Casino Video Poker tournament winnings

[tonya030]

This is the first time I have had this particular situation. I have a client who moved to Las Vegas, NV. He and his wife apparently enjoy the slots at the casinos, and during 2005 the client was entered into a "video poker tournament". The cost to him was -0- and I imagine this is done with heavy players. Tournament lasts 3 days, he spends not one nickel, and ends up winning $30000.00.

The casino, who normally issues W2Gs to winners etc. issued the client a 1099 Misc,
block 3, other income. My gut on this is that the entire $30000.00 is taxable and he cannot offset with any gambling losses, of which he has much more than the win of
$30k.

I am looking for some thoughts on two theories. The first, very simple, that all of the $30k is taxable and cannot be offset with losses. or

if one considers this as a form of gambling then he should be able to offset with
losses.

What has thrown me off here is that the casino has issued a 1099 misc which tells me this is a prize of sorts and not gambling winnings or they would have issued a W2G.

Thanx for any thoughts

Tonya030

[skhyatt]

Taxable

Well definitely is gambling winnings. If there is a record of gambling losses, those can be deducted up to winnings.

The casino perhaps made a mistake and issued the 1099-Misc instead of the W-2G, but I'm not sure it matters in this case? I would just report the whole $30K as gambling winnings, offset by any losses you have a record of.

[taxmandan]

Casino winnings

Tonya you are correct, this is a prize winning, at least the casino considers it so. Since he did not risk any money in the tournament, it can't be called gambling. Not likely that a Vegas Casino would make a mistake, they know that prizes and non-gambling winnings belong on a 1099. No offset by gambling losses either.

[Donanita]

No Losses

No losses are allowed. This is reported on a 1099 Misc because the client has spent zero to earn the winnings.This is not like the regular gaming where you spend money to win.Report on line 21 as other income and tell the client next time to have taxes held out. I

[skhyatt]

Prize?

So it's considered a prize? Still sounds like gambling to me, but I agree, I doubt a Las Vegas casino would make an error.

[skhyatt]

on 2nd thought

I see your point now Donanita, only took me several hours. No money put in, then not gambling anything. I guess it's easy to associate anything to do with Vegas as gambling.

[Chief]

1099 misc Winnings

I had a client with the same situation, not as much money though. I reported it as taxable income on the line as other income.

[tonya030]

Casino Winnings, a summary

Thank you all for the comments. Overwhelmingly there is a concensus that the winnings are ordinary income and not considered gambling losses. There is a caveat to all of this. I did some research into some of the tax code, however, nothing addresses this particular situation. They either talk about prizes, or gambling. But, there is a very real questionable area:

The question arises as to "professional gamblers". How that is determined is a problem.
As a stretch, I do know this couple does some heavy gambling and I would imagine if one wished to end up in tax court you could show this as his profession and therefore, be able to deduct his prize from gambling losses. But, I certainly do not wish to take the chance on this strategy.

In any event, thanks to all for the comments, which have enabled me to make a sound decision on the client.

tonya030

[Mary A.]

Hold on there! Don't be too quick about not offsetting this prize with gambling losses. Very fortunately, I entered a slot tournament in 2000 and won (hooray) $100,000. Was issued a 1099. I did an exhaustive bit of tax research on the subject of deducting the amount of gambling losses on schedule A at that time and ended up deducting all of the gambling losses - which didn't total $100,000 so I ended up paying some tax on the winnings. I hoped I could lay my hands on the tax cases very easily but I guess they must be at work.

At any rate, the gist of the tax cases was that if the activity that produced the winnings was related to the gambling activity of the person, then the gambling losses could be deducted. For instance, if the only way that the person winning the $30,000 could have entered the tournament was because of his gambling activity at that casino, then his previous gambling activity was closely related to his winning the $30,000. The gambling losses could be deducted.

I was never questioned on claiming the losses. I will look tomorrow to see if I can find the tax cases.

[DaveO]

I hate to beat a dead thread here, but...

I had a call from a client who won $30K in a drawing of people who had previously entered poker tournaments at that casino. The casino didn't issue a W-2 or a 1099, they said it was not their money that was won, therefore it wasn't their responsibility to report. Of course my clients question was, "Do I have to report this?"

I would be very interested in the court case Mary A. cited. I expect some pretty creative losses come tax time.

[Unregistered]

From another board:

Facts: TP participates in a poker tournament at a Casino. With each winning hand players are awarded one chance in a drawing for a boat and car. The actual poker winnings are treated normally. The casino takes their cut and the winner gets the remainder of each pot. TP wins the boat and car.


The following paragraph seems to me to be very conflicting. In my opinion the reasoning behind the conclusion in the PLR would also apply to a raffle and the Rev Rul concludes that raffle winning are wagering income.

From BNA:

In its one published ruling on the subject, the IRS reached the unsurprising conclusion that the purchase of a raffle ticket may also be characterized as a wagering transaction. In Rev. Rul. 83-130, 1338 the IRS stated that a raffle is the disposal by chance of a single prize among purchasers of separate chances, and that an individual buying a raffle ticket makes a wager through such purchase. By contrast, the IRS National Office advised, in TAM 200417004, that winnings from a "no purchase necessary" sweepstakes were not wagering gains for §165 purposes because such a transaction lacks the element of consideration. In PLR 200532025, the IRS ruled that on-line game-playing tournaments are not wagering transactions because prizes are predetermined and must be awarded regardless of the number of participants or the total amount of entrance fees collected, whereas in a wagering pool, the amount of the successful bettor's winnings depends upon the number of participating bettors and the total amount of the bettors' contributions to the wagering pool.

Any thoughts?