[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2230 Introduced in House (IH)]

112th CONGRESS
  1st Session
                                H. R. 2230

To amend the Internal Revenue Code of 1986 to regulate and tax Internet 
                               gambling.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 16, 2011

      Mr. McDermott (for himself, Mr. Campbell, and Mr. Frank of 
Massachusetts) introduced the following bill; which was referred to the 
   Committee on Ways and Means, and in addition to the Committee on 
Education and the Workforce, for a period to be subsequently determined 
 by the Speaker, in each case for consideration of such provisions as 
        fall within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to regulate and tax Internet 
                               gambling.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Internet Gambling 
Regulation and Tax Enforcement Act of 2011''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment is expressed in terms of an 
amendment of a section or other provision, the reference shall be 
considered to be made to a section or other provision of the Internal 
Revenue Code of 1986.

SEC. 2. TAX ON INTERNET GAMBLING.

    (a) In General.--Chapter 36 (relating to certain other excise 
taxes) is amended by adding at the end the following new subchapter:

                   ``Subchapter E--Internet Gambling

``Sec. 4491. Imposition of Internet gambling license tax.
``Sec. 4492. Record requirements.
``Sec. 4493. Elective State and Indian tribal government online 
                            gambling tax.
``Sec. 4494. Regulations.

``SEC. 4491. IMPOSITION OF INTERNET GAMBLING LICENSE TAX.

    ``(a) Internet Gambling Licensee.--
            ``(1) In general.--There is hereby imposed a tax on each 
        Internet gambling licensee in an amount equal to 2 percent of 
        all funds deposited by customers during the preceding month 
        into an account maintained by that Internet gambling licensee 
        or any agent of that licensee that can be used for the purpose 
        of placing a bet or wager as defined in section 5362(1) of 
        title 31, United States Code.
            ``(2) Persons liable for tax.--The tax imposed by 
        subsection (a) shall be the direct and exclusive obligation of 
        the Internet gambling operator and may not be deducted from the 
        amounts available as deposits to the person placing a bet. 
        Notwithstanding the preceding sentence, any person making a 
        deposit for the purpose of placing a bet or wager with a person 
        who is required but has failed to obtain a license pursuant to 
        subchapter V of chapter 53 of title 31, United States Code, 
        shall be liable for and pay the tax under this subchapter on 
        all such deposits, but such liability shall not excuse any 
        failure to pay the tax on the part of the person who is 
        required but has failed to obtain such license. The person 
        making the deposit shall not be liable for the tax on deposits 
        in cases of fraud.
    ``(b) Unauthorized Bets or Wagers.--
            ``(1) In general.--There is hereby imposed a tax on any 
        person that is not authorized pursuant to section 5383(b) of 
        title 31, United States Code, to accept bets and wagers.
            ``(2) Amount of tax.--The amount of such tax shall be equal 
        to 50 percent of all funds deposited into an account that can 
        be used for placing a bet or wager within the meaning of 
        section 5362(1) of that title.
    ``(c) When Due.--The tax imposed by this section shall be due at by 
the end of each calendar month with respect to deposits during the 
preceding month.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Internet gambling licensee.--The term `Internet 
        gambling licensee' means a licensee, as defined in section 5382 
        of title 31, United States Code.
            ``(2) Deposits.--Deposits made by or on behalf of an 
        Internet gambling licensee of Internet gambling winnings or 
        returns of funds by or on behalf of an Internet gambling 
        licensee to the account of a customer shall not be treated as a 
        deposit for purposes of this section.

``SEC. 4492. RECORD REQUIREMENTS.

    ``Each person liable for taxes under this subchapter, except for a 
person making a deposit who is liable for taxes pursuant to section 
4491(a)(2), shall keep a daily record showing deposits (within the 
meaning of this subchapter), in addition to all other records required 
pursuant to section 6001.

``SEC. 4493. ELECTIVE STATE AND INDIAN TRIBAL GOVERNMENT ONLINE 
              GAMBLING TAX.

