- The Internal Revenue Service said that DraftKings (NASDAQ:DKNG), FanDuel and other similar daily fantasy sports companies must pay federal excise tax on their entry fees, Bloomberg Tax reported on Aug. 14, citing in an internal memo.
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- An IRS Chief Counsel Memorandum said such companies must pay tax on every wager — the entry fee — they accept as well as an annual occupational tax on each person accepting those wagers. Those taking wagers must also register with the IRS.
- This could mean daily fantasy sports (DFS) companies would face millions of dollars in taxes if they haven’t been paying and are challenged by the IRS. The memo isn’t binding in court but does signal the agency’s position in audits.
- The daily fantasy sports industry generated $3.2 billion in entry fees and about $335 million in total revenue in 2018, according to the report.
- The memo is “deeply flawed in its analysis,” DraftKings CEO Jason Robins said on an earnings call Friday. “Our position continues to be, which we believe has been reaffirmed through state legislatures and courts throughout the country, that DFS is not wagering,” he said. “We believe that the arguments at the federal level are incredibly strong.”
- DKNG stock closed down almost 6% on Friday, after the company reported a larger-than-expected loss.
