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

Summary: Internet Gambling Regulation and Tax Enforcement Act of 2008 - Amends the Internal Revenue Code to: (1) impose an Internet gambling license fee on Internet gambling operators; (2) require such operators to file informational returns identifying themselves and the individuals placing wagers with them; (3) require withholding of tax on annual Internet gambling winnings of more than $5,000; (4) impose a 30% tax on the Internet gambling winnings of nonresident aliens; and (5) impose the excise tax on wagers on any individual who places a wager with an unlicensed Internet gambling operator.

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 2008''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment is expressed in terms of an 
amendment 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. LICENSE FEE ON INTERNET GAMBLING OPERATORS; LICENSEE 
              INFORMATION REPORTING.

    (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 Operators

``Sec. 4491. Imposition of Internet gambling license fee.

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

    ``(a) In General.--Each Internet gambling operator licensed by the 
Director in accordance with subchapter V of chapter 53 of title 31, 
United States Code, shall be required to pay to the Director by the end 
of each month an Internet gambling license fee.
    ``(b) Internet Gambling License Fee.--For purposes of this section, 
the Internet gambling license fee is an amount equal to 2 percent of 
all funds deposited during the preceding month with or on behalf of 
such Internet gambling operator into an account that can be used for 
the purpose of placing a bet or wager. Deposits made by or on behalf of 
any such operator of Internet gambling winnings shall not be treated as 
a deposit for purposes of this section.
    ``(c) Disposition.--Amounts paid to the Director as Internet 
gambling license fees under this section shall be deposited in the 
general fund of the Treasury and treated as revenue.
    ``(d) Direct and Exclusive Obligation of Licensee.--The Internet 
gambling license fee 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.
    ``(e) Director.--For purposes of this subchapter, the term 
`Director' shall have the meaning given such term by section 5382 of 
chapter 53 of title 31, United States Code.
    ``(f) Administrative Provisions.--To the extent the Secretary shall 
by regulations prescribe, the Internet gambling license fee shall be 
treated as an excise tax for purposes of the administrative provisions 
of this title applicable to excise taxes imposed by chapter 35.''.
    (b) Information Returns.--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. 6039J. RETURNS OF INTERNET GAMBLING OPERATORS.

    ``(a) Requirement.--Every person who is an Internet gambling 
operator subject to section 4491 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 in this subsection is such information as the 
Secretary may prescribe by regulations relating to--
            ``(1) the Internet gambling operator's name, address, and 
        tax information number,
            ``(2) the name, address, and tax information number of each 
        person placing a wager with the Internet gambling operator 
        during the calendar year,
            ``(3) the gross winnings, gross wagers, and gross losses of 
        each such person during the year,
            ``(4) the amount of tax withheld with respect to each such 
        person,
            ``(5) beginning and end-of-year account balances for each 
        such person, and
            ``(6) 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 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 such person.
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.''.
    (c) Clerical Amendments.--
            (1) The table of subchapters for chapter 36 is amended by 
        adding at the end the following new item:

            ``subchapter e. internet gambling operators.''.

            (2) The table of sections for subpart A of part III of 
        subchapter A of chapter 61 is amended by inserting after the 
        item relating to section 6039I the following new item:

``Sec. 6039J. Returns of Internet gambling operators.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to wagers made after December 31, 2008.

SEC. 3. WITHHOLDING FROM CERTAIN GAMBLING WINNINGS.

    (a) Net Internet Gambling Winnings.--Paragraph (3) of section 
3402(q) (relating to extension of withholding to certain gambling 
winnings) is amended by adding at the end thereof the following new 
subparagraph:
                    ``(D) Net internet gambling winnings.--Proceeds of 
                net Internet gambling winnings of more than $5,000 in 
                any one calendar year.''.
    (b) No Exemption for Certain Winnings.--Paragraph (5) of section 
3402(q) is amended by inserting ``(other than winnings described in 
paragraph (3)(D)'' after ``winnings''.
    (c) Definitions.--Subsection (q) of section 3402 is amended by 
redesignating paragraph (7) as paragraph (8) and by inserting after 
paragraph (6) the following new paragraph:
            ``(7) Proceeds of net internet gambling winnings.--For 
        purposes of this subsection--
                    ``(A) In general.--The term `proceeds of net 
                Internet gambling winnings' means amounts of net 
                Internet gambling winnings withdrawn from an account 
                established for the purpose of Internet gambling.
                    ``(B) Net internet gambling winnings.--The term 
                `net Internet gambling winnings' means gross winnings 
                from a wager 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 amount 
                wagered.
                    ``(C) Internet; wager.--The terms `Internet' and 
                `wager' shall have the respective meanings given such 
                terms by section 5382 of chapter 53 of title 31, United 
                States Code.''.
    (d) Backup Withholding.--Section 3406 (relating to backup 
withholding) is amended by redesignating subsection (i) as subsection 
(j) and by adding the following new subsection:
    ``(i) For purposes of this section, net Internet gambling winnings 
shall be treated as other reportable payments, an Internet gambling 
operator shall be treated as payor, and the person placing a wager with 
an Internet gambling operator shall be treated as payee. For purposes 
of the preceding sentence, terms used in such sentence which are also 
used in section 3402(q)(7) shall have the meanings given such terms by 
such section.''.
    (e) Effective Date.--The amendment made by this section shall apply 
to wagers placed with a licensee after December 31, 2008.

SEC. 4. WITHHOLDING OF TAX ON NONRESIDENT ALIENS.

    (a) Tax on Nonresident Alien Individuals.--Subparagraph (A) of 
section 871(a)(1) (relating to income not connected with United States 
business--30 percent tax) is amended--
            (1) by striking ``and other fixed'' and inserting ``, other 
        fixed'', and
            (2) by adding ``and net Internet gambling income,'' at the 
        end.
    (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 
wagers placed over the Internet (as such terms are defined in section 
3402(q)(7))''.
    (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--
            (1) by striking ``and gains on transfers'' and inserting 
        ``gains on transfers'', and
            (2) by inserting before the period at the end the 
        following: ``, and proceeds of net Internet gambling winnings 
        (as defined in section 3402(q)(7)) of more than $5,000 in any 
        one calendar year''.
    (d) Effective Date.--The amendments made by this section shall 
apply to wagers placed with a licensee after December 31, 2008.

SEC. 5. TAX ON WAGERS.

    (a) Persons Liable for Tax.--Subsection (c) of section 4401 
(relating to persons liable for tax on wagers) is amended by adding at 
the end thereof the following sentence: ``Any person placing a wager 
with a person who is required to obtain a license within the meaning of 
section 4491 but who has failed to obtain such license shall be liable 
for and pay the tax under this subchapter on all such wagers.''.
    (b) Territorial Extent.--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 United States citizen or 
        resident.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to wagers made after December 31, 2008.