[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: 26CFR44.4421-1]

[Page 38-39]
 
                       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 D_Miscellaneous and General Provisions Applicable to Taxes on 
                                Wagering
 
Sec. 44.4421-1  Definitions.

                        Miscellaneous Provisions


    (a) Wager. The term ``wager'' means:
    (1) Any wager placed with a person engaged in the business of 
accepting wagers upon the outcome of a sports event or a contest;
    (2) Any wager placed in a wagering pool with respect to a sports 
event or a contest, if such pool is conducted for profit; and
    (3) Any wager placed in a lottery conducted for profit.
    (b) Lottery--(1) In general. The term ``lottery'' includes the 
numbers game, policy, and similar types of wagering. In general, a 
lottery conducted for profit includes any scheme or method for the 
distribution of prizes among persons who have paid or promised a 
consideration for a chance to win such prizes, usually as determined by 
the numbers or symbols on tickets as drawn from a lottery wheel or other 
receptacle, or by the outcome of an event: Provided, Such lottery is 
conducted for profit. The term also includes enterprises commonly known 
as ``policy'' or ``numbers'' and similar types of wagering where the 
player selects a number, or a combination of numbers, and pays or agrees 
to pay a certain amount in consideration of which the operator of the 
lottery, policy, or numbers game agrees to pay a prize or fixed sum of 
money if the selected number or combination of numbers appear or are 
published in a manner understood by the parties. For example, the 
winning number or combination of numbers may appear or be published as a 
series of numbers in the payoff prices of a series of horse races at a 
certain race track, or in the United States Treasury balance reports, or 
the reports of a stock or commodity exchange. This description is not 
intended to be restrictive; hence, the substitution of letters or other 
symbols for numbers or a different arrangement for determining the 
winning number or combination of numbers, does not alter the fundamental 
nature of a game which otherwise would be considered a lottery. The 
operation of a punch board or a similar gaming device for profit is also 
considered to be the operation of a lottery.
    (2) Certain games excluded--(i) Cards, dice, etc. Section 4421 
specifically excludes from the term ``lottery'' any game of a type in 
which usually (a) the wagers are placed, (b) the winners are determined, 
and (c) the distribution of prizes or other property is made, in the 
presence of all persons placing wagers in such game. Thus, for example, 
no tax would be payable with respect to wagers made in a bingo or keno 
game since such a game is usually conducted under circumstances in which 
the wagers are placed, the winners are determined, and the distribution 
of prizes is made in the presence of all persons participating in the 
game. For the same reason, no tax would apply in the case of card games, 
dice games, or games involving wheels of chance, such as roulette wheels 
and gambling wheels of a type used at carnivals and public fairs.
    (ii) Drawings conducted by an organization exempt from tax under 
section 501

[[Page 39]]

or 521. Section 4421 specifically excludes from the term ``lottery'' any 
drawing conducted by an organization exempt from tax under section 501 
or 521 if no part of the net proceeds derived from such drawing inures 
to the benefit of any private shareholder or individual. For provisions 
relating to exemption from income tax under section 501 or 521, see the 
Income Tax Regulations (Part 1 of this chapter).
    (c) Other terms used--(1) Wagering pool. A wagering pool conducted 
for profit includes any scheme or method for the distribution of prizes 
to one or more winning bettors based upon the outcome of a sports event 
or a contest, or a combination or series of such events or contests, 
provided such wagering pool is managed and conducted for the purpose of 
making a profit.
    (2) Sports event. A sports event includes every type of sports 
event, whether amateur, scholastic, or professional, such as horse 
racing, auto racing, dog racing, boxing and wrestling matches and 
exhibitions, baseball, football, and basketball games, tennis and golf 
matches, track meets, etc.
    (3) Contest. A contest includes any type of contest involving speed, 
skill, endurance, popularity, politics, strength, appearances, etc., 
such as a general or primary election, the outcome of a nominating 
convention, a dance marathon, a log-rolling, wood-chopping, weight-
lifting, corn-husking, beauty contest, etc.
    (4) Conducted for profit. A wagering pool or lottery may be 
conducted for profit even though a direct profit will not inure from the 
operation thereof. A wagering pool or lottery operated with the 
expectancy of a profit in the form of increased sales, increased 
attendance, or other indirect benefits is conducted for profit for 
purposes of the wagering tax.