Of the over 500 American Indian Tribes in the U.S., few have been able to successfully offer Indian gaming. Only those reservations near key traffic arteries draw the necessary customers to support a casino. Successful tribes share several economic benefits with surrounding regions, including:
- Pride of ownership and a new vision of hope
- Tribal revenues supporting Indian government and social services, economic development, and independence from federal programs
- Employment for tribal members and area residents
- Reduction in public assistance expenditures
- Increased spending and employment
- Increased tourism
- Increased sales and payroll tax revenues
- Despite the recent attention focused on American Indian gaming, it represents only 8% of U.S. gaming. Of the balance, 42% is governmental gaming and 50% is commercial gaming, primarily
- in Nevada and New Jersey. Casino gaming popularity is spurred by the ever-increasing disposable income of U.S. consumers.
The casino gaming industry is an important provider of jobs, wages, and taxes. Casino-related jobs match the national average wage, exceeding the average wage of several other industries.
Source: Developing an Economic Partnership with Coachella Valley, CA; Bonnie Chafe, 1997
Indian Gaming Classifications
The Indian Gaming Regulatory Act (IGRA), 1988, regulates Indian gaming, dividing gaming activity into three categories:
- Class I Social, traditional and cultural forms of Indian gaming, conducted for minimal prizes or in connection with ceremonies or celebrations. Solely regulated by Indian tribes.
- Class II Bingo, card and related non-wager games if otherwise lawful within respective states. Class II gaming is regulated by the National Indian Gaming Commission and by tribes through tribal gaming commissions, established and operated by Indian Nations to regulate reservation gaming activities. There are some 135 tribal gaming commissions in full operation nationwide.
- Class III All other gaming, including casinos, is regulated according to tribal agreements with state governments. Often tribal gaming commissions possess primary, on-site regulatory responsibility. Other states share regulation responsibility with tribal gaming commissions. Arizona and Washington collect tribal fees to perform employee fingerprinting and background checks.
Tribal gaming operations are regulated at four distinct levels: 1) tribal government; 2) state government; 3) National Indian Gaming Commission; and 4) those federal governmental agencies affiliated with gaming, such as: U.S. Justice Department, U.S. Treasury Department, the Department of Interior, the FBI, IRS, U.S. Attorney, U.S. Marshall’s office, Attorney General, Secret Service, and the Bureau of Indian Affairs.
To regulate the emerging Indian gaming industry, Indian tribes have established gaming commissions, industry standards and internal controls. They have developed their own internal tribal police forces and court systems, and have invested in state-of-the-art surveillance. To comply with Title 31 of the Bank Secrecy Act, compliance officers have been in place since August 1, 1996.
Some tribe-state compacts provide limited regulatory state power over Indian gaming. Many states have gaming offices regulating the state’s gaming, however the IGRA recognizes the federal government has primary responsibility for government-to-government relations with sovereign Indian tribes.
EXISTING GAMING LAW
Tribal-State Compact of 1996 (Public Law 100-497, 102 Stat. 2426)
This agreement authorizes Class III gaming and regulation on the Potawatomi reservation pursuant to the provisions of the Indian Gaming Regulatory Act. In the spirit of cooperation, the Tribe and the State agreed to carry out the terms of IGRA, regarding any Class III gaming conducted on Indian lands. The Compact was approved by the legislature in 1996 with the Senate voting 26-10 and the House voting 75-48.
The Tribe’s interests in Class III gaming include raising revenue to provide governmental services for the benefit of the tribal community and reservation residents. These services include: promoting public safety as well as law and order on the reservation, realizing the objectives of economic self-sufficiency and tribal self-determination, and regulating the activities of all people within the Tribe’s jurisdictional borders.
The State’s interests in Class III gaming include the interplay of such gaming with the state’s public safety, law and other interests, as well impacts on the state regulatory system. This includes the state’s economic interest in raising revenue for its citizens. Economic benefits from tribal gaming include increased tourism and related economic activities. These benefits affect all Northeast Kansas and help foster a mutual understanding and respect among Indians and non-Indians.
Tribal Gaming Oversight Act
The Tribal Gaming Oversight Act, designated by Executive Order 95-177, established the State Gaming Agency as a part of the Kansas Racing and Gaming Commission. The budget of the State Gaming Agency, the number and qualifications of employees of the state gaming agency and expenditures by the state gaming agency for expenses of dispute resolution pursuant to a tribal-state compact is subject to approval by the Kansas Racing and Gaming Commission. The act created an Executive Director who handles all the administration of the agency.
The State Gaming Agency may disclose information received to a tribal gaming commission as necessary for the purpose of determining qualifications of employees of or applicants for employment by such tribal gaming commission or applicants for licensure by such tribal gaming commission. Any information, other than conviction data, received by the state gaming agency or by a tribal gaming commission is confidential and shall not be disclosed except to the executive director, employees of the state gaming agency and members and employees of the tribal gaming commission.
Any other disclosure of such confidential information is a class A nonperson misdemeanor and shall constitute grounds for removal from office, termination of employment or denial, revocation or suspension of any license issued by the tribal gaming commission.
Tribal Regulation Nation-Wide
Tribes invest nearly $300 Million annually on regulation of their operations.
- $228+ Million on tribal regulation
- $55+ Million reimbursed to States for State regulation
- $12 Million to fund the National Indian Gaming Commission annual budget.
Kansas State Gaming Agency Background
The State Gaming Agency came into existence through an executive order in August 1995, issued by Governor Bill Graves. Its immediate goal was to address the need to have an organization as required under the Tribal-State Compacts. At that time the agency was made a part of the Department of Commerce and Housing. During the 1996 legislative session, the agency was made a part of the Kansas Racing and Gaming Commission (KRGC), through the passage of the Tribal Gaming Oversight Act. The act took effect on July 1, 1996 and the agency has functioned as a part of the KRGC since then. The agency was originally allocated five (5) full-time employees for Fiscal Year 1997. In 2008, the agency currently had twenty (20) full-time employees on staff.
The compacts provide for the State to establish the State Gaming Agency. The purpose of this agency is to carry out the duties of the State as set forth in state and federal law, as well as the Tribal-State Compacts. To this end, the agency has five (5) enumerated goals, which it uses to guide its actions in regulating and monitoring Native American Indian gaming:
- To ensure the Native American Indian casino gaming in the State of Kansas is conducted in accordance with the Tribal-State Compacts, the Tribal Gaming Oversight Act and any other applicable state and federal laws.
- To protect the citizens of the State of Kansas and the gaming public from criminal activity within the Native American Indian gaming arena.
- To ensure that accurate and complete information is provided to the different tribal gaming commissions for licensing purposes and to review all gaming license decisions to ensure compliance.
- To conduct thorough background investigations on all gaming employees, management contractors, manufacturers and distributors seeking licensure at Native American gaming facilities located in the State of Kansas.
- To investigate any alleged violations of the Tribal-State Compacts and the Tribal Gaming Oversight Act.
Pursuant to the Tribal-State Compacts, the State Gaming Agency has unrestricted access to all areas of the gaming facility. This access includes the cage and vault area, the surveillance room and any other area where public access is restricted. The State Gaming Agency has the authority to inspect any and allslot machines, within the gaming facility. The State Gaming Agency is also involved in randomly examining the dice used in table games, as well as decks of cards. In addition, the tribal gaming facility is required to provide the agency access to all records which are kept within the gaming facility. This includes all personnel records, accounting records and incident reports, which occur within the gaming facility.
Through the Compacts, the State Gaming Agency has the responsibility of completing background investigations and providing them to the tribal gaming commissions. These background investigations are conducted on all gaming employees, manufacturers and distributors of gaming supplies and equipment, as well as gaming management companies and gaming consultants.
The State Gaming Agency is funded through an assessment procedure outlined in the Tribal-State Compacts. The agency presents a budget every year to the KRGC. The budget is to take into account the necessary and reasonable costs of regulation incurred by the State of Kansas. Once the budget is reviewed and approved by the KRGC it is sent on to the Division of the Budget for review and recommendations. Subsequently, it is submitted by the Governor with all other agency budgets to the Legislature for their review. The approved budget is provided to the Tribes by August 1, along with a detailed accounting of the costs incurred from the previous fiscal year, for their review. As part of the submission, the tribes are assessed an equal portion of the budget. Each tribe is responsible for paying their share out of gaming revenues. The tribes have until September 1 to raise any objection to the budget. The State Gaming Agency, based upon their objections, can make any changes it deems necessary to the assessment made to the tribes. If the tribes are not satisfied with the action taken by the agency, then one or all can seek arbitration. Under the Tribal Gaming Oversight Act any arbitration undertaken by the State Gaming Agency must be approved by the Kansas Racing and Gaming Commission. If no action is taken to object, then the first assessment payment is due to the State Gaming Agency by September 21, with subsequent payments due on January 1 and April 1.
The State Gaming Agency budget is funded solely from the Indian tribes of northeast Kansas, and not from taxpayers of the State of Kansas. The Kansas State Gaming Agency is funded fully by assessments levied against the Tribes.
Kansas State Gaming Agency
Mark Dodd, Executive Director
420 SE 6th, Suite 3000
Topeka, Kansas 66607
Telephone: 785-368-6202 Fax: 785-291-3798
The National Indian Gaming Commission (NIGC) is responsible for monitoring and regulating 195 tribes operating 325 gaming operations in 28 states with revenues totaling over $8.1 billion. The National Indian Gaming Commission is an independent federal regulatory agency of the United States. The Commission was created by the Indian Gaming Regulatory Act (IGRA) of 1988 to monitor and regulate certain gaming activities on Indian lands.
The mission of the NIGC, in keeping with IGRA declaration of policy, is to ensure that Indian gaming is regulated, “to shield it from organized crime and other corrupting influences, to ensure that the Indian tribe is the primary beneficiary of the gaming operation and to ensure that gaming is conducted fairly and honestly by both the operator and the player.”
The NIGC is responsible for, among other things; 1) monitoring gaming operations on a continuing basis; 2) approving all contracts for the management of gaming operations by non-tribal parties; 3) conducting background investigations on individuals and entities with a financial interest in, or management responsibility of, a Class II or combined Class II/III gaming management contract; 4) approving all gaming related tribal ordinances; 5) reviewing background investigations of key gaming employees and primary management officials conducted by the tribes; 6) reviewing and conducting audits of the books and records of the gaming operations; and, 7) initiating enforcement actions to help ensure the integrity of Indian gaming operations. The NIGC may impose civil penalties and fines up to $25,000 per day. For severe violations, it may close an establishment. The Potawatomi gaming ordinance was approved in 1992 with amendments on July 14, 1994, June 2, 2000; June 17, 2003; August 10, 2004, April 21, 2005 and July 13, 2006.
The regulations of the Commission (25 CFR part 500) provide for a system of fee assessment and payment that is self-administered by the gaming operations. Pursuant to those regulations, the Commission is required to adopt and communicate assessment rates; the gaming operations are required to apply those rates to their revenues, and remit the fees to the Commission on a quarterly basis. In 1997, the Indian Gaming Regulatory Act was amended to permit the assessment of fees on Class III gaming activities. The Commission’s ability to collect fees was spread from Class II alone, to Class II and Class III. The Commission is funded by fees paid by gaming tribes, about $11.2 million in 2005, and has 80 staff, of which 39 are auditor-investigators. In 2005 Tribal Governments invested over $370 million on regulation, including over $300 million on Tribal regulation, over $60 million to reimburse State governments for their role in regulating Tribal gaming operations.
The IGRA mandates that the commission be comprised of three members: a chairman, who is appointed by the President of the United States with the advice and consent of the senate, and two commissioners who are appointed by the United States Secretary of the Interior. Each member serves for a term of three years. As of 2008, Philip N. Hogan is the Chairman of the National Indian Gaming Commission, along with Norm DeRozier, Vice Chairman, and the third position is now vacant.
The three person federal commission has the authority to take actions against violations of IGRA, NIGC regulations, and tribal ordinances approved by the NIGC. Under the IGRA, the authority for the regulation of Indian gaming is dispersed among the tribes, the states and the federal government. The NIGC works closely with tribal gaming commissions and governments, and other federal agencies such as the Department of Justice and the Department of Interior to ensure the integrity of the industry.
The NIGC’s Washington, D.C. office will continue to coordinate the activities of the NIGC and will serve as a clearinghouse for the data and information generated by the field operations. All tasks will be carefully analyzed to determine if they are most efficiently performed at the headquarters or a Regional Field Office. There are regional office in Portland, OR; Sacramento, CA; Phoenix, AZ; St. Paul, MN; and Tulsa, OK.
National Indian Gaming Commission
1441 L Street , NW. Suite 9100
Washington , D.C. 20005
- Tribes also work with the BIA, the FBI, the IRS and Fin CEN.
- The Department of Justice has repeatedly found that this regulatory scheme is working to shield Indian gaming from corrupt influences and protects the integrity of tribal operations.
Minimum Internal Control Standards (MICS)
Gaming, by nature, is a cash-intensive business that involves large amounts of coin and currency. As a result, casino operations and the gaming public are subject to risk of loss because of customer or employee access to cash and chips within a casino. Also, with regard to some card games, there is no accountability for the inventory until the money is on the books. For example, when a player is at a blackjack table, no receipts are given for a bet wagered and no receipts are given if a player wins. In response to the inherent risks of a cash-intensive business, and the need for a standard minimum level of internal controls, the National Indian Gaming Commission (NIGC), in January, 1999, published its final rule on Minimum Internal Control Standards (MICS) for class II and Class III tribal gaming operation. This action officially changed and amended IGRA, which means Indian tribes have to comply with the change. But not everybody agreed with this authority.
In Colorado River Indian Tribes v. National Indian Gaming Commission U.S. District Court, D.D.C., No. 04-0010 (August 24, 2005) A federal district court has ruled that the National Indian Gaming Commission lacked the authority to impose minimum internal control standards (MICS) on Class III gaming at Indian casinos.
