Discussion:Casual Gamblers

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Advanced Tax Questions --> Casual Gamblers


Discussion Forum Index --> Tax Questions --> Casual Gamblers

Dennis (talk|edits) said:

2 January 2010
The more I read this the less I understand the position

TC Memo 2009-306

The Court seems to be saying that for a casual gambler the gambling event ends when the individual cashes out. What if cash out occurs in a subsequent calendar year? What if cash out is not a matter of choice?

Bilbo (talk|edits) said:

2 January 2010
The IRS position is based on a memo from the Chief Counsel. Google:

Office of Chief Counsel Internal Revenue Service Memorandum Release Number: AM2008-011

This memo treats gain as a measurement from basis. Basis is the buy in. The gain is determined when the chips are cashed in. The interim transactions are not measured. I think the intent is to measure when the activity is completed. The Memorandum says in part:

"A key question in interpreting § 165(d) is the significance of the term “transactions.” The statute refers to gains and losses in terms of wagering transactions. Some would contend that transaction means every single play in a game of chance or every wager made. Under that reading, a taxpayer would have to calculate the gain or loss on every transaction separately and treat every play or wager as a taxable event. The gambler would also have to trace and recompute the basis through all transactions to calculate the result of each play or wager. Courts considering that reading have found it unduly burdensome and unreasonable. See Green v. Commissioner, 66 T.C. 538 (1976); Szkirscak v. Commissioner, T.C. Memo. 1980-129. Moreover, the statute uses the plural term “transactions” implying that gain or loss may be calculated over a series of separate plays or wagers.

The better view is that a casual gambler, such as the taxpayer who plays the slot machines, recognizes a wagering gain or loss at the time she redeems her tokens. We think that the fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount above or below basis (the wager) realized. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). For example, a casual gambler who enters a casino with $100 and redeems his or her tokens for $300 after playing the slot machines has a wagering gain of $200 ($300 - $100). This is true even though the taxpayer may have had $1,000 in winning spins and $700 in losing spins during the course of play. 2

Likewise, a casual gambler who enters a casino with $100 and loses the entire amount after playing the slot machines has a wagering loss of $100, even though the casual gambler may have had winning spins of $1,000 and losing spins of $1,100 during the course of play. 2 "

Bilbo

Harry Boscoe (talk|edits) said:

2 January 2010
"...enters a casino with $100 and redeems his or her tokens for $300 after playing the slot machines has a wagering gain of $200 ($300 - $100). ...even though the taxpayer may have had $1,000 in winning spins and $700 in losing spins...."

Arithmetic not being the Chief Counsel's forte. That deserves a PBR. I started with six and drank two and now there are three...

Scrivenerjones (talk|edits) said:

2 January 2010
The memo has some interesting implications for people who gamble online. People who deposit money to an online poker site and don't cash out for days, or weeks, can put off the taxation of any gains indefinitely, if my reading is correct.

NYea (talk|edits) said:

2 January 2010
The Chief Counsel Advice was specifically for casual SLOT players. I would proceed carfully before extrapolating the conclusion in the Advice to other forms of gambling activities.

Dennis (talk|edits) said:

2 January 2010
And the tax court case also dealt with slots, but the rather clear statement:
"To permit a casual gambler to net all wagering gains or losses throughout the year would intrude upon, if not defeat or render superfluous, the careful statutory arrangement that allows deduction of casual gambling losses, if at all, only as itemized deductions, subject to the limitations of section 165(d)"

kind of demands extrapolation, no?

Examples:

Taxpayer plays poker tournaments -- Gambling or hobby?  Goes to one tournament a month, spends $6K, reaches one final table and a $12K W2G.
Slot player deposits $10K with casino in January, withdraws $12K in December is treated differently than someone who cashes out daily or weekly?  Is someone who goes to the casino for the weekend treated differently than someone who goes for a day?
OTB client places bets for nine races, leaves and comes back to check results next day.  Each race or whole day?  Does it make a difference if he bets every day, throws all the tickets in a box and only checks once a month?  

All I am saying is that I am totally confused.

RoyDaleOne (talk|edits) said:

3 January 2010
The truth is easily understood, at the end of the year all wins are reported and all losses up to the amount of all wins are deductible. The fiction about anything else seems immaterial to me.