    ``(a) In General.--
            ``(1) Payment of state and indian tribal government tax.--
        On a monthly basis, each Internet gambling licensee shall pay 
        to each qualified State and each qualified Indian tribal 
        government an amount equal to the monthly pro rata State and 
        Indian tribal government online gambling tax.
            ``(2) Monthly pro rata online gambling tax.--For purposes 
        of this section, with respect to a qualified State and a 
        qualified Indian tribal government for any calendar month, the 
        monthly pro rata online gambling tax is the amount of the taxes 
        described in subsection (b) received with respect to such 
        calendar month.
            ``(3) Qualified state; qualified indian tribal 
        government.--
                    ``(A) In general.--For purposes of this section, 
                the terms `qualified State' and `qualified Indian 
                tribal government' mean a State or an Indian tribal 
                government, respectively, for which an election to 
                receive funds under this section is in effect. Notice 
                of such election shall be provided by the Governor, 
                principal chief, or other chief executive officer in 
                such form and manner as the Secretary may prescribe.
                    ``(B) State election not to affect tribal 
                election.--An election by a State under subparagraph 
                (A) to receive funds under this section shall not 
                constitute an election to be so included on behalf of 
                any Indian tribe located within or partially within the 
                geographic boundaries of such State.
                    ``(C) Revocation of state or tribal election.--
                            ``(i) In general.--A State or Indian Tribal 
                        government may revoke its election by notice 
                        provided by the Governor, principal chief, or 
                        other chief executive officer and in such form 
                        and manner as the Secretary may prescribe.
                            ``(ii) Timing of revocation.--Revocation of 
                        state election shall take effect the later of 6 
                        months after receipt by the Secretary of such 
                        revocation, or on January 1st of the year 
                        following receipt by the Secretary of such 
                        revocation.
                    ``(D) State.--The term `State' means any State, the 
                District of Columbia, or any commonwealth, territory or 
                other possession of the United States.
                    ``(E) Indian tribal government.--The term `Indian 
                tribal government' means the government of an Indian 
                tribe (within the meaning of section 4 of the Indian 
                Gaming Regulatory Act).
            ``(4) Time of payments.--The payment made under this 
        subsection with respect to any calendar month shall be made not 
        later than the 11th day of the succeeding calendar month.
            ``(5) List of qualified states and qualified indian tribal 
        governments.--The Secretary shall maintain a current list of 
        qualified States and qualified Indian tribal governments and 
        shall publish such list online.
    ``(b) State and Indian Tribal Government Online Gambling Tax.--The 
State and Indian tribal government online gambling tax shall be an 
amount equal to 6 percent of all deposited funds deposited by customers 
located in each qualified state or area subject to the jurisdiction of 
a qualified Indian tribal government at the time of the deposit.
    ``(c) Effect of Acceptance of Tax.--Acceptance by a State or Indian 
tribal government of the State and Indian tribal government online 
gambling tax shall relieve Internet gambling licensees from the 
obligation to pay any other fee or tax to the State or Indian tribal 
government relating to its online gambling services, except for--
            ``(1) applicable State individual and corporate income 
        taxes, which shall be unaffected by the election, and
            ``(2) any fees associated with an Internet gambling 
        licensee's choice to rely on a State or Indian tribal 
        regulatory body certification of suitability in connection with 
        a Federal online gambling licensing application.

``SEC. 4494. REGULATIONS.

    ``The Secretary shall prescribe such regulations as may be 
necessary or appropriate to carry out this subchapter.''.
    (b) Clerical Amendment.--The table of subchapters for chapter 36 is 
amended by adding at the end the following new item:

                 ``subchapter e. internet gambling.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to bets or wagers placed after the date of the enactment of this 
Act.

SEC. 3. INTERNET GAMBLING LICENSEE INFORMATION REPORTING.