The NIGC, created under the Indian Gaming Regulatory Act, is an independent federal regulatory agency within the Department of the Interior.
First and foremost, the MICS are designed to promote and protect the integrity of Indian gaming. The MICS rules, among other things, safeguards against risk of loss by requiring uniform stringent procedures that govern, among other areas, cash handling, documentation, game integrity, auditing and surveillance. In adopting their own internal control standards, tribes must use the NIGC’s MICS as a baseline. That is, a tribe may adopt a MICS more stringent, but not less stringent. Internal controls, or good business practices, form the basis for effective minimum internal controls standards. The internal control system is designed to reasonably assure that:
- Assets are safeguarded;
- Financial records are accurate and reliable;
- Transactions are performed in accordance with the Tribe’s general or specific authorization;
- Access to assets is permitted only in accordance with the Tribe’s specific authorization;
- Recorded accountability for assets is compared with actual assets at frequent intervals and appropriate action is taken with respect to any discrepancies;
- Functions, duties and responsibilities are appropriately segregated and performed in accordance with sound practices by competent, qualified personnel so that errors will be disclosed and corrected in a timely manner;
- The efficiency of operations is increased;
- Fraud is prevented or exposed;
- The safety of employees and the public is enhanced;
- Competency of staff and ability to comply with the stipulated policy and procedures is promoted through training.
In order to ensure compliance with the MICS, the NIGC has recently created a Division of Audits. The primary objective of the auditors within the division will be to provide training, guidance and otherwise assist the tribes to enable them to more effectively ensure their gaming enterprises are operated with the highest level of integrity.
MECHANICS OF A GAMING COMMISSION
Introduction/Overview – NIGC Bulletin No. 94-3
This Bulletin supplements NIGC Bulletin No. 94-3 (April 20, 1994), which discusses the role for a tribal gaming commission in helping a tribe meet its regulatory responsibilities under the Indian Gaming Regulatory Act (IGRA). Effective regulatory oversight requires a functional separation between the operation of tribal gaming and the regulation of that tribal gaming. In the NIGC’s experience, a well-run tribal gaming commission, free to regulate without undue interference from tribal leadership, is the best vehicle for achieving this functional separation.
A tribal gaming commission is an arm of the tribal government established for the exclusive purpose of regulating and monitoring gaming on behalf of the tribe. The charter document for the tribal gaming commission should ensure that the commission is an independent body, separated completely from the tribe’s role as owner and operator of the tribe’s gaming activities. Responsibilities such as the adoption and establishment of rules and standards for the operation of gaming activity should be delegated to the tribal gaming commission. The exercise of such authority is strong evidence that the gaming commission functions in an independent capacity distinct from the tribal council.
The purpose of a tribal gaming commission is regulatory not managerial. A tribal gaming commission conducts oversight to ensure compliance with federal, tribal, and if applicable, state laws and regulations. The commission serves as the licensing authority for individuals employed in the gaming operation, administering an effective program for background investigations as part of the licensing process. The commission also has a role in monitoring compliance with the internal control standards for the gaming operation and in tracking revenues. In order to carry out its regulatory duties, the commission should have unrestricted access to all areas of the gaming operation and to all records. A tribal gaming commission should have clear authority to take enforcement actions, including suspension or revocation of an individual gaming license, when appropriate.
A tribal government helps ensure the independence of a tribal gaming commission by creating for it a permanent and stable source of funding. This funding may originate in the tribal budget, which is recommended, or from license fees or assessments on the gaming revenue. The independence and integrity of the commission is seriously threatened if the tribal council is able to withhold funding from it or if the level of funding is not sufficient for the gaming commission to perform its role. Similarly, approval for day-to-day expenditures for the gaming commission should be within the authority of the gaming commission or a staff supervisor and not from an outside party. The tribal gaming commission should be supported by a qualified staff.
The length of term in office and assurance of an opportunity to perform the required duties are important to the independence of tribal gaming commissions as both a matter of reality and perception. The term should be of fixed length and long enough to ensure stability. Continuity is fostered by staggering the terms of commission members thus avoiding wholesale changes in the membership. The commission should be non-partisan and non-political. Removal of commission members during term of office should be for good cause only and follow a procedure, which provides for due process. Removal should not be permitted for simple disagreement with tribal leadership over matters that involve a gaming commissioner’s exercise of discretion in the performance of duty.
While independence is critical, regular and open communication with tribal leadership and tribal membership is also important. The general aspects of the commission’s regulations and its oversight of gaming activities are of vital interest to the tribe. Regular reports should be made to the tribal council and to the membership on the status and health of the gaming operation from a regulatory perspective.
Serious conflicts of interest in the exercise of its regulatory responsibilities as well as an appearance of impropriety are avoided if members of gaming commissions are prohibited from playing in the gaming activities they regulate. Commission members should not be employed by gaming operations or by the Management Company or consultant serving the gaming operation. Participation as a player or as an employee in the regulated operations will likely raise questions about the independence of the tribal gaming commission and potentially compromise its integrity or that of its members.
Ideally, no members of a tribal council would serve on the tribal gaming commission. Tribal council members and tribal gaming commission members may not always agree on matters about which the tribal gaming commission has taken a regulatory position because they may approach these matters from different perspectives. Actual and perceived independence for a tribal gaming commission is fostered if the roles of council member and gaming commissioner are separate and distinct.
The NIGC encourages tribes to review their responsibilities and procedures in respect to gaming regulation and consider whether their tribal gaming commission operates in a sufficiently independent manner. This bulletin serves as guidance to tribes and identifies attributes of an independent tribal gaming commission but the NIGC recognizes that there may be other ways to achieve such independence. The overall goal is, of course, to ensure integrity in Indian gaming.
For additional information, a tribe may contact an NIGC field representative of the NIGC office of General Counsel at (202) 632-7003.
Background of the Gaming Commission:
The PBP Gaming Commission is an arm of the PBP Nation established pursuant to the PBP Law and Order Code Title XII (the “Gaming Commission) for the exclusive purpose of regulating and monitoring gaming on behalf of the Nation. The GC conducts oversight to ensure compliance with federal, tribal, and if applicable, state laws and regulations. The GC serves as the licensing authority for individuals employed in the gaming enterprises, administering an effective program for background investigations as part of the licensing process. The GC also has a role in monitoring compliance with the internal controls standards for the gaming operation. In order to carry out it regulatory duties, the GC had unrestricted access to all areas of the gaming operation and to all records. National Gaming Commission (NIGC) Bulletin No 99-3 (October 12, 1999). Pursuant to the Indian Gaming Regulatory Act of 1988 (IGRA), 25 U.S.C. 2701-2721 (1994).
Prairie Band Potawatomi Tribal Gaming Commission
14978 West Casino Drive
Mayetta , Kansas 66509
785-966-3043 Fax: 785-966-2421
Potawatomi Law and Order Code
Under Title 12, the Tribal Gaming Commission is authorized to exercise the following powers in addition to other powers conferred in Title 12:
- To enact and enforce such rules and regulations regarding its activities and governing its internal affairs as it may deem necessary and proper to effectuate the powers granted and duties imposed by Title 12 and other applicable law;
- To publish and maintain copies of Title 12 and Tribal Commission rules and regulations and any Tribal Council, Tribal Gaming Commission or Tribal Court decisions regarding gaming matters;
- To prepare and submit to the General Council proposals, including budget, and monetary proposals, to enable the Tribe to carry forth the policies and intent of Title 12;
- To work with the Council, the staff of any tribal department, program, project, or operation in regard to gaming issues;
- To maintain and keep current a record of new developments in the area of Indian gaming;
- To obtain and publish a summary of federal revenue laws relating to gaming and to insure compliance therewith;
- To consider any gaming matter brought before it by any person, organization or business, and any matter referred to it by the Council;
- Upon prior explicit written approval of the Council, to employ such advisors as it may deem necessary; advisors may include, but are not limited to, law enforcement specialists and gaming professionals, the Tribe’s general or special counsel and the Tribe’s accountants;
- To establish and maintain such bank accounts as may be necessary or convenient;
- To require by regulation the filing of any records, forms, reports and all other information desired by the Commission for implementation of Title 12 relating to any gaming activity or operation, or any investigation as required by tribal law and the IGRA;
- To provide for an internal system of record keeping with adequate safeguards for preserving confidentiality as deemed necessary by the Tribal Commission. All applications, background investigations and Tribal Commission decisions shall be retained in the Tribal Commission files for a period of at least 10 years.
- To adopt a schedule of fees to be charged for gaming licenses pursuant to the IGRA.
- To adopt a schedule of fees and charges for services rendered relating to transcripts and the furnishing or certifying of copies of proceedings, files, and records.
- To delegate to an individual member of the Tribal Commission, or to an individual member of the Council, or, with the approval of the Council, to the Tribal Commission or tribal staff, such of its functions as may be necessary to administer this Title efficiently; provided that the Tribal Commission may not re-delegate its power to exercise any substantial governmental function of the Tribe or its power to promulgate rules and regulations; and provided further, that it may not delegate to anyone except the Council or Tribal Court the power to revoke a tribal gaming license permanently.
- To request the assistance of the Tribal Court or Tribal Appellate Court in conducting gaming hearings, or in any other matter for which the Tribal Commission deems such assistance to be necessary or proper.
- To establish and use a Tribal Gaming Seal.
- By written notification to the National Indian Gaming Commission, to designate an agent for service in any official determination, order or notice of violation from such Commission.
- To supervise, inspect and regulate all gaming activities within the jurisdiction of the Tribe.
- To promote the full and proper enforcement of this Title and any other applicable law regarding gaming activities within the jurisdiction of the Tribe. =
- To promulgate rules and regulations to implement and further the provisions of this Title, provided that all Class III gaming regulations shall be adopted pursuant to applicable law.
- To conduct background investigations of all people who propose to participate in any gaming activity or operation and to provide copies of investigative reports to the State Gaming Agency and the National Indian Gaming Commission.
- To consult with and make recommendations to the Council regarding changes in tribal gaming laws and policies.
- To make determinations of eligibility of applicants for Class B licenses and to provide copies thereof to the State Gaming Agency and the national Indian Gaming Commission.
- To make recommendations to the Council regarding the hiring of all supervisory gaming employees.
- To approve or disapprove any application for a tribal gaming license.
- To make, or cause to be made by its agents or employees, an examination or investigation of the place of business, equipment, facilities, tangible personal property, and books, records, papers, vouchers, accounts, documents and financial statements of any gaming or enterprise operating, or suspected to operating, within the jurisdiction of the Tribe. In undertaking such investigations, the Tribal commission may request the assistance of tribal gaming staff, federal and local law enforcement officials, legal counsel and other third parties.
- To maintain a surveillance log recording all surveillance activities in the monitoring room of each gaming facility and to maintain a security log recording all unusual occurrences in any gaming facility as required by the Tribal-State Compact.
- To conduct hearing and to examine under oath, either orally or in writing, in hearings or otherwise, any person or agent, officer, or employee of any person, or any other witness, with respect to any matters related to this Title and to compel by subpoena the attendance of witnesses and the production of any books, records and papers with respect thereto.
- To compel obedience to its lawful orders by proceedings of mandamus or injunction or other proper proceedings in the name of the Tribe in the Tribal Court or any other court having jurisdiction of the parties or of the subject matter.
- To discipline any licensee or other person participating in any gaming activity or operation by ordering immediate compliance with this Title or Tribal Commission regulations and to issue an order of temporary suspension of any license issued under this Title, whenever the Tribal Commission is notified of a violation by any such person of this Title or any other applicable law.
- To issue an order of temporary closure of any gaming activity or operation in the event the Council determines that immediate closure is necessary to protect assets or activities of the Tribe, pursuant to Council regulations, or whenever the Council shall receive information from the Indian Gaming Commission that a primary management official or key employee of such license does not meet the standards for being licensed provided in the IGRA.
- To close permanently, after notice and a hearing, any gaming activity or operation which is operated in violation of this Title or any other applicable law, or any gaming activity which has been ordered permanently closed by the National Indian Gaming Commission.
- Whenever necessary or appropriate, to request the assistance and utilize the services of the courts, law enforcement and government officials and agencies, and private parties, in exercising its powers and carrying out its responsibilities.
- To arbitrate, comprise, negotiate or settle any dispute to which it is a party relating to the Tribal Commission’s authorized activities.
- Upon prior explicit written approval of the Council, to sue or be sued in courts of competent jurisdiction within the United States and Canada, subject to the provisions of this Code and other tribal laws relating to sovereign immunity.
- To enter into an agreement with tribal police or other law enforcement agencies where by those agencies will report to the Commission any activities of any person who is in violation of the provisions of this Title or any other applicable law regarding any gaming activity.
- To purchase, lease, take by gift, devise or bequest, or otherwise acquire, own, hold, improve and use property and assets of every description, real and personal, tangible or intangible, including money, securities, or any interests therein, rights and services of any kind and description or any interest in real property, whether located on or off the Reservation, only with the express, prior written consent of the Council and title to such real property and property which is to become a fixture or permanent improvement or part of the real property shall be taken in the name of the Tribe or in the name of the United States in trust for the Tribe, and title to all trust and restricted real property shall remain in trust or restricted status.
- To sell, mortgage, pledge, lease, exchange, transfer and otherwise dispose of all or any part of its personal property and assets.
- To deal in inventions, copyrights, and trademarks; to acquire by application, assignment, purchase, exchange, lease, hire or otherwise and to hold, own, use, license, lease and sell, either alone or in conjunction with others, the absolute or any partial or qualified interest in and to inventions, letters patent and applications therefore, licenses, formulas, privileges, processes, copyrights and applications therefore, trademarks and applications therefore, and trade names, provide that title to all such interests shall be taken in the name of the Tribe.
