Significant gambling losses

[louiscatoni]

To what extent is the responsibility of the tax preparer to record large horse gambling
losses as an itemized deduction:

1. Accept the loss orally from client or,

2. Accept the loss on paper and signed by client or,

3. View and accept the lost horse gambling tickets.

[BHoffman]

To what extent is the responsibility of the tax preparer to record large horse gambling
losses on a client 1040 tax return:

1. Accept the loss orally from client or,

2. Accept the loss on paper and signed by client or,

3. View the horse gamblin tickets.

I like door number 2.

I usually will type up a short note or use my awesome power of CPA (Cut,Paste,Attach) explaining the substantiation requirements and penalties for signifcant understatement, etc. and put a "fill in the blank" for the amount they want to deduct, and have them sign and date. This proves you asked and that the client gave an informed response. Cir. 230 provides a disclaimer about the written opinion. Might want to just boilerplate that in too if applicable.

[Nashville]

Unclear Responsibility

To begin with, losses are limited to winnings, and only as an itemized deduction, so there cannot be a net loss.

This should answer your question, except is certain circumstances such as those below.

Losses are NOT limited to winnings in the case of a gambler who claims to be a professional (a la Sch C), or if the taxpayer is in the business of raising horses.

If he is in the business of raising horses, the loss is legitimate to the extent that there exists a realistic chance that the business can turn a profit. However, deducting such a loss is a red flag for an audit. There is a miserable profit record of horse breeding, training, racing, etc. and IRS gravitates to these losses.

Where I live is replete with farms that breed and raise Tennessee Walking Horses. Sometimes I encounter such an operation and I simply refuse to take losses.

As far as actual "evidence" most legitimate gambling operations provide a record generated by an electronic card, and I do my best to encourage clients to keep these.