start defining these admission payments as sportsbetting wagers, which means that firms such as FanDuel Group and DraftKings Incorporated could see each entry fee subjected to a maximum 2% excise tax alongside an annual $500 charge for every person processing such transactions.
Kate Lowenhar-Fisher from the Nevada law firm of Dickinson Wright reportedly told Bloomberg that such a state of affairs could be ‘potentially business-destroying’ in some jurisdictions as it would equate to a hefty 20% tax on revenues. The lawyer purportedly detailed that daily fantasy sports operators could furthermore be hit with late payment penalties for taxes they didn’t previously pay.
Lowenhar-Fisher reportedly told the news service…
“This is one of the most significant events in the evolution of sportsbetting in the United States that has happened in a long time.”
However, Bloomberg reported that the IRS’ latest stance on daily fantasy sports is at odds with the 2007 ruling from the United States District Court for the District of New Jersey in the matter of Humphrey v Viacom. This court case purportedly found that such entry fees were outside the definition of a sportsbetting wager although it had focused on season-long fantasy games rather than one-off contests.
Jason Robins, Chief Executive Officer for DraftKings Incorporated, reportedly used a Friday conference call with investors to proclaim that the IRS is ‘deeply flawed in its analysis’ of what actually constitutes a sportsbetting wager and that its latest stance will not be binding in court should a daily fantasy sports operator be audited.
Robins reportedly declared…
“Our position continues to be, which we believe has been reaffirmed through state legislatures and courts throughout the country, that daily fantasy sports is not wagering. We believe that the arguments at the federal level are incredibly strong.”