- With the prior, explicit, written approval of the council, to borrow money and to make, accept, endorse, execute and issue bonds, debentures, promissory notes, guarantees and other obligations of the Tribal Commission for moneys borrowed, or in payment for property acquired or for any of the purposes of the Tribal Commission and to secure payment of any obligations by secured interest, mortgage, pledge, deed, indenture, agreement or other instrument of trust or by other lien upon, assignment of or agreement in regard to all or part of the person or real property, rights or privileges of the Tribal Commission.
- To enter into, make, perform and carry out any agreement, partnership, joint venture contract or other undertaking with any federal, state or local governmental agency, tribe, person, partnership, corporation or other association or entity for any lawful purpose pertaining to the business of the Tribal Commission or which is necessary of incidental or incidental to the accomplishment of the purposes of the Tribal Commission.
- To invest and reinvest its funds in such mortgages, bonds, notes, debentures, share of preferred and common stock, and any other securities of any kind whatsoever, and property, real, personal or mixed, tangible or intangible, as the Tribal Commission shall deem advisable and as may be permitted under this Title or any other applicable law, provided, that the Tribal Commission shall have authority to invest or reinvest in real property, whether located on or off the Reservation, subject to the restrictions set forth in Subsection 12-3-20(AL)
- To purchase insurance from any stock or mutual company for any property, or against any risk or hazard.
- Upon prior explicit, written approval of the Council, to make application and accept grants and other awards from private and governmental sources in carrying out or furthering the purposes of the Tribal Commission or Tribe.
- To develop a cooperative working relationship with federal, state agencies and officials.
- To provide to the National Indian Gaming Commission and to the State the results of background investigations upon proposed management entities, all owners, directors, primary management officials and key employees thereof, and all people proposed for employment as tribal employees, in any Class III Gaming activity or operation before any such entity or person is employed either by the Tribe or any licensee.
- To arrange for training of Tribal Commission members, tribal employees and others in areas relating to the regulation or operation of gaming.
- To become self-regulating whenever the Tribe becomes eligible for a certificate of self-regulation under the IGRA.
STANDARDS FOR DIGITAL SURVELLIANCE SYSTEM
The objective of this Bulletin is to identify accepted gaming industry standards for a digital surveillance system. These guidelines are being offered for management and Tribal gaming regulatory authorities to consider, as they may deem appropriate, in the procurement, installation and oversight of a digital surveillance system. This Bulletin was developed in consultation with experts in the surveillance industry and Tribal gaming regulators and is intended to highlight practices that have gained broad acceptance throughout the gaming industry.
Due to the inherent vulnerabilities of a cash-intensive business, particularly one such as gaming in which asset-related transactions are occurring at a rapid rate and often are not supported by an auditable document trail, the surveillance function is a key component of the organization’s system of internal controls. Consequently, the NIGC recommends the following minimum technical specifications for a digital surveillance system.
Frame Rate A recording rate of thirty (30) frames per second (FPS) is recommended for areas where gaming is conducted and where currency, coin and equivalents are counted, stored, accessed and transacted. A frame is the standard for measurement of video playback speed. It represents a single still picture in a sequence of pictures that gives the illusion of motion. Two interlacing fields of color, one vertical and the other horizontal constitute one frame. The recording rate of 30 FPS is considered real-time. Gaming activities and areas of currency, coin and equivalents include but are not limited to; table games, gaming machines, cage, vault, count room and other monetary transactions. A recording rate of fifteen (15) FPS is recommended for non-gaming public areas. A recording rate of 7.5 FPS is recommended for non-gaming limited public areas.
Resolution A minimum 4 Common Intermediate Format (CIF) is recommended for live and recorded format systems. Essentially, the CIF rating refers to the vertical and horizontal lines of color on a TV screen. The higher the CIF rating is; the more crisp the picture. CIF is a standard video format used for videoconferences and is ¼ the size of a TV display. 4CIF is large enough to match the video size and quality of a TV display and is considered full resolution.
Compression A video record that is being transferred to and stored on a computer hard drive or other storage medium will consume huge amounts of memory; therefore, the data is normally compressed to reduce the storage area requirement. Technically, compression is the translation of a digital image data into a format which requires less storage than the original data. The digital surveillance system should be able to compress and decompress (restore) stored video data to 4CIF.
Retention A fourteen (14) day retention period is recommended for table game drops, gaming machine drops, count room activity, main bank, cage cashier and other monetary transactions, when feasible, to substantiate cash and cash equivalent transactions for audit purposes. At a minimum, a seven (7) day retention period is recommended for other video data.
Fail Over It is recommended that the digital surveillance system be configured so that no single component failure immobilizes the entire system. To ensure the digital system remains operational, any component failure should result in an audio and visual notification.
Data retention should be configured to prevent loss of data. Redundant equipment configured to automatically switch over if primary equipment fails is recommended. It is also recommended that spare equipment be maintained on site to ensure a reasonable level of protection in the event of primary equipment failure.
Network Structure It is prudent for the digital surveillance system network to be separate from the main operating network of the gaming enterprise. Likewise, system wiring should be secured to prevent unauthorized access or tampering. If the system is to be integrated into an existing network, it is highly recommended that system traffic be safeguarded to prevent unauthorized access to data.
Accepted practice would dictate that access to the network be well documented for audit purposes. Documentation should consist of a written or electronic record containing identifying information about the individual, the time, the date, the duration and the purpose for the access.
Video Files It is highly recommended that each video file maintained for evidentiary purposes include the date and time it was recorded and the name of the individual who recorded it. Procedures should also be developed to physically safeguard the integrity of video data maintained for evidentiary purposes in a secure area.
Furthermore, it is suggested that storage media for evidentiary purposes include an associated media player on which the video file can be viewed. The video file should include a verification code (watermark) to prove authenticity.
Component Failures We would advise that the each system possess sufficient redundancy and spare parts to ensure the surveillance department remains operational or at least can quickly recover vital functions in the event of a component failure. It is recommended that the repair or replacement of equipment causing a component failure be performed within four (4) hours of the audio and visual notification. Component failures should also be documented on a written or electronic surveillance malfunction log. Camera equipment repair or replacement is typically required to be handled within 72 hours of failure.
Responsibility for the System Ensuring the continued operation and effective maintenance of the system necessitates ongoing training of the surveillance technicians and specific problems may occasionally warrant assistance from the manufacturer.
Cooling and Electrical Considerations A digital surveillance system can generate a massive amount of heat and consume a large amount of electricity; therefore, careful attention to the sufficiency of the cooling system is suggested to prevent component failures. Additionally, installation of an uninterrupted power source (UPS) is recommended to ensure proper operation in the event of a power interruption.
Documentation of Unusual Occurrences Best practices would stipulate that a written record documenting any unusual occurrence needs to be prepared and forwarded to appropriate supervisory personnel. Unusual occurrences include, but are not limited to, a system failure, which was not repaired or replaced, granting of remote access to the system and an upgrade or change to any part of the system configuration.
INTERNAL AUDIT DEPARTMENT
The internal audit function is an integral part of the ongoing success of the gaming environment. Internal auditor’s act as an independent check on the processes and procedures of the casino. This segregation of responsibility is required by NIGC MICS 25 CFR (542.14(a). The National Indian Gaming Commission has established Minimum Internal Control Standards (MICS) for gaming operations on Indian land that the Internal Auditors are required to test annually. In addition to testing of the MICS the Internal Auditors provide an objective evaluation of various processes in the casino.
The Gaming Commission’s internal auditor’s essential duties and responsibilities include the following:
- Appraise the effectiveness and application of operation plans, internal controls, policies and procedures, and operational accounting principles and practices.
- Audit financial accounting system from general ledger down through all supporting transaction documentation.
- Work closely with McGladrey & Pullen on initial casino internal audits, then performs the initial follow-up audit six months after McGladrey submits their report to the Gaming Commission and NIGC.
- Report monthly to the Commissioner with an Activity Report of open, closed and ongoing activity.
- Review monthly financial data from the operations and prepare monthly financial information for the Commissioner.
- Review monthly variance information from operations. Report variance activity to the Gaming Commissioners on the next Activity Report following the receipt of the information.
- Make findings and recommendations for correcting deficiencies with the concurrence of the Commissioner.
- Must be able to develop and write internal controls where needed.
- Perform all related and compatible duties as assigned by the Gaming Commissioners.
Currently, the Gaming Commission retains McGladrey & Pullen as the Internal Auditor of the casino. Internal audits are a normal cost of doing business for any casino. This is their written objective:
“Our primary objective is to conduct our audit in accordance with auditing standards generally accepted in the United States of America which may enable us to express an opinion as to whether the financial statements are fairly presented, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Our audit is planned to provide reasonable, not absolute, assurance that the financial statements are free of material misstatement, whether caused by error, fraudulent financial reporting or misappropriation of assets. We will also conduct an audit so as to satisfy the requirements of Government Auditing Standards issued by the Comptroller General of the United States. Our audit approach includes obtaining (updating) an understanding of:
- The Prairie Band Potawatomi Tribal Gaming Commission operations. This understanding allows us to concentrate audit efforts on those aspects of the Prairie Band Potawatomi Tribal Gaming Commission that are significant to the financial statements.
- Internal control and its component elements. We have made a preliminary assessment of control risk and plan to assess control risk below the maximum for revenue and payroll.
- Changes to the Prairie Band Potawatomi Tribal Gaming Commission significant information systems during the last year.
- Fraud risk factors within the Prairie Band Potawatomi Tribal Gaming Commission which may be indicative of either fraudulent financial reporting or misappropriation of assets.
- The cumulative audit knowledge we have gained from previous years’ audits.
- New technical accounting and financial reportingrequirements that will impact recognition, measurement or disclosure in the December 31, 2004 financial statements.
- Our review and understanding of the Prairie Band Potawatomi Tribal Gaming Commission system of internal control is not undertaken for the purpose of expressing an opinion on the effectiveness of its internal control. Rather, it is to assess the impact of internal control on determining the nature, timing and extent of auditing procedures. Recommendations for improving internal control that come to our attention will be summarized for discussion with management and the Tribal Gaming Commissioners.
- We will issue report(s) on internal control related to the financial statements (and major programs). These report(s) describe the scope of testing of internal control and the results of our tests of internal controls. Our report(s) on internal control will include any reportable conditions and material weaknesses in the system of which we become aware as a result of obtaining an understanding of internal control and performing tests of internal control consistent with the requirements of the standards (and circular identified above).
- We will issue report(s) on compliance with laws, regulations, and the provisions of contracts or grant agreements. We will report on any noncompliance which could have a material effect on the financial statements (and any noncompliance which could have a direct and material effect on each major program). Our report(s) on compliance will address material errors, fraud, violations of compliance requirements and other responsibilities imposed by state and Federal statutes and regulations and assumed contracts; and any state or Federal grant, entitlement of loan program questioned costs of which we become aware, consistent with the requirements of the standards (and circular identified above)”
The internal audit process is as follows: a) the Commission and McGladrey & Pullen meet to discuss future audits; b) McGladrey & Pullen performs audit with help of casino management; c) draft report prepared upon completion of field work; d) draft report presented to the Commission to discuss issues and findings; e) draft report given to casino management. f) Management writes responses within 10 days and gives written and soft copy to McGladrey & Pullen g) final report prepared by McGladrey and Pullen and presented to Commission; and finally the Commission works with management to ensure that recommendations are addressed and resolved.
While having internal auditors is a regulatory requirement it is also a wise business decision that will help ensure that the Prairie Band of Potawatomi continues to enjoy success from its gaming operations.
OVERSIGHT & VARIANCE AUDIT
Example of an audit by our Investigative Internal Auditor
Introduction and Determined Risk:
Casino transactions should be handled correctly and in compliance with the State Compact, NIGC MICS, Tribal MICS, Casino ICS, and departmental Polices and Procedures. Transactions are the fundamental basis for the casino and should be performed with care and diligence. When these basic transactions are not performed in compliance, the resulting action, possibly disciplinary, should be appropriate.
Scope of the Audit:
The scope of this audit will include all oversight processes within Income Control and all departments that originate oversights. Regulatory Compliance oversights will be analyzed for compliance. Reportable variances from the Cage and the Slot Department will also be analyzed to determine compliance.
- Ensure compliance with the State Compact, NIGC MICS, Tribal MICS, ICS, and Policies and Procedures
- Verify that department P&Ps address Oversights and how they are handled.
- Verify that Cage and Slots P&Ps address Reportable Variances and how they are handled.
- Verify that Income Control processes for Oversights are compliant with applicable regulations.
- Determine if any disciplinary action is being taken within each department in regard to Oversights and Variances.
- Review areas under audit for potential improvements to efficiency and/or effectiveness.
- Provide the Gaming Commission with documented audit results in a written report.
Planned Internal Audit Procedures:
- Review applicable regulations, system of internal controls, and department policies and procedures
- Review the locations where Oversight and Variance paperwork is kept.
- Test a sample of source documents for accuracy and completion.
- Interview department personnel on Oversight and Variance policies and procedures.
- Review audit findings for compliance.
- Analyze audit findings to determine a tentative disciplinary matrix for the PBP Gaming Commission to consider.
Phases of the Audit:
- Audit planning
- Meeting with Commission to approved planned audit
- Complete interviews in casino
- Analyze findings
- Draft of Report complete
- Final Report to Commission
The report will be a formal written document. A disciplinary matrix will be included for the Gaming Commission to consider.
IAT’s Gaming Commission Management System has been helping the Prairie Band Potawatomi Gaming Commission make their workflow processes more efficient since the application was installed in their office in August of 2003. Being the flagship client for the GCMS, the PBP GC has played a vital role in assisting IAT build a system which truly benefits on overworked, understaffed Gaming Commission.
The GCMS is, in the most simplistic of descriptions, a document imaging system which automates the licensing processes specific to Tribal Gaming Commissions. By integrating several management tools useful to the industry in an already robust program, the GCMS is making everyone’s jobs easier, and consequently, make their lives easier as well.
The License Tracking feature, unique to the GCMS, enables users of the system to view, as well as complete a graphical checklist of the steps an applicant, be they an employee or a vendor, must complete in order to obtain a gaming license. Utilizing this function can help ensure your Gaming Commission will remain compliant by the regulations set forth by state compacts, federal requirements, and also by the NIGC and IGRA.