    (a) In General.--Subpart A of part III of subchapter A of chapter 
61 (relating to information concerning persons subject to special 
provisions) is amended by adding at the end the following new section:

``SEC. 6050X. RETURNS RELATING TO INTERNET GAMBLING.

    ``(a) Requirement.--Every person who is an Internet gambling 
licensee or who otherwise is engaged in the business of accepting any 
bet or wager within the meaning of section 5362(1) of title 31, United 
States Code, during a taxable year shall furnish, at such time and in 
such manner as the Secretary shall by regulations prescribe, the 
information described in subsection (b), and such person shall maintain 
(in the location, in the manner, and to the extent prescribed in 
regulations) such records as may be appropriate to the information 
described in subsection (b).
    ``(b) Required Information.--For purposes of subsection (a), the 
information described is set forth below, which information may be 
modified as appropriate by the Secretary through regulation--
            ``(1) the name, address, and TIN of the Internet gambling 
        licensee or other person engaged in the business of accepting 
        any bet or wager,
            ``(2) the name, address, and TIN of each person placing a 
        bet or wager with the Internet gambling licensee or other 
        person engaged in the business of accepting any bet or wager 
        during the calendar year,
            ``(3) the gross winnings, gross wagers, and gross losses 
        for the calendar year of each person placing a bet or wager 
        with the Internet gambling licensee or other person engaged in 
        the business of accepting any bet or wager during the year,
            ``(4) the net Internet gambling winnings for each such 
        person for the calendar year,
            ``(5) the amount of tax withheld with respect to each such 
        person for the calendar year,
            ``(6) beginning and end-of-year account balances for each 
        such person for the calendar year, and
            ``(7) amounts deposited and withdrawn by each such person 
        during the calendar year.
    ``(c) Statement To Be Furnished to Persons With Respect to Whom 
Information Is Required.--Every person required to make a return under 
subsection (a) shall furnish to each person whose name is required to 
be set forth in such return by reason of placing a bet or wager a 
written statement showing--
            ``(1) the name, address, and phone number of the 
        information contact of the person required to make such return, 
        and
            ``(2) the information required to be shown on such return 
        with respect to each person whose name is required to be set 
        forth in such return.
The written statement required under the preceding sentence shall be 
furnished to the person on or before January 31 of the year following 
the calendar year for which the return under subsection (a) was 
required to be made.
    ``(d) Definitions.--
            ``(1) Internet gambling licensee.--The term `Internet 
        gambling licensee' has the meaning given such term by section 
        4491(d)(1).
            ``(2) Net internet gambling winnings.--The term `net 
        Internet gambling winnings' means gross winnings from wagers 
        placed over the Internet with a person required to be licensed 
        under section 5382 of chapter 53 of title 31, United States 
        Code, less the amounts wagered.
            ``(3) Internet; wager.--The terms `Internet' and `wager' 
        shall have the respective meanings given such terms by section 
        5362 of chapter 53 of title 31, United States Code.''.
    (b) The table of sections for subpart B of part III of subchapter A 
of chapter 61 is amended by inserting after the item relating to 
section 6050W the following new item:

``Sec. 6050X. Returns relating to internet gambling.''.

SEC. 4. WITHHOLDING FROM CERTAIN GAMBLING WINNINGS.

    (a) Net Internet Gambling Winnings.--Paragraph (3) of section 
3406(b) (relating to other reportable payments for purposes of backup 
withholding) is amended--
            (1) by striking ``or'' in subparagraph (E);
            (2) by striking ``.'' and inserting ``, or'' at the end of 
        subparagraph (F); and
            (3) by adding at the end thereof the following new 
        subparagraph:
                    ``(G) section 6050X(b)(4) (relating to net Internet 
                gambling winnings).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to bets or wagers placed after the date of the enactment of this Act.

SEC. 5. WITHHOLDING OF TAX ON NONRESIDENT ALIENS.