The comment presupposes that the active is properly documented and is not a problem.

Dennis (talk|edits) said:

3 January 2010
That is the way we've always done it, Roy, but this little Tax Court Christmas present (citing the memorandum) clearly says the old rules no longer work. Whatever else you extrapolate, $20 a week in lottery tickets are not going to net out against a trifecta.

Bilbo (talk|edits) said:

3 January 2010
As to the advice being explicitly for casual slot players - I don't think that makes sense. I think that was the case at hand but there is no reason to not treat wagers the same. I would broadly interpret this as the Kenny Rogers rule - "you never count your money when your sitting at the table, there will be time enough for counting when the deal is done". Note...

The statute refers to gains and losses in terms of wagering transactions. Some would contend that transaction means every single play in a game of chance or every wager made. Under that reading, a taxpayer would have to calculate the gain or loss on every transaction separately and treat every play or wager as a taxable event. The gambler would also have to trace and recompute the basis through all transactions to calculate the result of each play or wager. Courts considering that reading have found it unduly burdensome and unreasonable.

When do we have a transaction?

I do agree we are talking about casual as opposed to professional gamblers. Professional gamblers net there transactions on Schedule C - up to the amount of winnings. What is addressed here is what goes on line 21. And that amount will not necessarily be the W2G amounts. I suspect I will construct a statement to support line 21 to list all W-2 amounts and then a net number to come to the total per cashout with a reference to the Chief Counsel's memo.

As to cashout at online poker, I suspect that when the monies are returned to your online poker account, there is a completed transaction. An online poker account is now considered a foreign account subject to filing the TD Form 90-22.1. I would advice my client and unless they are professionals they might want to keep the funds in those accounts pretty low. From the form:

Who Must File this Report. Each United States person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing this report with the Department of the Treasury on or before June 30, of the succeeding year.

The measurement time of a transaction is important. Wins going on line 21 drives up AGI. Losses go to schedule A. This really makes very little sense and the documentation wanted by the IRS makes even less sense. We really need a Schedule G-Gaming. I would say right now that better than 20% of gaming gains are reported wrong. There is one major case where this resulted in a criminal finding of filing a false return and it looks to me that taxable income was not changed at all. I think that case was part political, but even so...... Think of all those Grandmas that would not have to file otherwise but have weekly bus trips with the senior citizens.

Bilbo

RoyDaleOne (talk|edits) said:

4 January 2010
Sorry, I totally agree with the court case and it reasoning.

The use of a session of wagering is how I understood whether you had a win or loss.

You count your poke before and after each session. The net change is your win or loss.

Now, what is a session can be a question.

Dennis (talk|edits) said:

4 January 2010
And how to report it? Are we supposed to take a negative line 21 adjustment for session losses against a w-2G?

RoyDaleOne (talk|edits) said:

4 January 2010
The problem is in the way the Code is written, losing sessions go on Schedule A. Therefore, if you are not itemizing already you can lose the value of the deduction. Winning sessions go above the line, line 21 no direct offset. This part of the Code is a social decision of Congress along time ago.

Dennis (talk|edits) said:

4 January 2010
Sorry. I didn't make my comment clear enough. W-2G is one event. Session total that includes it is can be less. Tax court case deals with standard deduction and seems to indicate an IRS position that the session total is the correct amount to report as gross income.

JGILL (talk|edits) said:

4 January 2010
What is a "session"? If a person enters a casino, racetrack, bingo hall, ...etc. with a $500 and is issued a W-2G during multiple hours of play, and leaves with $500 is there any reportable income on line 21? From [1] I would think the answer is NO. This would greatly help seniors only taking the standard deduction who have been issued W-2G, as well as states which income tax are based solely on AGI.

EZTAX (talk|edits) said:

4 January 2010
Following up on Dennis' comments above. I do think that a negative adjustment on line 21 would be the way to go to avoid letters.

JGILL - In your example I believe that would be one session. I would report the 1099G on line 21 and then a second negative entry on a seperate line to net it to zero. Hopefully that will prevent the letter.

Death&Taxes (talk|edits) said:

4 January 2010
EZ, I don't quite understand how netting would avoid letters (by which I assume you mean CP-2000). IRS computers will use the forms W-2G as their baseline. They will send a proposed adjustment. That does not mean you can't win by reciting this case, the CCM and backing it up with an accounting, but I would think you should hone your letter writing skills.