The easy to use badge making tool built in to the GCMS make the process of creating and printing new employee or vendor badges completely pain free.
The heart and soul of the GCMS is the document imaging technology. This is the portion of the program which will most benefit the users. By converting your paper documents into electronic format, you’ll be able to save money on paper, files, and filing cabinets. Besides those tangible benefits, the ability to access your documents, and the ability for several users to view the same document simultaneously will result in drastically improved office efficiency. In addition to greater office efficiency, owners of the GCMS will enjoy greater peace of mind knowing their sensitive data is much more secure, safer, and better protected from identity theft, fire, flood, or any other disaster which could result in the loss of traditional paper documents.
The GCMS was designed specifically for Tribal Gaming Commissions in order to make their everyday workflow processes simpler. The users of the GCMS will find this to be immediately obvious upon installation of the software. The GCMS is just a better way of doing the every task which are part of your jobs.
Established in compliance with the Tribal-State Compact, the Gaming Inspector is an important contributor to the success of the gaming operation by encouraging accountability throughout the gaming facility. All employees of the Commission are separate from regular tribal operation – a mandate of the Tribal-State Compact and supervision of any employee of the Commission is an indirect violation of the Compact and Tribal Law. This system ensures that no collusion, disloyalty, and other problems inherent to having employees subject to another’s control would arise.
Under the Commission, there are 12 full-time Gaming Inspectors. At least one inspector is present in the gaming facility at all times. They have access to all areas of the casino for the purposes of ensuring compliance with all governing directives. They report all gaming violations to the Gaming Commission. The Inspector serves as a technical expert in matters of regulation, monitoring performance, ensuring adherence to legal requirements and providing assistance to the Gaming Commission regarding the evaluation of compliance issues. He/she investigates complaints and makes routine investigations to determine compliance with the Compact, IGRA, Prairie Band Potawatomi Title 12, IRS, and other applicable regulations.
The Inspector acts as a liaison with the Gaming Commission as a gaming regulator to minimize citations and fines for non-compliance. He/she detects cheating, theft, and other illegal activities in the gaming facility. Gaming Inspectors also possess a broad working knowledge of the regulating directives, operating policies, forms, and terminology used in the following departments: soft count, hard count, slot attendant, slot technician, jackpot/hopper fill window, main cage, vault, security, income control, surveillance, compliance, bingo, mega mania, food and beverage, pull tabs and housekeeping. The Inspectors must keep abreast of all regulations controls, standards, and current practices applicable to the gaming operation. Inspectors perform examinations to determine if requirements of IGRA, the Compact, and Title 12 are being met, determine the scope and direction that the examination should take, discern issues involved, examine gathered information, develop supporting evidence when records are missing or inadequate to evaluate the significance of information secured, and translate observations into written form.
Inspectors are cognizant of policies and practices relevant to examining various types of documentation, having a full range of processing problems and a number of complicating characteristics. Error in judgment in reviewing documents could result in overpayments or underpayments. They monitor on a regular basis accuracy of completed forms used in conjunction with large jackpot payments and recognize or identify the existence of problems, observe workers and work practices to ensure that internal accounting controls and procedures are followed. Inspectors certify the correctness of facts presented in payment of large jackpots to preclude any individual from producing a fraudulent pay out.
They determine amounts of money properly payable on manual jackpots with accurate mathematical computations and adjustments being alert to inconsistencies, commissions, duplications and errors, and to prevent misappropriation of funds. Our inspectors, at all times, display a high degree of tact and diplomacy when handling guest contacts. They are to handle confrontational situations without raising antagonism or hostility in potentially volatile situations and convey an impression which reflects favorably upon the public relations of the Tribe, promotes tribal policies, the quality of the casino and it’s reputation.
Inspectors are to demonstrate and convey a favorable image of the casino optimally utilizing all channels of communications while properly controlling the release of proprietary information and respect confidential information, maintain complete confidentiality, recognizes the important role of responsibility, authority, and accountability, and stimulate management’s efficiency and effectiveness. Inspectors initiate and ensure investigations of possible acts by workers which may perpetrate and conceal error or irregularities in their normal course of duties. They compile statistical data and provide remedial actions to avoid losses. The inspectors monitor the functioning of machines and equipment set-ups by other workers, where the precision of output depends on accuracy of the calibration or adjustments made. They identify or detect irregularities which are embedded in a complex sensory field, and isolate the specified relevant activities from a field, where distracting stimulation is a normal part of the environment.
The Compliance Department personnel report directly to the Gaming Commission on all matters. They perform a qualitative and quantitative analysis of information on disclosure forms, notify applicant of missing information, and submit completed disclosure forms to regulatory agencies. Completion and consistency of information must be closely monitored. They identify programs/procedures to be reviewed. They provide advice and assistance to the Gaming Commission in a continuing compliance program, with development of realistic and practical objectives, for correcting deficiencies or improving effectiveness. They maintain various records required by Federal, State and Tribal regulations. Their personnel contacts and provides forms and information required by regulatory agencies to all manufacturers and distributors of gaming and non-gaming equipment and services.
- Licensing is the process that a Tribal Gaming Regulatory agency uses to determine who enter or associate with the casino industry.
- Licensing is conducted to protect the following assets:
- sovereignty as it relates to gaming
- employee and patron protection
- Protection of assets
- Money – In a cash intensive business, an important component of the internal control structure is the trustworthiness of the employees that work in a casino.
- Integrity – Regulation wants to protect the industry from the presence of individuals who by their association alone harms the integrity of the industry.
- Sovereignty as it relates to gaming – all licensing decisions are reviewed and open to question by State regulators and the National Indian Gaming Commission.
- Employee and patron protection – Licensing is one protection to ensure that employees and patrons are not in the presence of dangerous employees.
- During the initial license determination, the burden is on the applicant to prove eligibility for licensure.
- A gaming license is a privilege not a right.
- The Gaming Commission has broad powers to conduct background investigations if they have a release of information form and a release from prosecution.
- Indian Gaming Regulatory Act Standard: a standard whereby any person whose prior activities, criminal record, if any, or reputation, habits, and association pose a threat to the public interest or to the effective regulation of gaming, or create or enhance the dangers of unsuitable, unfair, or illegal practices and methods and activities in the conduct of gaming shall not be eligible for employment.
The Compliance department must receive an official Personnel Action Form (PAF) from Prairie Band Potawatomi Casino and Resourt Human Resources department. Contact person for Human Resources is Mary Albee, HRIS Specialist. The PAF must contain Name, Social Security number, effective date and accepted job position. The Human Resource Department will then issue a Gaming license disclosure packet associated to job category. A three day grace period is given to the applicant pending drug test results. After the third day the applicant is required to call the Commission office to schedule a disclosure review appointment with a Compliance Officer.
A. Category 1 Disclosure Application
The Applicant must complete the 33 page disclosure leaving no questions unanswered and to answer all questions to the best of their knowledge. All Gaming disclosure can not be processed without a copy of Birth Certificate and Social Security Card. Failure to provide accurate information on the disclosure could result in a denial of license. Along with a completed disclosure all required documents must be provided at the time of the disclosure appointment. (See attached Category 1 disclosure for required documents.)
- Conduct a thorough review of disclosure for errors.
- Fingerprints are taken electronically (Identix).
- Photograph is taken for Gaming License.
- Signatures required for additional Gaming Commission documents.
- Scan document in applicants IAT database.
- Print licensee applicant picture for disclosure packet.
Upon completion of the disclosure review, forward the original Category 1 disclosure along with the additional attachments and a photograph of the applicant to Kansas State Gaming Agency (KSGA) in a manila brown envelope. Last attach the “Receipt of Background disclosure” on the face of the envelope. The receipt document is needed for tracking purposes, this document is VERY IMPORTANT!
B. Category 2 Disclosure Application
The Applicant must complete the 31 page disclosure leaving no questions unanswered and to answer all questions to the best of their knowledge. All Gaming disclosures can not be processed without a copy of Birth Certificate and Social Security Card. Failure to provide accurate information on the disclosure could result in a denial of license. Along with a completed disclosure all required documents must be provided at the time of the disclosure appointment. (See attached Category 2 disclosure for required documents.)
- Conduct a thorough review of disclosure for errors.
- Fingerprints are taken electronically (Identix).
- Photograph is taken for Gaming License.
- Signatures required for additional Gaming Commission documents.
- Scan document in applicants IAT database.
- Print licensee applicant picture for disclosure packet.
Upon completion of the disclosure review, forward the original Category 2 disclosure along with the additional attachments and a photograph of the applicant to Kansas State Gaming Agency (KSGA) in a manila brown envelope. Last attach the “Receipt of Background disclosure” on the face of the envelope. The receipt document is needed for tracking purposes, this document is VERY IMPORTANT!
C. Category 3 & Class II Disclosure Application
The applicant must complete 14 page disclosure completely leaving no questions unanswered. If the applicant is not applicable to the question then simply apply “NA” to the question. Please keep in mind that the applicant must answer all questions to the best of their knowledge. Failure to disclose information could result in a denial of license. Along with a completed disclosure all required documents must be provided at the time of the disclosure appointment. (See attached Category 3 disclosure for required documents.)
All Category 3 and Class II background checks are conducted at the Gaming Commission Office. Do not forward any Category 3 or Class II disclosure information to the State Gaming Agents. Due to the nature of the confidentiality aspect, only the Compliance Officers have authority to conduct a credit check, Clarence M. Kelly and Associates report and process a fingerprint in the Identix program. Each Compliance Officer will issued a secret password in order to perform each of these tasks for each program from the designated contact person to Experian, CMK, and Identix.
- Conduct a thorough review of disclosure for errors.
- Fingerprints are taken electronically using Cat. 3 (Identix)
- Photograph is taken for Gaming License.
- Signatures required for additional Gaming Commission documents.
- Request for a Credit report using information from disclosure.
- Request for a driving record, Civil record, and Employment verification from CMK online database using information from disclosure.
- Contact applicant’s personal references and conduct telephone interview. The interviews are 7 questions and handwritten recorded.
- Scan documents in applicants IAT database.
FREQUENTLY ASKED QUESTIONS FOR CASINO EMPLOYEE LICENSING
Who should be licensed?
- Any key employee, primary management official or any standard gaming employee is required to apply and receive all necessary licenses from the PBP Gaming Commission prior to engaging in such gaming activities.
How do I obtain a license?
- Following the acceptance of employment with the casino and/or bingo hall, you will be given a disclosure packet in accordance with your job description. Upon completion of the disclosure application, you will be instructed to call the Prairie Band Potawatomi Gaming Commission to schedule an appointment with one of our Compliance Officers.
What happens at a disclosure appointment?
- At your disclosure application appointment, a Compliance Officer will review your disclosure application to verify that it meets the standards of the Kansas State Gaming Agency. The Compliance Officer will review your application for completeness of addresses, phones numbers, and to assist in completing some unanswered questions in your application. When you disclosure application is complete and ready to be sent to the KSGA, the thorough background investigation will begin. In addition to the application review, fingerprints will be obtained and a picture will be taken for your future gaming license.
FREQUENTLY ASKED QUESTIONS ON GAMING LICENSES
How long does it take to receive my license?
- Please keep in mind that for a Category 1 or 2 license application it may take 30- 90 days as the Kansas State Gaming Agency conducts background check on the three other casinos in Northeast Kansas region. In addition, the Prairie Band Gaming Commission will need time to review other background investigation reports to determine the suitability for other license applications. The PBPGC Compliance department is consistently working to get applications processed and approved, it is important to the PBPGC to ensure a smooth and prompt decision regarding your gaming license. For a Category 3 license application, it may take 1-3 weeks. The Category 3 application background check is processed and reviewed at the PBPGC compliance department not with the KSGA.
Does it cost anything to get a license?
- No, there is not a licensing charge to you. The charges for the background investigations fee are absorbed by the Casino and/or Bingo facility. In Las Vegas, it cost $45.00 for a work card, $75.00 for a license, plus $15.00 for fingerprinting, for an additional background check. That’s $135.00 to get a job.
Could my bad credit history keep me from getting a license?
- The Prairie Band Gaming Commission considers all completed background investigations upon review. However, the PBPGC takes credit report history seriously for employees that are assigned to daily money handling position and security personnel in charge of protective casino assets. A licensing decision will be made based off conditions that the PBPGC assign to a license applicant if the credit is less than perfect. However, a majority of the decision will be based on the honesty of the license applicant. If the applicant failed to disclose pertinent information it can results in a denial of a license.
Can someone else pick up my license for me?
- No, as a license applicant it is your sole responsibility to pick up your license. All licenses can be picked up at the Prairie Band Potawatomi Gaming Commission Office Monday-Friday 8:00am-4:30pm except for holidays when the office is closed. On rare occasions, arrangements can be made to get your license from a Gaming Inspector.
What happens if I forget to renew my license before it expires?
- It is the employee’s responsibility to schedule an appointment with the PBP Gaming Commission sixty (60) days prior to the expiration of their license in order to begin the renewal process. The renewal applications can be obtained through the Human Resources Department at the Casino or GovernmentCenter. Failure to adhere to this timeline may result in unscheduled time off from your job. No one may work at the Casino or Bingo Hall without a valid active gaming license, therefore it is imperative that you renew on time.
How long is a license good?
- A Class II Bingo employee and Class III casino employee gaming license is good for two (2) years.
Is there a charge to get a copy of my initial disclosure?
- Should you need a copy of your disclosure application; a $2.00 charge will apply to obtain one from the PBP Gaming Commission administration office. Due to the nature of the confidential information that is on a completed disclosure application we request that proper identification be (Drivers License, Identification Card or an Active Gaming License) available to identify the release of information.
How will I know when my license is ready to pick up?
