One of the biggest problems casinos have faced in the past is unreported income. Unreported income is definitely taxable. Generally, the IRS uses various measures to estimate the revenue of most businesses in order to see if the right amount is being reported. This is difficult when it comes to casinos, though, because games bring in different revenues depending on the state they are in, the size of casino they are in, and how often the game is played. It is also difficult to estimate the revenues of casinos because of the amount of their business that takes place in cash. A casino’s total revenue is generally defined as the total number of winnings brought in.
Progressive Slot Liability
As the amounts on progressive slot machines enlarge over time and create increasing unpaid jackpots, casinos often provide for a liability equal to the amount of unpaid jackpots. At the end of the year, casinos treat the total amount of progressive slot liability as a fixed liability related directly to current income, which means it may be accrued and deducted when a casino determines its net income for income tax purposes.
The IRS believes that casinos should not be able to utilize unpaid jackpots when they determine their taxable income. Therefore, this is a controversial issue that remains under constant debate.
Chip and Token Liability
All casinos utilize gaming chips. Some also issue their own tokens for use in their slot machines and in other forms of gaming. As a casino has more of its chips in circulation liability increases. Therefore, liability increases for most casinos every year, seeing as more and more of their chips move into circulation. The increase in liability stems from every chip in circulation, even those people keep for souvenirs.
This creates an issue because it is difficult to know how much income should be recognized that is derived from the chips. There is no way to tell how many of the total number of outstanding chips may actually be redeemed some day and how many are simply being kept as souvenirs.