    (a) Tax on Nonresident Alien Individuals.--Paragraph (1) of section 
871(a) (relating to income not connected with United States business) 
is amended--
            (1) by striking ``and'' at the end of subparagraph (C),
            (2) by inserting ``and'' at the end of subparagraph (D), 
        and
            (3) by inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) the gross amount of winnings from each wager 
                placed over the Internet with a person required to be 
                licensed under section 5382 of chapter 53 of title 31, 
                United States Code (as such terms are defined in 
                section 6050X(d)(2)),''.
    (b) Exemption for Certain Gambling Winnings.--Section 871(j) 
(relating to exemption for certain gambling winnings) is amended by 
inserting before the period at the end the following: ``or to any bets 
or wagers placed over the Internet (as such terms are defined in 
section 6050X(d)(2))''.
    (c) Withholding of Tax on Nonresident Alien Individuals.--The first 
sentence of subsection (b) of section 1441 (relating to withholding of 
tax on nonresident aliens) is amended by inserting after ``gains 
subject to tax under section 871(a)(1)(D),'' the following: ``the gross 
amount of winnings from wagers placed over the Internet described in 
section 871(a)(1)(E),''.
    (d) Source of Internet Gambling Winnings.--Subsection (a) of 
section 861 is amending by inserting at the end thereof the following 
new paragraph:
            ``(10) Internet gambling winnings.--Any Internet gambling 
        winnings received from an Internet gambling licensee (as 
        defined by section 4491(d)(1)).''.
    (e) Effective Date.--The amendments made by this section shall 
apply to bets or wagers placed after the date of the enactment of this 
Act.

SEC. 6. WAGER TAX APPLICABLE TO FEDERAL ONLINE GAMBLING ACTIVITIES.

    (a) In General.--Subsection (a) of section 4401 is amended to read 
as follows:
    ``(a) Wagers.--
            ``(1) Authorized wagers.--There shall be imposed on any 
        wager authorized under Federal law or the law of the State in 
        which accepted an excise tax equal to 0.25 percent of the 
        amount of such wager.
            ``(2) Unauthorized wagers.--There shall be imposed on any 
        wager not described in paragraph (1) an excise tax equal to 2 
        percent of the amount of such wager.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to wagers made after the date on which subchapter V of chapter 53 
of title 31, United States Code, first applies.

SEC. 7. NO EXCLUSIONS UNDER FEDERAL WAGER TAX FOR ONLINE GAMBLING 
              ACTIVITIES.

    (a) In General.--Section 4402 is amended to read as follows:

``SEC. 4402. EXEMPTIONS.

    ``(a) In General.--No tax shall be imposed by this subchapter--
            ``(1) on any wager placed with, or on any wager placed in a 
        wagering pool conducted by, a parimutuel wagering enterprise 
        licensed under State law and that is not carried out online;
            ``(2) on any wager placed in a coin-operated device (as 
        defined in section 4462 as in effect for years beginning before 
        July 1, 1980), or on any amount paid, in lieu of inserting a 
        coin, token, or similar object, to operate a device described 
        in section 4462 (a)(2) (as so in effect), and that is not 
        carried out online; or
            ``(3) on any wager placed in a sweepstakes, wagering pool, 
        or lottery which is conducted by an agency of a State acting 
        under authority of State law, but only if such wager is placed 
        with the State agency conducting such sweepstakes, wagering 
        pool, or lottery, or with its authorized employees or agents.
    ``(b) Online Gambling Activities.--Notwithstanding the exemption 
listed in subsection (a)(3), all online gambling activities conducted 
pursuant to a Federal license shall be subject to the wagering tax set 
forth in section 4401.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to wagers made after December 31, 2010.

SEC. 8. TERRITORIAL EXTENT.

    (a) In General.--Paragraph (2) of section 4404 is amended to read 
as follows:
            ``(2) placed within the United States, or any Commonwealth, 
        territory, or possession thereof, by a person who is a United 
        States citizen or resident.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to wagers made after December 31, 2010.

SEC. 9. AMERICAN HERITAGE PROGRAM.