- Upon the completion of your background investigation and the approvals from the Prairie Band Gaming Commission, the PBP Compliance Officer will contact the Human Resources Department to advise that you have been approved for a gaming license and that it is ready to be picked up. The Human Resource Department will then notify you to pick up your license at the Gaming Commission office. We do not recommend pending licensing applicants to call the Gaming Commission office to inquire about the status of a license.
What is the difference between a Category I, Category 2, Category 3 and 4 license?
- The gaming licenses are broken down in three different categories:
- Category 1 consists of directors, managers and some supervisors and/or other key employees;
- Category 2 consists of employees who are in contact with daily monetary transactions but are not necessarily in supervisory positions (for example, Dealers, Cage Cashiers, Slot Technicians, etc.);
- Category 3-4 consists of non-gaming related operations such as Beverage Servers, Food Servers, Kitchen employees, etc.
What type of background information is investigated?
As you complete your disclosure license application, a civil and criminal history record check, credit history review, employment history verification, residential history, driving record, and family history are among some of the issues that will be investigated. Keep in mind that depending on what disclosure license application you apply for, the questions asked may require different and/or additional documentation.
FREQUENTLY ASKED QUESTIONS BY VENDORS
What are the different classifications of vendors?
- Vendors are broken down into the following classifications:
What are the costs associated with obtaining a vendor license?
- Depending on the vendor classification, the following fees apply:
1. Exempt Vendor No fee required. 2. Minor Vendor Initial Investigation Fee (non-refundable) $500.00 Renewal Investigation Fee (non-refundable) $500.00 3. Major Vendor Initial Investigation Fee (non-refundable) $1,500.00 Renewal Investigation Fee (non-refundable) $1,000.00 4. Gaming Vendor Initial Investigation Fee (non-refundable) $3,000.00 Renewal Investigation Fee (non-refundable) $3,000.00
- The licensing fees shall be as follows:
- After background investigation is complete, and if approved for a license, a license fee will be assessed as follows:
- New vendors will pay $200.00 on first license.
- The consecutive years will be based on fee scale below:
VENDOR LISTING $AMT. LICENSE FEE DUE $0 – $1000 $25.00 $1001 – $5000 $50.00 $5001 – $10,000 $75.00 $10,001 – $20,000 $150.00 $20,001 – $40,000 $250.00 $40,001 – $60,000 $350.00 $60,001 – $80,000 $550.00 $80,001 – $100,000 $750.00 $100,001 – OVER $1,000.00 MANAGEMENT COMPANY $10,000.00
- License fee scale applies to Minor, Major and Gaming Licensed Vendors.
- The license fee will be collected annually.
- The Prairie Band Potawatomi Tribal Gaming Commission will send notice on amount of license fee and date due.
- After background investigation is complete, and if approved for a license, a license fee will be assessed as follows:
- The Casino and/or Bingo Hall will notify the PBP Gaming Commission that they will be using you as a vendor for supplies and/or services. The PBP Gaming Commission will then forward the appropriate vendor package to you for completion. The PBP Gaming Commission does not make the decision of which vendors will be used for the facility. Those decisions are made by the managing enterprise.
- All officers, directors and owners (owning 5% or more of the company) need to complete an application. Also, any technician that will frequently be on property to conduct any type of services will need to complete an application and obtain a license.
- Depending on the vendor classification, it could take anywhere from two (2) weeks to one (1) month to obtain a vendors’ license.
- Vendor Licenses shall expire on December 31st of each calendar year, unless issued in the final quarter of the year.
- Class I consists of social games that have prizes of minimal value; and traditional tribal games played in connection with tribal ceremonies or celebrations.
Class II primarily includes bingo (whether or not it is electronically enhanced), pull-tabs, lotto, punch boards, tip jars, instant bingo, and games similar to bingo, and non-banking card games allowed by state law.
Class III gaming includes all gaming that is not Class I or Class II gaming, which primarily includes slot machines, casino games, banking card games, dog racing, horse racing, and lotteries.
- Example 1: A tribe may operate unincorporated businesses in or away from Indian country. The income derived is not subject to federal income tax. If the tribe decides to incorporate its business, it may subject the income to tax based on how the corporation is formed.
- Example 2: A tribe may incorporate under the Indian Reorganization Act of 1934. This type of corporation is not subject to income tax regardless of where the business is located. An approval article or certificate signed by the Secretary of the Interior is evidence of incorporation under the Indian Reorganization Act.
- Example 3: An Indian tribe located in Oklahoma is not eligible to incorporate under the Indian Reorganization Act. Instead, an Oklahoma tribe may incorporate under the Oklahoma Indian Welfare Act. This type of corporation is not subject to income tax regardless of where the business is located. An approval article or certification signed by the Secretary of the Interior is evidence of incorporation under the Oklahoma Indian Welfare Act.
- Example 4: An Indian tribe may also form a corporation under state law. This type of corporation is ordinarily subject to federal income tax on income earned on or after October 1, 1994, regardless of where the business is located. Because the state charter creates an entity separate and distinct from the tribe, the federal income tax applies to this new entity. A Certification of Incorporation issued by the state is evidence of incorporation under state law.
- Example 1: A tribal gaming operation sells pull-tabs during its bingo session. The box of pulltabs contains 2,400 tickets that sell for $1 each. The gross receipts for that box of pull-tabs is $2,400, and the records of the gaming operation must reflect that amount.
- Example 2: If a player cashes in a $1 winning ticket for another ticket, $1 must be included in gross receipts of the tribe. The player actually cashed in his ticket for $1 in cash, then purchased the second ticket for $1. For simplicity sake, the cash payment and purchase of the second ticket was combined. Therefore, $1 is included in gross receipts and $1 is included in prizes awarded.
- Example: While reviewing a customer’s account status on a computer in the gaming pit, a floor person notices that a customer has already purchased $9,000 of chips in cash at another pit. Later, the customer asks to purchase an additional $5,000 in chips with cash. The casino is required to file a CTRC because a casino employee had knowledge that the customer had cash-in transactions in excess of $10,000 in one gaming day . In order to properly file a CTRC, the casino is required to secure certain information from the customer (including foreign nationals) BEFORE concluding the transaction. The information includes: name and accurate address; account number (with the casino, if applicable); and social security number. This information must be verified using appropriate forms of identification: driver’s license; documents acceptable within the banking community (including credit card); passport or other form of non-resident alien identification. This information must be documented on the CTRC. Currency transactions in other operational aspects of a casino complex may be subject to other reporting requirements.
- IRS Form 4789, Currency Transaction Report, is used by independent check cashers, money remitters, wire transfer companies, etc., operating inside or outside of a casino.
- IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, is used by hotels, retail outlets, and other establishments.
- credit transactions greater than $2,500
- records used to monitor customers gaming activity, i.e., player rating
- list of transactions involving monetary instruments of $3,000 and greater
- records of wire transfers involving funds of $3,000 or more
- copy of a casino’s written compliance program
- computerized transaction records of casinos with automated recordkeeping systems
- a system of internal controls to assure ongoing compliance
- internal and/or external, independent testing of compliance
- training of casino personnel in BSA requirements
- an individual or individuals to assure day-to-day compliance
- procedures for using all available information to determine, when required: accurate customer identity; suspicious or unusual activity; and whether recordkeeping requirements are met For casinos with automated systems, the casino must use the programs to aid in assuring compliance.
- involve funds derived from illegal activity or used for illegal purposes;
- are intended to evade the requirements of the BSA;
- appear to serve no business or apparent lawful purpose; and
- involve the use of the casino to facilitate criminal activity.
- Example 1: Employees may break down currency transactions into smaller amounts when recording the transactions.
- Example 2: Customers may ask a casino employee to monitor his/her gaming activity and to notify him when such activity is close to reaching the $10,000 reporting threshold and, once notified, concludes gaming at that location, moves to another table or pit, and conducts additional currency transactions.
- Example 3: Customers may conduct transactions at different cash windows on different shifts.
- Example 4: Customers may enlist others to conduct large pay-out transactions.
- Example 1: A tribe pays John $1,000 per week to clean the hall where the bingo sessions are held. John operates his own janitorial service that performs work for numerous entities, has the right to hire and fire his own help, and provides his own tools and supplies. The tribe should file Form 1099-MISC for John. The tribe does not have the right to direct and control John. Therefore, he is not an employee of the tribe.
- Example 2: A tribe pays Jack $500 per week to clean the hall where the bingo sessions are held. Jack only works for this tribe, does not have the right to hire and fire assistants, and the tribe requires that he personally does the work. The tribe provides the supplies and tools for Jack. Based on the above facts, Jack should be treated as an employee, and the tribe should withhold income tax and employment tax. The individual who performs services should complete IRS Form W-9, Request for Taxpayer Identification Number and Certification, certifying the correct taxpayer identification number (TIN) and name, and whether the provider is incorporated, before services are provided. Form W-9 is used to request payees to furnish a TIN and to certify that the number is correct (certification).
- Example: Joeis a dealer at a tribal casino. He received $800 in tips in March. Joe must report them to the tribal gaming operation conducting the gaming (employer) by April 10, or more frequently if required by the employer; and the tips are subject to FICA and federal income tax withholding.
- TRDA – Under this arrangement, the employer determines tip rates for various occupations within the establishment using historical tip data. The IRS reviews the data and validates the rates. At least 75 percent of the tipped employees must agree to participate by signing a Tipped Employee Participation Agreement. This arrangement is available for all tipped employees, gaming or non-gaming, at the casino. The employer may designate which categories of employees will be covered by a TRDA, and which ones will not.
- GITCA – Under this arrangement, a gaming industry employer and the Internal Revenue Service may work together to reach a Gaming Industry Tip Compliance Agreement that objectively establishes minimum tip rates for tipped employees in specified occupational categories, prescribes a threshold level of participation by the employer’s employees, and reduces compliance burdens for the employee and enforcement burdens for the IRS. See Revenue Procedure 2003-35 for more information on Gaming Industry Tip Compliance Agreements.
- Do not use a deposit coupon to pay delinquent tax that has been assessed by the IRS. This payment should be sent directly to your area IR Service Center along with a copy of any related notice the IRS sent you.
- Separate deposits are required for IRS Form 945, Annual Return of Withheld Federal Income Tax, and IRS Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, withholdings. Do not combine deposits for Form 941, Form 945, and Form 1042 withholding liabilities. Be sure to mark the appropriate check box for Form 945 on Form 8109.
- The IRS will send you a coupon book after you apply for an employer identification number (EIN). Coupons will be preprinted with your name, address, and EIN. Use the entry boxes to indicate the type of tax and the tax period against which the deposit is to be applied.
- In order to determine when to make deposits, you must determine your deposit schedule. There are two deposit schedules, monthly and semi-weekly. Your deposit schedule will be based on a four-quarter look-back period that ends June 30 of the prior calendar year. If you reported $50,000 or less of tax for the look-back period, you are a monthly-schedule depositor. If you reported more than $50,000, you are a semiweekly-schedule depositor. See IRS Publication 15 for more information.
- Monthly depositors must deposit federal tax related to wage payments made during the current month by the 15th day of the following month. Semi-weekly depositors must deposit more frequently. In addition, there are a number of other rules that can affect your deposit schedule or when you must make deposits. You should consult Publication 15 for more information regarding deposit deadlines. It is very important to clearly mark the correct type of tax and tax period on each deposit coupon. The IRS uses this information to credit your account. Deliver each deposit coupon and a single payment covering the taxes to be deposited to an authorized financial institution. Follow the instructions in the front of the coupon book. Make the check or money order payable to the financial institution where you make your deposit. To help ensure proper crediting of your account, include your EIN, the type of tax (e.g. Form 941), and tax period to which the payment applies on your check or money order. If your total liability will be less than $2,500 for any return period, deposits are not required, and the payment may be made with the return. However, if you are unsure your liability will be less than $2,500, make deposits on a monthly schedule to avoid failure to deposit penalties.
- Example: A taxpayer that exceeds the $200,000 deposit threshold during 2001 is required to make deposits through EFTPS for return periods beginning in or after 2003. Again, once you are required to make deposits through EFTPS, you are required to use EFTPS for all succeeding years, regardless of whether your deposits exceed or fall below the $200,000 threshold. The types of tax that count against the $200,000 threshold include, but are not limited to, employment tax, tax withheld under backup withholding, and amounts withheld related to gambling winnings.
- wagers placed on a sports event or contest with a person engaged in the business of accepting such wagers
- wagers placed in a wagering pool on a sports event or contest, if the pool is conducted for profit
- wagers placed in a lottery conducted for profit (other than a state-conducted lottery)
- Example: The wagering tax applies to an organization selling pull-tabs. The tax applies to the gross sales per box. If a box of $1 pull-tabs contains 2,400 cards and the entire box is sold, the tax is computed on $2,400.
- Example: A tribe sells pull-tabs and arranges for 10 people to receive wagers from the public on the tribe’s behalf. The tribe also employs a secretary and a bookkeeper. The tribe and each of the 10 persons are liable for the occupational tax. They must each file Form 11-C and pay occupational tax. The secretary and bookkeeper are not liable for the tax unless they also accept wagers for the tribe.
- Example: A tribe sells pull-tabs at its tribally-owned gasoline stations through paid employees of the tribe. In this state where the tribe is located, the sale of pull-tabs must be conducted by volunteer labor. The tribe is liable for the wagering tax at a rate of 2 percent. Because it is liable for the tax, the tribe is also subject to the occupational tax at the amount of $500 per person selling pull-tabs. The tribe is subject to the 2 percent rate and $500 amount because the wager is not authorized under the law of the state in which it is accepted. State law only allows the sale of pulltabs by volunteer labor, and this tribe uses paid cashiers to sell the pull-tabs.
- Example: A tribe owns a casino, and in December, pursuant to an approved Tribal Revenue Allocation Plan, makes a $15,000 per capita distribution to each member of the tribe. The tribe must:
How do I get my company licensed to do business with the casino and/or bingo hall?
Who from my company needs to disclose information to the Gaming Commission?
How long does it take to get a vendor license?
What is the length of time a vendors’ is good for?
