Wagering excise tax should be assessed against the operator's own EIN, not an unrelated LLC's

Plain-English summary

This is informal Chief Counsel advice, written as an email, about how to fix a botched wagering-tax assessment. A taxpayer was convicted of running an illegal gambling operation, and the IRS prepared substitute returns and assessed the section 4401 wagering excise tax. But the tax was mistakenly assessed against the taxpayer's LLC, an entity with no connection to the gambling business, instead of against the taxpayer himself. The examiner wondered why the tax could not simply be assessed under the taxpayer's Social Security number and learned it could not: wagering excise taxes, like other excise taxes, are assessed against Employer Identification Numbers (EINs), not SSNs, because the Business Master File transaction codes require an EIN. Counsel confirmed there is no statute or regulation explaining the "why," only IRM guidance showing excise filers use EINs (Form 730 requires one). The advice: the assessment against the unrelated LLC was wrong; the Service should establish an EIN for the taxpayer, assess the wagering tax under that EIN while the assessment statute is still open, and abate the erroneous LLC assessment. Useful for revenue agents handling excise assessments against individuals who lack an EIN.

Ruling snapshot

• Question: Why is the wagering excise tax assessed against an EIN rather than an SSN, and how should the Service correct an assessment made against an unrelated LLC?
• Outcome: advice given (establish an EIN for the taxpayer, assess under it, abate the LLC assessment)
• Key authorities: IRC §§ 4401, 6201; Form 730; IRM 21.7.13.5.1.4, IRM 3.11.23.10

Full text (IRS public release)

ID:      CCA_2018080915103120
UILC:    6201.01-00, 4401.00-00

Number: 201909009
Release Date: 3/1/2019
From:
Sent: Thursday, August 09, 2018 3:10:31 PM
To:
Cc:
Bcc:
Subject: RE: Wagering Tax Question


Good afternoon.

You have a case in which a taxpayer was convicted of operating an --------------------------
----------------. The Service completed SFRs. Assessments of the wagering excise tax
under section 4401 were not assessed against the taxpayer. Rather, assessments
were made against the taxpayer’s LLC. The LLC is not at all related to the taxpayer’s --
-----------------------------------. You initially thought that Exam had made the assessment
against the LLC in error that the Service should correct its mistake by making an
assessment against the taxpayer under his SSN. You later learned that wagering tax
assessments are not made against SSNs; rather they are made against EINs. You
asked for an explanation of why the Service does not make assessments against SSNs
and for our views on what should happen now in your case.

There is nothing in the Code, the regs or the IRM that explains why specifically
wagering tax assessments are made under EINs and not SSNs. I spoke with the
Excise Group RA you spoke with, and he said that EINs have to be used in order to use
the necessary Business Master File transaction codes. In any case, the wagering tax is
one of the excise taxes on activities, and it appears that it being an excise tax is why the
assessment is made under EINs. While the IRM does not explain why excise taxes,
including the wagering tax, use EINs, it does state that they are what is used. See, e.g.,
IRM 21.7.13.5.1.4, Determining the Need for an EIN: Sole Proprietor (EINs assigned
where, among other things, the taxpayer is planning to have employees or is liable for
employment or excise tax). In addition, excise tax returns identify the taxpayer by
EIN. IRM 3.11.23.10, Entity Perfection—General provides:

        (1) The entity area of excise tax returns identifies the taxpayer on the Business
        Master File. The entity section of the return contains the following:
        a. EIN
        b. Name
        c. “In-care-of” name
        d. Address
                                             2

Specifically, Form 730, Monthly Tax Return for Wagers, the excise tax return used by
taxpayers to report wagering tax, requires for the use of EINs. Taxpayers who do not
have an EIN are instructed on how to obtain one. The Service uses EINs when
working wagering excise cases in which taxpayers are voluntarily complying. There is
no reason why the Service would not also use them in cases such as yours.

In your case, it is unclear how the mistake was made. All we know is that rather than
creating an EIN for the taxpayer, the Service made the assessment against the
taxpayer’s LLC which had no involvement in the wagering business. You are correct
that the Service should not have used that LLC’s EIN for the assessment. The
assessment statute is open, and the Service should now do what it normally does in
cases such as this—it should establish an EIN for the taxpayer and make the
assessment under that EIN. It should also abate the assessment it already made
against the LLC, if it hasn’t done so already.

If you would like to discuss this, please contact me.