Gambling Gaines & Losses Daily???

[travis bickle]

I hope I never go to tax court

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.

How they decide -- whatever they decide -- is beyond me.

On page 5 of the TC memorandum concerning this item, the court explicitly wrote:

===Begin Quote
Gambling losses incurred other than in the trade or business of gambling are allowable, if
at all, as itemized deductions in calculating taxable income.
===End Quote

And, then at the same time they netted out this T/P's amounts from the day in question that he hit a $2,000 jackpot.

I do not see it. Congratulations to the T/P - frame that return and put it on the living room wall. Me? I am going to do what the code says (L21 and Sch A, or Sch C).

P.S. Bob I apologize -- when I type things out I usually wind up being blunter than a discussion in public, my fault

H A P P Y N E W Y E A R

[BOB W]

Travis, no apoligy need, it was my fault. I wrote: "Do YOU mean that the W2G gets ignored when netting the day's gaines????" > when I should of written > Do THEY mean....
BLA BLA BLA.

[New York Enrolled Agent]

How they decide -- whatever they decide -- is beyond me.


I do not see it. Congratulations to the T/P - frame that return and put it on the living room wall. Me? I am going to do what the code says (L21 and Sch A, or Sch C).

H A P P Y N E W Y E A R

Happy New Year to you also Travis.

I don't think you will find anywhere in the IRC that says gambling winnings go on line 21.

Under the all encompassing §61, Gross Income include gains from wagering transactions. The Supreme Court has said there must be an accession to wealth in order to have gross income. IRS Chief Counsel gave guidance that casual slot players may not have an acession to wealth when they play the slots and win on certain pulls of the machine only to give it (all or some) back on the next few pulls. Counsel looked at what constituted a gain.

IMO opinion, Chief Counsel makes eminent sense in their advice. I would suggest that everyone read the guidance. You can find it on the IRS website - search for AM 2008-011. The guidance discusses various provisions of the code and reached a conclusion which the Tax Court explicitly agreed with. BTW, there have been other TC cases (such as Lutz and Green) which came to similar conclusions.

I fail to understand why folks seem to object to a taxpayer-friendly decision by IRS counsel validated by the TC. A senior citizen who hit a "jackpot" of $1,200 but lost $800 during the rest of the day playing the slots and went home with $400 - what was their accession to wealth? I'll take the IRS interpretation.

[BOB W]

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?

No it would not. A loss on a day of gambling goes nowhere, not deductible anywhere. A gain on a day of gambling becomes income for the amount on the w2g and the losses on that day only go to Schedule A.

Let me restate this>In other words, only the day that a W2G is issued are you allowed to claim a loss to the extent of W2G winnings. Any day that you have no W2G, nothing goes on schedule A. The loss for the day is just a FUN day.

[BOB W]

Happy New Year to you also Travis.

I don't think you will find anywhere in the IRC that says gambling winnings go on line 21.

Under the all encompassing §61, Gross Income include gains from wagering transactions. The Supreme Court has said there must be an accession to wealth in order to have gross income. IRS Chief Counsel gave guidance that casual slot players may not have an acession to wealth when they play the slots and win on certain pulls of the machine only to give it (all or some) back on the next few pulls. Counsel looked at what constituted a gain.

IMO opinion, Chief Counsel makes eminent sense in their advice. I would suggest that everyone read the guidance. You can find it on the IRS website - search for AM 2008-011. The guidance discusses various provisions of the code and reached a conclusion which the Tax Court explicitly agreed with. BTW, there have been other TC cases (such as Lutz and Green) which came to similar conclusions.

I fail to understand why folks seem to object to a taxpayer-friendly decision by IRS counsel validated by the TC. A senior citizen who hit a "jackpot" of $1,200 but lost $800 during the rest of the day playing the slots and went home with $400 - what was their accession to wealth? I'll take the IRS interpretation.

Now I'm really confused> Are you saying that reporting should be done in a different way other that W2G page 1 and losses on Schedule A for the day of gambling?

[New York Enrolled Agent]

Now I'm really confused> Are you saying that reporting should be done in a different way other that W2G page 1 and losses on Schedule A for the day of gambling?

I'm suggesting everyone who has interest in this thread READ AM 2008-011

[travis bickle]

Thanks for the eyeopener

Happy New Year to you also Travis.

I don't think you will find anywhere in the IRC that says gambling winnings go on line 21.

Under the all encompassing §61, Gross Income include gains from wagering transactions. The Supreme Court has said there must be an accession to wealth in order to have gross income. IRS Chief Counsel gave guidance that casual slot players may not have an acession to wealth when they play the slots and win on certain pulls of the machine only to give it (all or some) back on the next few pulls. Counsel looked at what constituted a gain.

IMO opinion, Chief Counsel makes eminent sense in their advice. I would suggest that everyone read the guidance. You can find it on the IRS website - search for AM 2008-011. The guidance discusses various provisions of the code and reached a conclusion which the Tax Court explicitly agreed with. BTW, there have been other TC cases (such as Lutz and Green) which came to similar conclusions.