GAMING TAX LAW
FOR INDIAN TRIBAL GOVERNMENTS, INTERNAL REVENUE SERVICE
TAX EXEMPT AND GOVERNMENT ENTITIES and Indian Tribal Governments
As an employer, what Federal tax responsibilities associated with tribal gaming do I need to know for my employees and my customers?
All tribal governments conducting or sponsoring gaming activities, whether for one night out of the year or throughout the year, whether in their primary place of operation or at remote sites, must be aware of the federal requirements associated with income tax reporting, employment tax, and excise tax.
The Indian Gaming Regulatory Act divides gaming activities into three classes:
This Internal Revenue Service (IRS) publication provides you with the latest tax law applicable to gaming operations for these gaming activities. Specifically, you will learn about recordkeeping, employment tax, and tax on wagering, per capita distributions, forms to file, and much more. All IRS forms and publications referenced throughout this publication can be ordered free through the IRS at (800) 829-3676 or downloaded through the IRS Web site at www.irs.gov.
Determining Federal Tax Status of Indian Tribal Governments
While the National Indian Gaming Commission (NIGC), established under the IGRA, has oversight responsibility for Indian gaming, the IRS has responsibility for federal taxation issues emanating from gaming, as well as any other federal tax issues involving Indian tribal governments. As a result of gaming compacts negotiated between the tribes and states, other types of regulations may have been created that involve state oversight. However, the IRS is charged with interpreting federal tax law as it relates to tribal entities and enterprises.
Even though Indian tribes are not subject to federal income tax, an individual tribal member not exempt from income taxation must report gross income amounts distributed or constructively received. In tribal gaming, structure and ownership of a gaming operation has a significant impact on the taxability of the income, as explained in the examples below.
RECORDKEEPING AND REPORTING (GAMING INCOME, PAYOUTS, EXPENSES)
Class I, Class II, and Class III Gaming Operations – Tribal governments that are conducting gaming operations deal with large numbers of individuals and massive amounts of currency. Therefore, tribal gaming operations should be actively involved in overseeing and controlling each facet of the gaming activity to ensure funds are not diverted to private individuals or for private purposes. The IGRA provides the framework to handle necessary recordkeeping when a tribe is involved in either Class II or Class III gaming. Class I gaming on Indian land is within the exclusive jurisdiction of Indian tribes and is not subject to IGRA provisions.
Whether a tribe has hired a management company to run its gaming operation, or it is handling the gaming operation itself, the tribe must follow the regulations issued by the NIGC that cover the Minimum Internal Control Standards (MICS) for Indian gaming. These standards are applicable if they are more stringent than the standards included in a Tribal-State compact. However, if the Tribal-State compact is more stringent, then the compact standards apply. The NIGC regulations cover the internal controls needed for all Class II and Class III gaming operations. (Generally, gaming operations existing as of March 31, 1999, were allowed until February 4, 2000, to comply with the minimum standards, with the potential for a six-month extension. Gaming operations commencing after March 31, 1999, are required to be in compliance at the time operations commence.) A tribe must also have an independent certified public accountant (CPA) verify that the Internal Control Systems, which are in place, are in compliance with the Minimum Internal Control Standards of the NIGC’s regulation or with the Tribal-State compact. Failure to meet these standards may result in temporary closure and/or civil fines. The NIGC regulations can be obtained from the NIGC.
Remember that whether a tribe has hired a management company to run the gaming operation, or it is running the operation itself, the tribe, as owner, is required to ensure the maintenance of all books and records used to determine gross and net income, and to determine information reporting responsibilities such as IRS Form W-2G, Certain Gambling Winnings.
The NIGC regulations require that the books and records of a tribal Class II or Class III operation be retained for at least five years. Regulations require that records be retained as long as the contents may be material in the administration of tax law. This usually means as long as the period of limitation has not expired on the applicable tax year for income tax (generally three years from the later of the date filed or the due date of the return). In addition, employment tax regulations specify that records must be preserved for at least four years after the due date of employment tax returns, or four years from the date the tax was paid, whichever is later. Tribal-State compacts may contain additional recordkeeping and reporting requirements for tribal gaming operations. Also, there are special recordkeeping requirements for excise tax application. See section Tax on Wagering
Bank Secrecy Act (BSA),Title 31 (Casinos and Card Rooms)
In 1970, Congress enacted the Bank Secrecy Act. This far-reaching act instituted rules and regulations for the reporting of currency transactions of greater than $10,000 and for certain identification and recordkeeping requirements. The Act was amended in 1985 to include casinos with gross annual gaming revenue in excess of $1,000,000. This coverage was extended to Indian casino operations in August 1996. Due to the cash intensive nature of gaming activity and the huge volume of wagering throughout the United States, casinos find themselves dealing with large numbers of individuals and massive amounts of currency.
Casinos and card rooms are designated as financial institutions subject to the requirements of the BSA if the property is licensed as a casino by state, local, or tribal governments; and if the property has gross annual gaming revenues in excess of $1,000,000.
IRS Form 8362, Currency Transaction Report by Casinos (CTRC), is used to report transactions. This form must be filed with the IRSDetroitComputingCenter within 15 days of the date of the currency transaction. (Address noted on Form 8362.) A report is required for a single or multiple transactions over $10,000 by an individual. A single transaction is a transaction of more than $10,000 in currency occurring at one location at one time. A multiple transaction is a series of transactions each less than $10,000, which, when aggregated, exceeds $10,000 during the gaming day. (A gaming day is defined as the normal business day of a casino. For a casino that offers 24-hour gaming, the term means that 24-hour period by which the casino keeps its books and records for business, accounting, and tax purposes. For purposes of Title 31 regulations, each casino may only have one gaming day, common to all of its divisions.) The casino must have knowledge that a multiple transaction exceeded $10,000 in a gaming day and are by, or on behalf of, one individual. The casino is deemed to have knowledge if any employee, proprietor, officer, director or partner has knowledge the transactions occurred. It is not necessary to have personally observed the transactions; it can also be acquired from examining books, records, logs, computer files, etc.
There are extensive requirements for financial institutions, and additional ones for casinos. For casinos, important requirements concern deposit of funds, accounts opened, or credit extended. The casino must secure and maintain the name, permanent address, and social security number (SSN) for each person having a financial interest in the account. The information must be verified by examining a driver’s license or any other form of identification that is acceptable within the banking community for cashing checks of non-depositors. In the case of an alien or non-resident of the United States, verification must be made by using a passport, alien identification card, or other official document corroborating nationality or residency. Other key records include:
Casinos are required to develop and implement a reasonably designed, written program to monitor compliance with the BSA. At a minimum the plan must include:
Casinos have a certain vulnerability to potential money laundering schemes caused by the cash intensive nature of the games. The BSA was designed to create an audit trail to help minimize illicit financial transactions. Effective March 25, 2003 casinos and card clubs are required to report transactions of at least $5,000 when the casino knows, suspects, or has reason to suspect that transactions:
Financial Crimes Enforcement Network (FinCEN) Form 102, Suspicious Activity Report by Casinos and Card Clubs is used to report suspicious activity.
The following are examples of how, under particular facts and circumstances, an activity may appear suspicious.
Additional information regarding suspicious activity reporting requirements and copies of FinCEN Form 102, Suspicious Activity Report by Casinos and Card Clubs can be obtained through the Financial Cr imes Enforcement Network’s Web site at www.fincen.gov.
Tribal gaming operations are subject to employment tax if they have compensated workers. An employer must generally withhold income, Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Federal employment tax is tax imposed under Federal Insurance Contributions Act (FICA) and federal income tax withholding. Federal employment tax also includes tax imposed under the Federal Unemployment Tax Act (FUTA).
the Indian Self-Determination and Education Assistance Act), as well as any business wholly owned by such an Indian tribe, are exempt from FUTA tax. Instead, an Indian tribal government may elect to make contributions to the state unemployment fund. If the tribe elects not to participate in the state unemployment program, the tribe is no longer exempted from FUTA and must pay the FUTA tax and file Form 940, Employer’s Annual Federal Unemployment Tax Return. Tribes should be aware that nonparticipation in the state unemployment program may make tribal members ineligible for unemployment benefits. If the employer is not a qualifying Indian tribe or business wholly owned by a qualifying Indian tribe, or has elected to pay the tax, FUTA tax will be applicable. See IRS Publication 15, Circular E, Employer’s Tax Guide, for information regarding FUTA tax filing and deposit requirements.
IRS Forms to File (for Compensated Workers)
The Internal Revenue Code provides that for purposes of FICA and federal income tax withholding, the term “wages” means all payments received for “employment” with certain specified exceptions. Therefore, unless payments to employees are excepted from the term “wages” or the services performed by the employee are excepted from the term “employment,” such payments will be subject to FICA and federal income tax withholding. One exception to the general rule applies to salaries paid to tribal council members for services performed by them as council members. While these amounts should be included in the council members’ gross income, they do not constitute wages for purposes of FICA and federal income tax withholding. Compensated workers, workers treated as employees and workers not treated as employees, are generally involved in gaming operations, and the gaming operation is responsible for filing certain IRS tax forms.
Workers Treated As Employees
If the tribal gaming operation has the right to direct and control the worker, that worker is an employee. In addition to the workers involved in the gaming operation, there may be other individuals that should be treated as employees, such as valet parkers and grounds-keepers. With respect to employees, each employer is responsible for filing IRS Form W-2, Wage and Tax Form Employer’s Responsibility When W-2 Furnish employee a copy of Form W-2 By January 31 of the year following year of payment W-2 Furnish W-2 to the Social Security By the last day of February of the Administration (SSA) year following year of payment. Use Form W-3, Transmittal of Income and Tax Statements, to transmit to SSA. W-4 Request signed W-4 from all employees Request should be made as soon as an employee starts work and should be effective with the first wage payment. 941 Each employer is responsible for filing The return is due the last day of the Form 941 – reporting wages, federal income month following the end of the calendar tax withholding, Social Security & Medicare quarter. tax withholding each quarter. Statement , and IRS Form 941, Employer’s Quarterly Federal Tax Return. To know how much income tax to withhold from employees’ wages, employers should have a Form W-4, Employee’s Withholding Allowance Certificate, on file for each employee.
Workers Not Treated As Employees (Independent Contractors, Vendors)
The tribal gaming operation may have to file information returns to report certain types of payments made during the year to workers who are not treated as employees. One example could be entertainers who are hired for a show. If the company hired to perform services for the tribal gaming operation is incorporated, issuance of IRS Form 1099-MISC, Statement for Recipients of Miscellaneous Income, is not generally required; however, some exceptions exist, such as payments to attorneys. If a question exists concerning the liability to issue Form 1099-MISC, refer to IRS Publication 15 or contact the Indian Tribal Governments specialist in your area for assistance. A trade or business must file IRS Form 1099-MISC to report payments of $600 or more to persons not treated as employees for services performed in a trade or business. The $600 threshold applies to all payments made during the calendar year, not to any one payment.
Reporting Tip Income
All tips received by an employee are taxable income subject to federal income tax. An employee must include in gross income all tips: received directly from customers; tips from charge customers that are paid to an employee by an employer; and tips from an employee’s share of a tip-splitting or tip-pooling arrangement. Tips paid in cash (or checks or other cash equivalent, including charged tips) of $20 or more that an employee receives in a calendar month while working for any one employer are wages subject to FICA and federal income tax withholding. Tips of less than $20 received by an employee during a calendar month while working for a particular employer are not wages for FICA or federal income tax withholding purposes, even though such tips are taxable income. Once the amount of tips received in a calendar month reaches $20 from any one employer, the entire amount of tips received must be reported to the employer and be included in wages, not just the amount over $20. An employee who receives $20 or more in tips must report those tips in writing to his or her employer by the tenth day following the month in which the tips are received.
Tip Rate Determination/Education Program (TRD/EP)
Compliance with tip income reporting requirements can be one of the most complicated and difficult issues for employers and employees. If noncompliance exists, both parties can be liable for payment of significant tax, penalties, and interest. In an effort to reduce burden and ensure compliance, the IRS has developed TRD/EP to improve tip-reporting compliance by employers and employees. The Indian Tribal Governments office of the Internal Revenue Service offers workshops and presentations on tip income reporting. In addition to participating in educational and outreach programs, gaming operations may enter into a Tip Rate Determination Agreement (TRDA) or a Gaming Industry Tip Compliance Agreement (GITCA).
IRS Form 4070, Employee’s Report of Tips to Employer, may be used for recording and reporting tip income. The employer may require more frequent reporting of tips. The employer must withhold FICA and federal income tax on reported tips. See IRS Publication 531, Reporting Tip Income, for more information.
Depositing Employment Tax
In general, you must deposit backup withholding, gambling withholding, income tax withheld, and both the employer and employee Social Security and Medicare taxes. In order to deposit, you must use, either, the Electronic Federal Tax Payment System (EFTPS) or IRS Form 8109, Federal Tax Deposit Coupon.
Federal Tax Deposit Coupon
Use Form 8109 to deposit employment tax and all other types of tax that are deposited to an authorized financial institution. Special rules apply:
Electronic Federal Tax Payment System (EFTPS)
You can initiate federal tax payments electronically instead of using paper coupons through EFTPS. Some taxpayers are required to use EFTPS to deposit tax, but many voluntarily use EFTPS because of its many advantages. EFTPS offers the convenience of making federal tax payments 24 hours a day, 7 days a week by telephone, on-line, and through the transfer of funds offered by your financial institution. No special equipment is required to use EFTPS. For PC use, free Windows®-based software is available when you enroll in EFTPS and use EFTPS-Direct. Also, you can view EFTPS-On-Line at www.eftps.gov. This new option allows you to pay federal tax via the Internet.
To determine whether you are required to use EFTPS, you must look back to your deposits in the previous year. If you deposited more than $200,000 of certain types of federal tax in the previous year, you must use EFTPS to deposit tax for all return periods that begin in the following year and all succeeding years.
