Gambling Gaines & Losses Daily???

[BOB W]

Tax court ruling??? No more on an annual basis confirmed. What a nightmare.

http://www.journalofaccountancy.com/Web/20092454.htm

[AuditorTurnedGood]

This is going to

be a nightmare to be sure. Yet another situation where we'll get asked by the client "How can they tax money I don't have anymore? Let's hope no official guidance comes out forcing this method. Until it does, this case is precedence for a court fight, and nothing more (IMHO).

ATG

[dsi]

I must be missing something on this. Isn't the net result going to be the same regardless of how the gain/loss is calculated?

[tilt53]

Sure, but do you really think your clients are going to log every single visit with how much they started with, what tickets they cashed out, how much they played on every pull? This is idiocy at its finest.

[RLymanC]

Gambling

The Casino's issue 1099's on gross winnings, standard deductions used, pay tax on gross winnings.

Wonder if 1099's could be issued on net winnings and forget Sch.A???

[OtisMozzetti]

how the grouping and netting is conducted

... Isn't the net result going to be the same regardless of how the gain/loss is calculated?

I am sure that virtually all of us understand that, depending upon how the winning wagers and the losing wagers are grouped together and then netted out, the gross income from gambling (before the losses may be deducted to the extent of winnings) can end up typically a large number or typically a small or even negative number. We also understand that in order to deduct gambling losses, the taxpayer must be itemizing instead of taking a standard deduction.

Apparently this particular U.S. Tax Court decision said that wagers are grouped together up until the time that the taxpayer "cashes in the chips". I guess I should go read the Tax Court decision rather than the accounting magazine if I really want to know what the court said. I have seen another Tax Court Decision, dealing with wagers at a San Diego area Indian casino, which similarly stated that (slot machine?) wagers could be grouped and netted out on a per day basis.

My advice to clients is always that the tax system isn't very hospitable to gambling, which must be viewed as a form of entertainment which has its costs, both costs paid to the gambling establishment and costs paid to the tax authorities. I advise clients that it is important to keep records, because the IRS can require those records. If the client does a lot of gambling, I have little difficulty believing figures which show more losses than winnings. If the client won $20,000, or more, from a lottery, then I have never yet had anyone claim that the losses came up to as much as the winnings; but if anyone claimed that I would have to ask more questions because it sounds at least a little bit incorrect, incomplete, or inconsistent.

P.S: My most entertaining experience with gamblers consisted of the devout Muslim (at least his accompanying wife had to wear a headscarf, etc.) who was very much ashamed of his gambling, but who thought I should file his return with an itemized deduction for his commuting expenses to the Casino.

[JG EA]

Tax court ruling??? No more on an annual basis confirmed. What a nightmare.

No more? Never was. I was amazed to learn (just last year or two) that they allowed netting during a day.

[S T]

I have a few clients

Not liking this at all! And will have to send some notices and update information to a "handful" of clients -

Anyone have any suggestions on what we are suppose to tell our clients on the recordkeeping. I have had or am having most of them log in with their "player card" Of course the taxpayer keeps thinking that their "print out" from the casino will work

I like RLymanC post about making the "Casino" involved and reporting the appropriate figures Would eliminate a lot of headache and calculating for us as Tax Preparers.

Sandy

[Gary]

W2Gs

The Casinos issue W2Gs, not 1099s.

[travis bickle]

I think

Tax court ruling??? No more on an annual basis confirmed. What a nightmare.


http://www.journalofaccountancy.com/Web/20092454.htm

you should read the tax court ruling.

The essence of the situation is --
1) - t/p took $500 from bank to gamble;
2) - t/p won $2,000 slot machine prize;
3) - t/p gambled away $400 of the above $2,000;
4) - t/p deposited the remaining $1,600 in his bank;
5) - t/p did not report casino winnings because he had $2,XXX in losses throughout the year even though he did not claim any losses on Sch A (he took the standard deduction because he thought that method was "fair" [LOL]).

The taxpayer actually made out.

Despite a piece of paper from the casino saying "$2,000 gambling winnings", the IRS allowed him to enter $1,100 [$2,000 - $400 - original $500] all without a Sch A or a Sch C [for a professional gambler].

Nothing bad happened here.

[BOB W]

you should read the tax court ruling.

The essence of the situation is --
1) - t/p took $500 from bank to gamble;
2) - t/p won $2,000 slot machine prize;
3) - t/p gambled away $400 of the above $2,000;
4) - t/p deposited the remaining $1,600 in his bank;
5) - t/p did not report casino winnings because he had $2,XXX in losses throughout the year even though he did not claim any losses on Sch A (he took the standard deduction because he thought that method was "fair" [LOL]).

The taxpayer actually made out.

Despite a piece of paper from the casino saying "$2,000 gambling winnings", the IRS allowed him to enter $1,100 [$2,000 - $400 - original $500] all without a Sch A or a Sch C [for a professional gambler].

Nothing bad happened here.

But suppose that they went on 10 other days and on those days they lost $500 each time. Old way, no taxable income for an itemizer. New way, he would have an $1,100 of taxable income.

I see your point, IRS allowed losses without itemizing...???? Netting ??? Do you mean that the W2G gets ignored when netting the day's gaines????

[travis bickle]

No sense playing

But suppose that they went on 10 other days and on those days they lost $500 each time. Old way, no taxable income for an itemizer. New way, he would have an $1,100 of taxable income.

I see your point, IRS allowed losses without itemizing...???? Netting ??? Do you mean that the W2G gets ignored when netting the day's gaines????

let's suppose, is there?

Remember the situation -- the T/P in question did not itemize.

If the T/P did have losses on 10 other days, he is going to have to:
a) become a professional gambler; or
b) use Schedule A.

There is no middle ground, just because he thinks "he should be able to do so." The tax code ain't written that way. The TC memorandum clearly points out the distinction between a professional gambler, and a casual gambler (Sch C or Sch A).

And, obviously, we all know/have clients who are casual gamblers whose losses are too small to generate a useful Sch A.

Last -- but not least -- I do not mean "that the W2G gets ignored when netting the day's gaines". All I was doing was reiterating what the TC memo stated.

[BOB W]

By no means was I implying that you were making a statement about netting, you are too smart for such a thing. I was questioning the memo and how they decided the case. The memo netted income, just like you were questioning it. So I reposed the same question, but poorly.

[Snaggletooth]

Tracking

Most casinos are now requiring its participants to operate with a tracking card.

If, as a result of this, taxpayers may net out their losses against winnings ON A DAILY BASIS, then they should require the casinos to deduct known losses against winnings on that day before issuing the W2G.

Otherwise we as preparers are going to have a mess on our hands.

[WhiteOleander]

Most casinos are now requiring its participants to operate with a tracking card.

If, as a result of this, taxpayers may net out their losses against winnings ON A DAILY BASIS, then they should require the casinos to deduct known losses against winnings on that day before issuing the W2G.

Otherwise we as preparers are going to have a mess on our hands.

Actually, I don't plan to change how I do returns for gambling income. This is just one tax court case. IRS has a long way to go to make it law IMHO.