I fail to understand why folks seem to object to a taxpayer-friendly decision by IRS counsel validated by the TC. A senior citizen who hit a "jackpot" of $1,200 but lost $800 during the rest of the day playing the slots and went home with $400 - what was their accession to wealth? I'll take the IRS interpretation.

My comment about "gambling winnings go to L21" was incorrect [please note, I did not "misspeak", I was wrong!].

Reading AM 2008-011, I can see what the service is saying - in effect activity per day can be netted out [for example - the $5,000 someone "wins" costs them $4,000, so there is a gain of only $1,000. Since the service wants us to pay taxes on "gain", only $1,000 is taxable].

I myself do not gamble, so I need to ask, in terms of my hypothetical $5,000/$4,000/$1,000 scenario entered above -:
Q1 - If a gambler uses a "player's card", what amount will appear on the W2G?
Q2 - If a gambler does NOT use a "player's card, what amount will appear on the W2G?

And thanks for pointing out my incorrect interpretation.

[WhiteOleander]

i also read the notice and it is very interesting. So, if the client keeps track of his daily win/loss, he can report only his gains? Not the winnings that the W-2Gs report?

If the t/p received a letter about this issue, do you think sending a copy of the AM2008-11 would be enough to prove the position taken?

[New York Enrolled Agent]

i also read the notice and it is very interesting. So, if the client keeps track of his daily win/loss, he can report only his gains? Not the winnings that the W-2Gs report?

If the t/p received a letter about this issue, do you think sending a copy of the AM2008-11 would be enough to prove the position taken?

Yes - BUT ....

No doubt there will be some problems. The IRS will receive a W-2G for x dollars and the taxpayer may be reporting an amount less than x. IMO, recordkeeping will be essential!!!! Taxpayers must keep detailed records.

I believe a W-2G must be issued for gambling winnings on a slot machine when the amount won is $1,200 or more. The issue is that those winnings may not be the same as the gain from the slot transactions for the taxpayer for the slot session.

To answer Travis' question - the amount of winnings not reduced by any wager (in his example $5,000) go on the W-2G. Obviously, this could be a problem for practitioners answering CP2000 letters but the issue could be huge especially for some seniors who love to go to the casinos when the "winnings" on the W-2G can impact the calculation of taxable Social Security.

I think the Service helped taxpayers by a common sense approach. One interpretation (espoused by some practitioners who saw the casino printouts of each pull) could have been - each pull of the slot machine was a transaction with a gain or a loss. Fortunately, that idea was not adopted.

[WhiteOleander]

Actually, after reading the memorandum more closely, it states that this advice may not be used or cited as precedent.

So, it might be a hard fight to get a t.p to the same spot.

[BOB W]

So after running a full circle we are back to daily or annually figuring of losses. It looks like only losses on a w-2g issued day can be deducted. All other losses do not count. And to boot, W2-g goes on page 1 and losses go on Schedule A.

Do I understand this correctly?

[New York Enrolled Agent]

Actually, after reading the memorandum more closely, it states that this advice may not be used or cited as precedent.

So, it might be a hard fight to get a t.p to the same spot.

W.O.

Precedent is a legal term = a previously decided CASE which is recognized as an authority for disposition of future cases. TC Memo cases can be used as precedent for future cases assuming the issues are on point.

When Counsel writes that caution (it is also used on Private Letter Rulings) it is saying you can't cite the Advice as precedent for legal purposes such as in a brief for a court case. You might have a fight with the lower grade IRS employees who process CP2000 taxpayer responses but I would find it hard to believe that an Appeals Officer would not conclude that the taxpayer could follow the Advice (assuming the taxpayer has adequate records).

[WhiteOleander]

Thank you very much NY EA. I can see the point there. I don't have many clients who have gambling income. But for the few that have considerable winnings, this may be a great deal of help to them.

It's knowing stuff like this that keeps clients coming back. The eveyday self preparer isn't going to know this. So, when my client tells his friend what a wizard I am(LOL), I suddenly become worth my fee.

[zeros]

Effective Date?

This new way of calculating gain/losses is for 2009 and beyond? If a client spends, one day, $1.00 and wins $10,000 and in the subsequent days has no winnings but spends all the $10,000 what would the entry be on the 1040, assuming he itemizes?

[AJsTax]

No

So after running a full circle we are back to daily or annually figuring of losses. It looks like only losses on a w-2g issued day can be deducted. All other losses do not count. And to boot, W2-g goes on page 1 and losses go on Schedule A.

Do I understand this correctly?

I did not read it like that at all, nor did the update I saw during the summer go that route. If the TP has the records of basis that had no winnings that can be added together to take on Sch A up to the total amount claimed on page 1. The example quire clearing used losses on days that had no winnings and no gain. The amount for each day is netted to page one and all other amounts wagered go to Sch A with the limit.