Dennis (talk|edits) said:

4 January 2010
OK David. Given your proximity to Atlantic City, what are you going to do?

EZTAX (talk|edits) said:

4 January 2010
D&T: When I make 2 line item entries it creates an attachment showing the detail. Not sure that it would come out through the E-filing but hoped it would.

Bilbo (talk|edits) said:

4 January 2010
Roy,

I don't know if we are on the same page here or not. I think I also agree with the court as you do, but I don't subscribe to session accounting. I know "sessions" has been kicked around for a long time, but I would note that the IRS doesn't talk about sessions. Usually, when people say sessions, they mean when you change games, tables or machine. A lot of the comes from the documentation rules discussed in Rev Proc 77-29 (repeated in Pub 529). A client may have lots of sessions before they cash out.

This particular case has this quote from the Chief Counsel's memo:

For example, a casual gambler who enters a casino with $100 and redeems his or her tokens for $300 after playing the slot machines has a wagering gain of $200 ($300-$100). This is true even though the taxpayer may have had $1,000 in winning spins and $700 in losing spins during the course of play.

It is clear in that example that the player is playing "slot machines" - not a single machine. It is the net of the play during the day after the cash out that is subtracted from the basis to compute gain. Until cash-out, the player is still in a struggle to see if his transactions are winners or losers. The Office of Chief Counsel Internal Revenue Service Memorandum says:

We think that the fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount above or below basis (the wager) realized.

I generally like EZTAX suggestions to show all the W-2Gs and then the cumulative change related to amounts left in play. It could be more or less. Just to be on the safe side, when granny gets that slip of paper for cash out, I would tell her not cash it in till the last day. She could on the other hand feed it into the next slot machine or VP machine when she starts a new session.

Bilbo

Death&Taxes (talk|edits) said:

4 January 2010
Dennis: AC business is declining as Pennsylvania and other states join the gambling society. I have perhaps three clients who are casual but frequent gamblers.

I am not doubting EZ's suggestion, but I believe IRS will still spit out CP2000 notices, and I have no faith that the personnel in the Service Centers will follow their own Chief Counsel's thoughts.

Cotopop (talk|edits) said:

20 July 2013
Starting in 2013 the proper reporting of gambling winnings on line 21 is a much bigger issue because of the 3.8 % medicare surtax(AGI based ) and the return of phase out rules for itemized deductions.The Shollenberger v Commisioner of Internal Revenue Service (T.C.Memo 2009-36 ) provides us with some case law, maybe for the first time, on how to determine gambling winnings (line 21 ) and gambling losses.

I believe it supports 2 key provisionsof our prior discussions  : 1)The use of a session to determine income or loss and not just what is reported on a W-2 G 2)That provisions of Chief Counsel Memo AM 2008-011 applies to all casual gamblers and not just slot players. Although the case was about a slot player take a look at their "opinion " on page 3 and 4 and the consistent reference to casual gamblers.

Additionaly the EA journal of March -April 2013 has an excellent written article on the Taxation or recreational gamblers along with supporting cites.

WEISSEA (talk|edits) said:

20 July 2013
Agree, see also T.C. Memo 2009-226 LaPlante 10/1/09. There has been an EA who used AM 2008-011 in 2 cases where she was CP 2000'd as her W-2G's were offset by visit losses and in both cases she prevailed at appeals by presenting the TCM's and the CCM. She also had a good set of records.

Cotopop (talk|edits) said:

21 July 2013
Thanks Gerry for the additional cite on the La Plante case. It seems clear to me that IRS is applying the "session theory" for determining gains or losses. In the La Plante case IRS construed the session to be based on the duration of the trip instead of each day(probably because LaPlante did not close out her tokens each day). Interesting also that IRS chose to use the same language contained in AM 2008 -011 to support sessions which I believe had only been out a few months at the time of the case .

Oh well I am going to contact one of my big Vegas recreational gamblers on Monday and determine the quality of his recor keeping for possible amended returns for 22009,2010 ,and 2011. I anticipate a problem however on "contemporaneous accounting " of gambling winnings /losses

To join in on this discussion, you must first log in.
Personal tools