In the United States, the Internal Revenue Service (IRS) has incorporated plans that could land fantasy sports firms to pay federal excise tax on their entry fees. Reportedly, prominent daily fantasy sports operators such as FanDuel Group and DraftKings could be in trouble. According to a report issued on Friday, the decision from the federal authority could result in the two prominent fantasy sports operators liable for millions of dollars in unpaid taxes and late payment fees.
The domestic industry of American daily fantasy sports firms had generated about $3.2 billion in 2018 only with the entry fee charges that subsequently allowed gamblers to compete for cash prize based on the performance of athletes in a virtual line-up. This was alongside the total revenue of $335 million. The IRS has now started to define these entry payments as sportsbetting wagers, which loosely translates 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 told 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. He also mentioned that daily fantasy sports operators could furthermore be hit with late payment penalties for taxes they didn’t previously pay. He also added that, “This is one of the most significant events in the evolution of sportsbetting in the United States that has happened in a long time.”
Jason Robins, Chief Executive Officer of DraftKings Incorporated, mentioned 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. He also declared that, “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.” However, the IRS’s 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.
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