    (a) Implementation of Program.--From funds appropriated to the 
American Heritage Block Grant Fund for a fiscal year, the Secretary of 
the Treasury shall make grants to eligible States to carry out an 
American Heritage Program through State arts agencies.
    (b) Allotment of Funds.--Funds allotted for a fiscal year shall be 
allotted among eligible States in the same proportion as funds are 
allotted among the States under section 5(g)(3) of the National 
Foundation on the Arts and the Humanities Act of 1965 (20 U.S.C. 
954(g)(3)).
    (c) Eligibility To Receive Grants.--To be eligible to receive a 
grant under subsection (a) for a fiscal year, a State shall submit to 
the Secretary an application in such form, and containing such 
information and assurances, as the Secretary may require by rule, 
including assurances that--
            (1) not more than 80 percent of the cost of any qualified 
        activity carried out under this section shall be paid with such 
        grant, and
            (2) not more that 20 percent of such grant may be expended 
        for administrative costs.
    (d) Definitions.--For purposes of this section--
            (1) the term ``American Heritage Program'' means a program 
        carried out by a State that provides qualified activities 
        directly, or by contract with nonprofit organizations 
        (including community-based organizations) or units of local 
        government, for all the people and communities in the State,
            (2) the term ``Secretary'' means the Secretary of the 
        Treasury,
            (3) the term ``State'' has the meaning given such term in 
        section 4 of the National Foundation on the Arts and the 
        Humanities Act of 1965 (20 U.S.C. 953),
            (4) the term ``State arts agency'' has the same meaning 
        given such term as used in the National Foundation on the Arts 
        and the Humanities Act of 1965 (20 U.S.C. 951 et seq.), and
            (5) the term ``qualified activities'' means activities that 
        develop projects, productions, workshops, or programs that will 
        encourage public knowledge, education, understanding, and 
        appreciation of American heritage and the arts.
    (e) American Heritage Block Grant Fund.--
            (1) Establishment.--There is established in the Treasury of 
        the United States a trust fund to be known as the ``American 
        Heritage Block Grant Fund'', consisting of such amounts as may 
        be appropriated or credited to the American Heritage Block 
        Grant Fund as provided in this subsection.
            (2) Transfer to fund.--There are appropriated to the 
        American Heritage Block Grant Fund amounts equal to .5 percent 
        of the taxes received by the Treasury after December 31, 2010, 
        that the Secretary determines are attributable to Internet 
        gambling.
            (3) Method of transfer.--The amounts appropriated by 
        paragraph (1) shall be transferred from time to time from the 
        general fund of the Treasury. Such amounts shall be determined 
        on the basis of estimates by the Secretary of the taxes, 
        specified in paragraph (1), paid to or deposited into the 
        Treasury. Proper adjustments shall be made in amounts 
        subsequently transferred to the extent prior estimates are in 
        excess of or are less than the taxes specified in paragraph 
        (1).
            (4) Expenditures from american heritage block grant fund.--
        Amounts in the American Heritage Block Grant Fund shall be 
        available, as provided by appropriation Acts, for making 
        expenditures to carry out subsection (a).

SEC. 10. BLOCK GRANTS TO STATES FOR TRANSITIONAL ASSISTANCE.

    The Social Security Act is amended by adding at the end the 
following new title:

    ``TITLE XXII--BLOCK GRANTS TO STATES FOR TRANSITIONAL ASSISTANCE

``SEC. 2201. TRANSITIONAL ASSISTANCE TRUST FUND.

