W-2G/IW2-2G California Lottery Winnings
Purpose of bulletin
To inform staff that the Filing Enforcement Section (FES) discovered nontaxable gambling winnings were erroneously included as an income source for certain filing enforcements.
The form W-2G and IW-2G are used to report gambling winnings. The Internal Revenue Service sends us the information using the Information Return Master File (IRMF). The requirements for reporting and withholding gambling winnings depend on the type of gambling, the amount, and the ratio of the winnings and the wager. California lottery winnings are not taxable.
Cause of issue
When the W-2G and IW-2G income source was implemented, California Lottery winnings were inadvertently included as taxable income.
Mitigation strategies on identified cases
FES staff identified 169 accounts for the 2009 tax year that included California lottery winnings as taxable income. Staff manually closed the cases, and withdrew proposed assessments on accounts with no other filing requirements. We sent letters to inform taxpayers of our review and resolution of their accounts.
Mitigation strategies on future cases
We will implement a system change to exclude California lottery winnings income from filing enforcements in October 2012, before notices are sent for the 2011 tax year.