To participate in EFTPS, you must first enroll. To receive an enrollment form, call (800) 945-8400 or (800) 555-4477. For further information on withholding and depositing tax, see IRS Publication 15 , Circular E, Employer’s Tax Guide.
Trust Fund Tax (Failure to Withhold and Pay Employment Tax)
A trust fund recovery penalty may apply when trust fund tax (i.e., employment tax), that should be withheld, is not withheld or is not paid to the IRS. This penalty can be applied to any entity, including governmental entities such as Indian tribes. Under this penalty, certain officers or employees of a tribal gaming operation could become personally liable for payment of the tax and could be penalized an amount equal to the unpaid tax. This penalty may be applicable when unpaid tax cannot be immediately collected from the tribal gaming operation. The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over this tax, and who acted willfully in not doing so. Willfully, in this case, means voluntarily, consciously, and intentionally.
Tax on Wagering (Application of Excise Tax)
This section explains the application of excise tax on wagering (wagering tax and occupational tax) on tribal gaming operations conducting bingo games, pull-tabs, raffles, and tip boards. Tribes which conduct gaming activities should be aware that wagering tax and occupational tax might apply based upon the gaming activities that are offered. The facts and circumstances of the types of wagering conducted, as well as the benefits derived, may have a bearing on whether the wagers are subject to tax. There are two types of wagering tax: wagering tax imposed on the amount of a wager; and an occupational tax imposed on persons engaged in receiving taxable wagers. In general, the tax on wagering applies to:
Note: Pull-tabs, raffles, and tip jar games generally are taxable lotteries. Bingo (not instant bingo) is specifically excluded from the wagering tax. Keno may or may not be excluded from the wagering tax. The general rule is if it is a live Keno game, meaning all players are present and winnings are paid before the beginning of the next game, then it is not subject to the gaming excise tax. Generally, with Keno games over 20, the player may leave and collect his winnings at a later date (usually up to one year). This type of Keno game would be subject to the wagering tax. Contact the Indian Tribal Governments specialist in your area with questions regarding the applicability of the wagering tax to a specific game.
The amount of the wager upon which tax is imposed is the amount risked by the bettor, including any charge or fee incident to placing the wager. The taxable amount does not depend on the amount that a bettor may win in the wager. The law specifically exempts certain wagers from the wagering tax. They include those placed with a pari-mutuel wagering enterprise licensed under state law; in a coin-operated device; or in a sweepstake, wagering pool, or lottery that is conducted by a state or state agency, if the wager is placed with the agency or its authorized agents or employees.
The wagering tax is imposed on gross wagers received. The tax is based on the total amount received before any payout of prizes or other expense.
Rate of Tax
The rate of tax depends upon whether the wager is authorized under the law of the state in which it is accepted. If the wager is authorized under the law of the state in which it is accepted, the rate of tax is 0.25 percent of the amount of the wager. Thus, if the gross wagers are $1,000, the tax is $2.50 ($1,000 x .0025). If a wager is not authorized under the law of the state in which it is accepted, the rate of tax is 2 percent of the wager. Thus, if the gross wagers are $1,000, the tax is $20 ($1,000 x .02).
Filing IRS Form 730, Tax on Wagering
Form 730 is a monthly return that must be filed by all persons subject to tax by the last day of the month following the month for which taxable wagers are reported. Once a taxpayer begins filing, Form 730 must be filed in each month until a final return is filed, even if the taxpayer receives no wagers in a month. These returns will report a liability of zero for the month. If the taxpayer stops accepting wagers, a final Form 730 must be filed. The “Final Return” box should be checked on the form. The instructions to Form 730 provide additional filing information. A tribe may be subject to a penalty for failure to file the form and for failure to pay the tax.
The occupational tax is imposed on those who receive wagers that are subject to tax. The tax applies to persons receiving taxable wagers, whether they receive compensation or are volunteers. Persons required to pay tax shall register certain information with the IRS. This includes both principals (persons in the business of accepting taxable wagers on their own behalf) and agents (persons who accept taxable wagers on behalf of a principal). Both principals and agents must file IRS Form 11-C, Occupational Tax and Registration Return for Wagering, to register and to pay the occupational tax before wagers are accepted and annually thereafter. An employer identification number (EIN) must be used on Form 11-C, not a social security number (SSN). If a principal or agent does not have an EIN, then IRS Form SS-4, Application for Employer Identification Number, must be completed and attached to Form 11-C when the form is filed. See the instructions for Form 11-C for additional information. An organization may be subject to a penalty for failure to file the form and for failure to pay the tax.
Amount of the Tax
The amount of the occupational tax depends on whether or not the wager is authorized under the law of the state in which it is accepted. If the wager is authorized under the law of the state in which it is accepted, the amount of the occupational tax is $50 per year per person. For all other wagers, the amount of the tax is $500 per year per person.
Per Capita Distributions (Reporting and Withholding)
Per Capita Payments – Under IGRA, net revenues from Class II or Class III gaming activities conducted or licensed by an Indian tribe may be used to make per capita payments to members of the tribe only if four conditions are met.
Condition 1. The tribe must prepare a plan to allocate revenues only for uses authorized under IGRA. These uses are to: fund tribal government operations or programs; provide for the general welfare of the Indian tribe and its members; promote tribal economic development; donate to charitable organizations; or help fund operations of local government and agencies.
Condition 2. The plan must be approved by the Secretary of the Interior as adequate, particularly with respect to the use of revenues to fund tribal government operations or programs and to promote tribal economic development.
Condition 3. The interests of minors and other legally incompetent persons entitled to receive any of the per capita payments must be protected and preserved, and payments are to be disbursed to the parents or legal guardian of such persons as necessary for the health, education, or welfare, of the minor or other legally incompetent person under a plan approved by the Secretary and the governing body of the Indian tribe.
Condition 4. The per capita payments are subject to federal taxation and the tribe must notify members of such tax liability when payments are made.
Guidelines to Govern the Review and Approval of Per Capita Distribution Plans
The Department of Interior issues Guidelines to Govern the Review and Approval of Per Capita Distribution Plans. These guidelines set forth the procedures regarding the submission, review, and approval of tribal revenue allocation plans or ordinances relating to the distribution of net revenues from a gaming activity. Under the guidelines, a tribal revenue allocation plan or ordinance (allocation plan) providing for the distribution of net gaming revenues shall be approved if the allocation plan provides sufficient detail to determine that it complies with the guidelines and IGRA. Also, the tribe must provide a percentage breakdown of the uses to which the tribe intends to allocate its net gaming revenues, and the allocation plan shall provide that the tribe plans to dedicate a significant portion of its net gaming revenues to one or more purposes as cited in the guidelines. The guidelines define “per capita” payments as those payments made or distributed to all members of a tribe or to identified groups of members that are paid directly from the net revenues of any gaming activity. Per capita payments do not include payments authorized by a tribe for special purposes or programs, such as social welfare, medical assistance, or education. Even though a tribal member may receive payments from net revenue for social welfare, medical assistance, or education, a tribe’s designation of these payments is not determinative of their tax status.
Certain “need”-based payments are not taxable. Although there is no express statutory exclusion for a welfare benefit, government disbursements promoting the general welfare of a tribe are not taxable. Grants received under social welfare programs that did not require recipients to establish individual need have not qualified for tax-exempt status. Individuals are required to establish “need.” For information on these specific issues, contact the Indian Tribal Governments specialist in your area.
Reporting Requirements of Per Capita Distributions
The IGRA mandates that gaming revenues are to be taken into account in computing the income tax of a member when the net gaming revenue is paid to that member as a per capita payment. For those who receive their per capita payments outright, the year of income inclusion generally is the year of receipt.
Withholding Requirements of Distributions from Net Gaming Revenue
Identifying the initial source of funds used for the per capita distribution is an important aspect of reporting requirements. Unless specifically exempt from taxation, the amounts that make up the per capita distributions are taxable and subject to the requirements of filing IRS Form 1099-MISC, Statement for Recipients of Miscellaneous Income. A per capita distribution could be derived from many sources, including the profits from a tribal business other than a Class II or III gaming operation, interest income on investments, or rental payments from tribal lands. All these payments would require a tribe to prepare Form 1099, when a payment was made to the tribal member. It is only the amount distributed from net gaming revenue that is subject to withholding.
The Internal Revenue Code provides that “Every person, including an Indian tribe, making a payment to a member of an Indian tribe from the net revenues of any Class II or Class III gaming activity conducted or licensed by such tribe, shall deduct and withhold from such payment a tax in an amount equal to such payment’s proportionate share of the annualized tax.” The withholding tables are found in IRS Publication 15-A, Employer’s Supplemental Tax Guide.
- withhold an appropriate amount of tax from the distribution pursuant to the withholding tables for withholding on distributions of Indian gaming profits to tribal members found in Publication 15-A;
- prepare Form 1099-MISC for each tribal member receiving a distribution, with the $15,000 reflected in box 3 and the amount withheld reflected in box 4;
- prepare and file Form 8109, Federal Tax Deposit Coupon. For the year 2000, a tribe would have been on a monthly deposit schedule if their total tax reported in the four quarters ending on June 30, 1999, was $50,000 or less. If the total tax exceeded $50,000, the tribe would have been on a semi-weekly schedule for deposits. Other factors could affect a tribe’s deposit schedule, and the tribe may have been required to make electronic deposits if the federal tax deposits were more than $200,000. See Publication 15 for more detailed information.
- prepare Form 945, Annual Return of Withheld Federal Income Tax, and file it before
- January 31st of the subsequent year. The total amount of withheld taxes from Indian Gaming Profits should be reported on line 1. If all taxes have been deposited timely, then Form 945 may be filed by February 10th in lieu of January 31st. See Publication 15 for more information. A tribal member must prepare his/her IRS Form 1040, U.S. Individual Income Tax Return, and reflect the per capita distribution as “other income”, and the total withheld taxes as federal income tax withheld from Forms W-2 and 1099-MISC.
IRS Tax Forms to File for Gaming Activities
Tribal organizations conducting gaming activities generally handle and prepare the following forms:
Tax Form Filing Frequency Form 11-C, Occupational Tax and Registration Return for Wagering Before accepting wagers Annually Form 730, Tax on Wagering Monthly *Form 940, Employer’s Annual Federal Unemployment Tax Return Annually Form 941, Employer’s Quarterly Federal Tax Return Quarterly Form 945, Annual Return of Withheld Federal Income Tax Annually Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons Annually Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding Annually Form 1096, Annual Summary and Transmittal of U.S. Information Returns Annually Form 1099-MISC, Statement for Recipients of Miscellaneous Income Annually Form 5754 Statement by Person(s) Receiving Gambling Winnings Upon winning only Form 8027, Employer’s Information Return of Tip Income and Allocated Tips Annually Form 8109, Federal Tax Deposit Coupon Ongoing Form 8362, Currency Transaction Report by Casinos 15th day after transaction Form W-2, Wage and Tax Statement Annually Form W-2G, Certain Gambling Winnings Annually Form W-3, Transmittal of Wage and Tax Statements Annually
The use of a promoter or contractor to operate gaming for a tribal government does not relieve the tribe of its responsibility to file the appropriate forms.
*If not participating in a state unemployment program.
Reporting and Withholding Gaming Winnings (Common IRS Forms)
- Forms W-2G, 945, 1042, 1042-S*
Certain wagering transactions require the filing of Form W-2G and IRS Form 1096, Annual Summary and Transmittal of U.S. Information Returns. Form W-2G is filed when an individual(s) wins a prize with a minimum specific dollar amount at a gaming event.
The winner must provide the game operator with proper identification, including his/her taxpayer identification number (TIN). Form W-9, Request for Taxpayer Identification Number and Certification may be used to record the information.
Regular Bingo Game Prizes
A single bingo prize of $1,199.99 or less does not require the completion of Form W-2G or the withholding of federal income tax. A single bingo prize of $1,200 or more requires the completion of Form W-2G by the bingo game operator. The winner of a single prize of $1,200 or more must furnish the bingo game operator with proper identification, along with his/her TIN, which is typically the taxpayer’s social security number (SSN). The winner should furnish two types of identification (such as driver’s license, social security card, voter registration card) to verify his or her name, address, and TIN. If the winner does not provide a taxpayer identification number, the bingo game operator must withhold tax (known as backup withholding) at the current backup withholding rate. See the section on backup withholding (page 22) for more information on this topic.
- Example 1: A tribal gaming operation conducts a weekly bingo game. A payout of $1,300 is made for a single game. The winner furnishes identifying information, along with the winner’s TIN to the tribe. The tribal gaming operation must complete Form W-2G, but does not have to withhold.
- Example 2: If the winner in Example 1 had refused to provide the TIN, Form W-2G would be completed without the TIN, and backup withholding applies. The income tax withheld is reported on Form 945, Annual Return of Withheld Federal Income Tax. Note: The winner would receive $910 ($1,300 gross winnings minus $390 federal income tax withheld at the rate of 30 percent).
Lotteries, Sweepstakes, Horse Races, Dog Races, Instant Bingo Game Prizes/Pull-Tabs, Jai Alai, and Other Wagering Transactions
A single prize of $599.99 or less involving lotteries, sweepstakes, horse races, dog races, instant bingo game prizes/pull-tabs, jai alai, and other wagering transactions does not require completion of Form W-2G or the withholding of federal income tax. A single prize of at least $600, but not more than $5,000, requires the completion of a Form W-2G if the prize is at least 300 times the amount of the wager. The winner must furnish the game operator proper identification along with his/her TIN, or the game operator must withhold tax at the current backup withholding rate. Backup withholding applies to the amount of winnings reduced, at the option of the payer, by the amount wagered. See section Form 945, Annual Return of Withheld Federal Income Tax, on page 21, for more information on this topic.
*Examples used throughout this publication reflect 2002 withholding rates.