    ``(a) Creation of Trust Fund.--There is established in the Treasury 
of the United States a trust fund to be known as the ``Transitional 
Assistance Trust Fund'', consisting of such amounts as may be 
appropriated or credited to the Transitional Assistance Trust Fund as 
provided in this section.
    ``(b) Transfer to Transitional Assistance Trust Fund of Amounts 
Equivalent to Certain Taxes.--
            ``(1) In general.--There are hereby appropriated to the 
        Transitional Assistance Trust Fund, out of any money in the 
        Treasury not otherwise appropriated, amounts equivalent to 25 
        percent of the taxes received in the Treasury after December 
        31, 2010, that the Secretary of the Treasury determines are 
        attributable to Internet gambling.
            ``(2) Method of transfer.--The amounts appropriated by 
        paragraph (1) shall be transferred from time to time from the 
        general fund in the Treasury to the Transitional Assistance 
        Trust Fund. Such amounts shall be determined on the basis of 
        estimates by the Secretary of the Treasury of the taxes, 
        specified in paragraph (1) of this subsection, paid to or 
        deposited into the Treasury. Proper adjustments shall be made 
        in amounts subsequently transferred to the extent prior 
        estimates were in excess of or were less than the taxes 
        specified in paragraph (1) of this subsection.
    ``(c) Expenditures From Transitional Assistance Trust Fund.--
Amounts in the Transitional Assistance Trust Fund shall be available, 
as provided by appropriation Acts, for making expenditures to carry out 
section 2202.

``SEC. 2202. TRANSITIONAL ASSISTANCE GRANT PROGRAM.

    ``(a) In General.--Each State shall be entitled to a payment under 
this section for each fiscal year in an amount equal to its allotment 
for such fiscal year, to be used by such State to carry out the State's 
plan for transitional assistance described in subsection (c), subject 
to the requirements of this section.
    ``(b) Plan Approval Required.--No State may receive a payment under 
this section unless the State submits the State's plan for transitional 
assistance described in subsection (c) to the Secretary and the 
Secretary approves such plan.
    ``(c) State Plan for Transitional Assistance.--A State plan for 
transitional assistance is described by this subsection if the plan--
            ``(1) provides for expanded education opportunities for 
        individuals who are, or were formerly, in foster care, 
        including streamlining and coordinating education financing 
        opportunities and providing counseling and assistance to such 
        individuals for the purpose of ensuring completion of their 
        academic goals;
            ``(2) provides for job training opportunities for 
        individuals who are, or were formerly, in foster care;
            ``(3) provides, primarily through expanding access to and 
        investment in community colleges, for expanded post-secondary 
        education and job training opportunities that lead to a 
        certificate, for individuals who are working in, or had worked 
        in, declining sectors of the economy, as defined by the 
        Secretary, and who want to pursue a new career in a sector of 
        the economy with the potential for high wages and high growth, 
        as defined by the Secretary; and
            ``(4) provides a subsidy for the use of public 
        transportation by--
                    ``(A) individuals qualifying for benefits or 
                services under title XX, including the Federal-State 
                Unemployment Insurance Program; and
                    ``(B) individuals participating in programs under 
                the Workforce Investment Act.
    ``(d) Allotment.--The allotment for a fiscal year for a State 
receiving an allotment for such fiscal year shall be an amount equal 
to--
            ``(1) the amount appropriated for such fiscal year under 
        subsection (f), multiplied by
            ``(2) the ratio by which the population of the State bears 
        to the population of all the States receiving an allotment for 
        such fiscal year as determined by the Secretary (on the basis 
        of the most recent data available from the Department of 
        Commerce).
    ``(e) Definitions.--For purposes of this section:
            ``(1) In foster care.--The term `in foster care' means, 
        with respect to an individual, an individual who is under the 
        care and placement responsibility of the State agency 
        responsible for administering a plan, in connection with such 
        individual, under part B or part E of title IV.
            ``(2) Secretary.--The term `Secretary' means the Secretary 
        of Health and Human Services.
            ``(3) State.--The term `State' means the 50 States of the 
        United States, the District of Columbia, the Commonwealth of 
        Puerto Rico, the United States Virgin Islands, Guam, American 
        Samoa, and the Northern Mariana Islands.
    ``(f) Authorization of Appropriations.--There are authorized to be 
appropriated for each fiscal year to the Secretary the amount deposited 
into the Transitional Assistance Trust Fund pursuant to section 2201 to 
carry out this section.''.
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