[Code of Federal Regulations]
[Title 26, Volume 16]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR44.4401-1]

[Page 34]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 44_TAXES ON WAGERING; EFFECTIVE JANUARY 1, 1955--Table of Contents
 
                         Subpart B_Tax on Wagers
 
Sec. 44.4401-1  Imposition of tax.


    (a) In general. Section 4401 imposes a tax on all wagers, as defined 
in section 4421. See section 4421 and Sec. 44.4421-1 for definition of 
the term ``wager.''
    (b) Rate of tax; amount of wager--(1) Rate of tax. The tax is 
imposed at the rate of 10 percent of the amount of any taxable wager.
    (2) Amount of wager. (i) The amount of the wager is the amount 
risked by the bettor, including any charge or fee incident to the 
placing of the wager as provided in subdivision (iv) of this 
subparagraph, rather than the amount which he stands to win. Thus, if a 
bettor bets $5 against a bookmaker's $7 with respect to the outcome of a 
prize fight, the amount of the wager subject to tax is $5.
    (ii) In the case of a ``parlay'' wager (i.e., a single wager made by 
a bettor on the outcome of a series of events, usually horse races), the 
amount of the taxable wager is the amount initially wagered by the 
bettor irrespective of whether the parlay is successful. In the case of 
an ``if'' wager, the amount of the taxable wager is the total of all 
amounts wagered on each selection of the bettor. For example, A makes a 
$10 wager on horse R with the understanding that if horse R wins, $5 is 
to be wagered on horse S and $5 on horse T. If horse R wins, the taxable 
wager is $20. If horse R loses, the taxable wager is $10. In determining 
the amount of a taxable wager involving the features of, or a 
combination of, ``parlay'' and ``if'' bets, such as wagers sometimes 
referred to as a ``whipsaw'' or an ``if and reverse'' bet, the rules set 
forth above relating to ``parlay'' and ``if'' bets are to be followed. 
For example, assume B wagers $10 on horse R with the understanding that 
if horse R wins, $5 is to be placed as a parlay wager on horses S and T. 
In such a case, if horse R loses, the taxable wager is $10; if horse R 
wins, there are two taxable wagers amounting in the aggregate to $15.
    (iii) In the case of punchboards with prizes of merchandise, cash, 
or free plays listed thereon, the amount of the taxable wager is the 
amount risked by the bettor for all chances taken by him, including the 
chances taken by the bettor in lieu of the acceptance of an equivalent 
amount in cash or merchandise.
    (iv) In determining the amount of any wager subject to tax there 
shall be included any charge or fee incident to the placing of the 
wager. For example, in the case of a wager with respect to a horse race, 
any amount paid to a bookmaker for the purpose of guaranteeing the 
bettor a pay-off based on actual track odds is to be included as a part 
of the wager. Similarly, in the case of a lottery, any amount paid to 
the operator thereof by the bettor for the privilege of making a 
contribution to the pool or bank is also to be included in the amount of 
the wager. However, the amount of the wager subject to tax shall not 
include the amount of the tax where it is established by actual records 
of the taxpayer that such amount of tax was collected from the bettor as 
a separate charge.