Industry Director Directive on Deductibility of Casino Comps


Notice: Historical Content

This is an archival or historical document and may not reflect current law, policies or procedures.


July 31,2006 
                                       DIRECTOR, PREFILING AND TECHNICAL               
                                       DIRECTOR, FIELD SPECIALISTS
                                       DIRECTOR, INTERNATIONAL
FROM:                         JoAnn G. Bank  /s/ JoAnn G. Bank
                                      Acting Industry Director
                                      Communications, Technology and Media

SUBJECT:                    Industry Director Directive on Deductibility of Casino Comps

This Directive is intended to conserve examination resources by providing guidance on the deductibility of complimentary goods and services provided by casinos to its patrons as an inducement to encourage gaming activity.  It reflects a management decision that balances resources and workload priorities.  The Directive is not an official pronouncement of law, and cannot be used, cited, or relied upon as such.


We spent many audit resources in this area of uncertainty and controversy by examining the issue of the limitations imposed by IRC Section 274, and the deductibility by casinos of complimentary goods and services provided to its patrons.

Comps are items casinos give to their customers.  Generally, they are awarded based on a casino’s expected win calculated from a gambler’s prior activity.  Casinos use tracking systems to determine the amount and result of a patron’s gambling, and determine the appropriate level of comps to provide to a patron.   Most regular patrons participate in casinos’ favored customer programs, often called slot clubs.

These slot clubs provide the most accurate measurement of a patron’s play because a slot club member inserts a card with a magnetic strip into a gaming machine, thus creating a computer record of the patron’s activity.  Additionally, casinos track the play of patrons at table games, but not with the precision of the electronic slot club cards.

All casinos apply a formula based on the patron’s level of play to award comps to all regular patrons.  While the formula does vary based on business conditions at any time, patrons are all aware that if they gamble more, the casino will offer a more extensive menu of comps.  Casinos publicly market their comps programs to induce patronage.


IRC Sec. 274 provides limitations on the deductibility of meals and entertainment expenses.  However IRC Sec. 274(e) (7) provides an exception to these limitations for expenditures for goods, services, and facilities made available to the general public for promotional purposes.

The systems casinos use to market their comps programs and award the comps have generally allowed the casinos to treat comps as promotional expenses, excepted from the limitations of IRC Sec. 274 by IRC Sec. 274(e)(7).

Therefore, unless the manner in which a casino awards comps to its patrons differs markedly from the method described above, agents are directed not to challenge whether the comps qualify for treatment as promotional expenses under IRC Sec. 274(e)(7).

If you have any questions, please have a member of your staff contact Eric Lacher, Gaming Industry Technical Advisor, @ (702) 868-5262.

cc:  Commissioner, LMSB
      Deputy Commissioner, LMSB
      Commissioner, SBSE
      Division Counsel, LMSB
      Chief, Appeals
      Director, Performance, Quality and Audit Assistance