- A single prize, less the wager, exceeding $5,000 requires the completion of Form W-2G, and regular Example 1: A tribal gaming operation sells pull-tabs at its weekly bingo session. Each pull-tab costs $1. One type of pull-tab sold pays a progressive jackpot, that is, the winning ticket from each box entitles the ticket holder to select a number from a second punchboard without making an additional wager. If the ticket holder selects the winning punchboard number, the holder wins the jackpot. If the winning ticket holder does not select the winning punchboard number, the holder may be paid a consolation prize. The jackpot is increased and carried over to the next box of pull-tabs sold. If a patron wins $100 on the winning ticket from the box gambling withholding, at the current rate, of the net winnings of pull-tabs, and then selects a winning number from the progressive punchboardthat pays $550, a Form W-2G must be completed. Since the purchase of the initial ticket entitled the patron to both amounts, the amounts are combined and considered as a single prize of $650.
Example 2: A tribal gaming operation sells instant bingo game tickets. A winner receives $950 from one of the pull-tabs, which cost $1. The winner refuses to provide his/her identification number; therefore, the tribe must complete Form W-2G and withhold 30 percent of the winnings. The income tax withheld is reported on Form 945. The winnerreceives $665 ($950 gross winnings minus $285 federal income tax withheld).
Example 3: A tribal gaming operation has another winner of $5,100 from one of the pull-tabs, which cost $10. Because the winnings, less the wager, exceed $5,000, a Form W-2G must be completed and federal income tax withheld. The income tax withheld is reported on Form 945. Assuming that the winner provides identification, the winner receives $3,715.70 ($5,100 gross winnings less $1,374.30 withholding tax). (Computed $5,100 – $10 x 27 percent.) Multiple Winners –When paying out a prize from a wagering activity, a tribal gaming operation needs to determine whether the prize is being paid to a member of a group of two or more winners on a single ticket; or is being paid to a person who is not the actual winner. If prizes are paid to a member of a group of two or more winners on a single ticket, or paid to a person who is not the actual winner, the tribal gaming operation must complete IRS Form 5754, Statement by Person(s) Receiving Gambling Winnings. The completion of Form 5754 enables the tribal gaming operation to prepare Form W-2G. There are two parts to Form 5754 – the first lists the identification of the person to whom the winnings are paid, and the second part lists the actual winners and their respective share of the winnings. The tribal gaming operation must use the information to complete Form W-2G for each winner. Form 5754 is not submitted to the IRS, but should be kept with tribal tax records for a period of four years.
The determination of whether a Form W-2G is required is based on the amount of the prize paid on the winning ticket, not each individual’s share of the prize.
- Example: A tribe sells pull-tabs at its weekly bingo session. John Doe and Judy Smith jointly purchased a $1 pull-tab that was the winning ticket of a $1,200 jackpot. Form 5754 must be prepared along with two Forms W-2G. Form W-2G should be completed for each of the winners (John Doe and Judy Smith) showing the gross winnings of $600 each. If John and Judy contributed equal amounts toward the purchase of the ticket and agreed to share equally in any prizes won, Form 5754 would be completed as follows:
- Part I. List the name, address and identification number of the individual to whom the prize was actually paid (prize must be paid to one individual). In the box for amount received, include the total $1,200 prize.
- Part II. List John Doe’s name, address and identification number. Include in box (d) $600 as the amount won (his share of the prize). List Judy Smith’s name, address and identification number. Include in box (d) under her name $600 (her share of the $1200 prize).
- Signature. Form 5754 must be signed and dated by the party receiving payment of the prize from the tribal gaming operation, if federal income tax is withheld.
The Form W-2G should be completed by the tribal gaming operator upon payment of the prize to the winner. Copies B, C, and 2 of this form may be given to the prize winner at the time of completion. However, Copies B, C, and 2 of the W-2G are required to be furnished to the winner no later than January 31 of the following year. Copy A of Form W-2G and Form 1096 must each be submitted to the IRS by February 28 of the year following the year the gaming winnings were paid. Copy 1 of W-2G is submitted to the state and the payer retains Copy D. The tribal gaming operation may be required to file Forms W-2G and 1099-MISC by magnetic media. Generally, if you are required to prepare and file 250 or more information returns, you must file on magnetic media. The tribal gaming operation may wish to file electronically. (Note: If you are required to file on magnetic media, you may choose to file electronically instead. You may choose magnetic media or electronic filing even if you are not required to file on magnetic media). The 250-or-more requirement applies separately to each type of form.
Magnetic media reporting includes magnetic tape, tape cartridge, 31/2 and 51/4-inch diskettes. See IRS Publication 1220, Specifications for Filing Forms 1098, 1099, 5498, and W-2G Magnetically or Electronically, detailed instructions, or contact your local Indian Tribal Governments specialist for assistance. Generally, gambling winnings are reportable if the amount paid reduced, at the option of the payer, by the wager is (a) $600 or more and (b) at least 300 times the amount of the wager. However, these requirements do not apply to winnings from bingo, keno, and slot machines. If winnings from a keno game (reduced by the wager) are $1,500 or more, they are reportable gaming winnings. If the winnings (not reduced by the wager) from a bingo game or slot machine are $1,200 or more, they are reportable gaming winnings.
The following chart describes when a W-2G generally must be issued:
- Amount of Prize Paid is Type of Game Equal to or Greater Than
Lotteries, Sweepstakes, Horse Races, Dog Races, Instant Bingo Game Prizes/Pull-Tabs, Jai Alai and other wagering transactions $600
Bingo $1,200 Slot Machines $1,200 Keno $1,500
- Form 945, Annual Return of Withheld Federal Income Tax
In addition to the information reporting requirements of Form W-2G and Form 1096, tribal gaming operations are subject to certain withholding requirements as described below.
- Withholding – Tribal gaming operations making payment of certain gambling winnings must withhold tax from these payments. The tribal gaming operation will report the amount of gambling withholding for federal purposes on Form 945. If there are Tribal-State compact requirements for state withholding, that amount should be reported on the applicable state forms. Winnings that are subject to regular gambling withholding are payments from:
- a wager placed in a state-conducted lottery if the proceeds from the wager exceed $5,000
- a wager placed in a sweepstake, wagering pool, or lottery (other than a state-conducted lottery),
- if the proceeds from the wager exceed $5,000 a wagering transaction, including wagers in a pari-mutuel pool with respect to horse races,
- dog races, or jai alai, where the proceeds are more than $5,000, and the amount of such proceeds
- is at least 300 times as large as the amount wagered
- Note: Winnings of $600 or more with the amount paid at least 300 times the amount of the wager from any wagering transaction (including wagers in a pari-mutuel pool with respect to horse races, dog races and jai alai) are reportable on Form W-2G. They are not subject to withholding unless the proceeds are more than $5,000 and the amount paid is at least 300 times the amount of the wager. Regular gambling withholding applies to the total amount of gross proceeds, not merely the amount in excess of $5,000.
Regular Withholding Rates on Gambling Winnings
2003 thru 2004 25% Rate/Percentage Tax Year Effective Date
Backup withholding refers to the withholding of tax that applies to reportable prizes when the prize winner fails to provide a taxpayer identification number (TIN) to the tribal gaming operation. If the TIN does not contain nine digits or contains alpha characters, then the prize winner has not provided a valid TIN. Generally, Form W-9, Request for Taxpayer Identification Number and Certification, is used to report backup withholding. The following chart illustrates the backup withholding rates.
- Example 1: A tribe owes a pull-tab prize of $750 to a single ticket winner from a $1 wager. The winner would only give his name. Since the winner failed to supply a TIN, the tribe should collect backup withholding of $225 ($750 x 30 percent) and pay the winner $525 ($750 – $225). If the winnerhad supplied his/her TIN, no withholding would be required.
- Example 2: A tribe owes a single pull-tab prize of $6,000. The winner provides a SSN. The tribe should withhold $1,620 ($6,000 x 27 percent) and pay the winner $4,380 ($6,000 – $1,620). Noncash Prizes –If a prize is not cash, the fair-market-value of the item won is considered the amount of the winnings. The withholding and backup withholding rates, if required, are applied to the fair-market-value of the item won. The amount to be withheld should be collected from the prize winner. See section on Failure to Pay Withholding Tax, on page 23.
Reporting the Withholding
The tribal gaming operation reports regular withholding from gaming winnings on Form 945, line 1. Backup withholding is reported on Form 945, line 2. Form 945 is filed annually by January 31st of the year following the year of the winnings. (Note: If you made deposits on time in full payment of the taxes for the year, you may file by February 10.)
Game Regular Gambling Withholding Backup Withholding
Prizes More Than Prizes Equal to or More Than Bingo N/A $1,200
Slot machines N/A $1,200 Keno N/A $1,500 Wagering transaction ($5,000 or less) N/A $600 Lotteries, sweepstakes, horse races, $5,000 $600 dog races, instant bingo game prizes/pull-tabs, and jai alai Wagering transactions when winnings $5,000 $600 are at least 300 times the amount wagered 2003 thru 2004 28% Rate/Percentage Tax Year Effective Date Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, is used to report payments made to a nonresident alien. Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, is filed with Form 1042-S, to report withholding on payments made to a non-resident alien. Both forms are submitted together to the Internal Revenue Service in March of the year following the payment. Unlike the requirements for Form W-2G, there is no dollar threshold for withholding or reporting purposes. Therefore, any gambling winnings paid to a nonresident alien must be reported and taxes must be withheld on these winnings. The withholding rate on nonresident aliens is generally 30 percent, unless the foreign country has a treaty with the United States for a lower rate. Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, or a substitute form containing a substantially similar statement provides information as to whether an individual is a nonresident alien individual, foreign entity, or exempt foreign person not subject to certain U.S. information return reporting or backup withholding rules.
Winnings from certain games are exempt from taxation. No tax is imposed on, and no reporting is required for, gambling income of a nonresident alien playing blackjack, baccarat, craps, roulette, and big-6 wheel games in the United States.
Failure to Pay Withholding
A tribal gaming operation is responsible for paying to the IRS the amount of regular gambling withholding or backup withholding due, whether or not it collects the withholding from the prize recipient. The best time to collect withholding or backup withholding is before it is paid out as the prize.
- Example: Jack purchased a $1 ticket for a raffle conducted by a tribal gaming operation. On October 31, the drawing was held and Jack won $6,000. Since the proceeds from the wager are greater than $5,000 ($6,000 minus the $1 cost of the ticket), the tribe must withhold $1,619.73 ($5,999 x 27 percent) from Jack’s winnings. If the tribe fails to withhold, it will be liable for the tax. In the above example, if the tribe fails to withhold the $1,619.73 before the prize is distributed, the tribe is liable for that amount.
What if the tribal casino pays the tax as a part of the prize? If a tribal casino, as part of a prize, pays the federal tax required to be withheld without deducting the taxes from the prize, the prize is deemed to include the amount of the federal tax paid by the tribal casino. On Form W-2G, the amount of tax paid by the tribal casino is shown in the box for federal income tax withheld, and is also added to the amount of the winnings. The following chart illustrates the applicable withholding and backup withholding rates.
2003 thru 2004 33.33% 38.89%
Tax Year Effective Date Withholding Rate/Percentage Backup Withholding Rate/Percentage
Form W-2G Form W-2G Foreign
Proceeds Not Proceeds Form W-2G Payouts Excise Tax
Form 1099 Reduced by Reduced Withholding Verifiable (Based on
Game Required Wager by Wager Required (1) Payments(2) the Wager)
Slot Win $1,200 Yes No
Bingo Win $1,200 Yes No
Keno Win (1-20 games) $1,500 Yes No
Keno Win (over 20 games) $1,500 Yes Yes
Sweepstakes, Lotteries, $600 Yes Yes (State Wagering pools (proceeds conducted
more than 300 times the lotteries are amount wagered) exempt)
Sweepstakes, Lotteries, $5,000 Yes Yes (State Wagering pools. Conducted Withholding required lotteries are regardless of payout odds. exempt)
Wagering transaction with $600 $5,000 Yes No
proceeds more than 300 times the amount wagered.
Tournament – no entry fee $ 600 Yes No
Tournament – with entry fee (3)
Pari-mutuel, including horse $600 $5,000 Yes No
racing, dog racing, and jai alai with proceeds more than 300 times the amount wagered.
Prizes received with no wager $600 Yes No
(Drawings, Promotions, etc.) Sports event or contest $600 $5,000 Yes Yes
(only reportable if proceeds exceed 300 times the wager)
(1) Winnings must be reduced by the amount wagered and the proceeds must exceed $5,000.
(2) Payments made to non-resident aliens are subject to withholding and reporting on Form 1042-S (Proceeds from blackjack, craps, roulette, baccarat, or big wheel 6 are exempt from withholding and reporting.)
(3) Tournaments with entry fees must be analyzed to see if the entry fee is a wager, and if the proceeds exceed the wager by 300 times or more, or if the tournament is a wagering pool.
Resources and Assistance
Tax Information Materials – The IRS has free tax law publications, forms, and annual reporting instructions that cover specific topics that fall under the gaming law umbrella. Some of the more popular publications and forms follow:
Publication 15 – Circular E, Employer’s Tax Guide
Publication 15A – Employer’s Supplemental Tax Guide
Publication 509 – Tax Calendars
Publication 510 – Excise Taxes
Publication 515 – Withholding of Tax on Nonresident Aliens and Foreign Corporations
Publication 526 – Charitable Contributions
Publication 531 – Reporting Tip Income
Publication 535 – Business Expenses
Publication 578 – Tax Information on Private Foundations and Foundation Managers
Publication 1771- Charitable Contributions – Substantiation & Disclosure Requirements
Annual Instructions for:
Forms 1099, 1098, 5498 and W-2G
Most publications, forms, and a variety of tax-related information can be downloaded through the IRS Web site at www.irs.gov. Publications and forms can be ordered free through the IRS at (800) 829-3676.
Customer Service Assistance – Visit Indian Tribal Governments Web site for tribal tax law information, call toll-free for assistance, or write to our office with your questions.
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Department of the Treasury
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Publication 3908 (Rev. 4-2003)
Catalog Number 32755Y