Gambling Losses

[myerstaxes]

I have a client who for years had a bad bad habit of playing slot machines...Some other preparer filed his returns for these tax years...The bad news is that he did not report all of his W2-Gs because he had lost track of how many he had (for one year over $90K in winnings)...Anyway, he owes a ton of taxes for these years and penalties for underreporting...

He wants to amend these returns and we have spent nearly a year recreating his losses via his win losses per his players card (he only goes to one local Indian Casino close to his home)...I had him go the extra step of getting all his bank statements and credit card statements which clearly demonstrate monies he pulled out of his accounts and cash advances, all withdrawals and advances are at the casino itself...Now I think I am ready to submit the amended returns armed with this evidence. We are not claiming losses equal to the winnings in most cases...I have read a few court cases, and the most recent one appears to support our position of using the players card statement coupled with the bank and credit card statements...I know the rules call for a diary, but in this day of Casinos everywhere, more and more people are gambling and this is becoming a serious problem trying to substantiate the losses...

Anyone out there have any luck in this area? or any advice to give?

Thanks in advance...

[ED SMITH]

Recently we had a client that hadn't filed for several years and had no records. His income transcript showed a large number of W2G's with substantial winnings in the 10's of thousands of dollars.

I called the casino where he had done his gambling and they were nice enough to supply a printout of his winnings and losses for each year going back to 2004. The net result - he had more losses than winnings. Not all the winnings will show up on the w2g's, only those over $1200 get reported.

[Snaggletooth]

Casino Records

I have one customer who has W-2Gs from Tunica MS every year in excess of $50,000. Ironically from one of my Bible-thumping clients. Lots of them here in small southern towns.

She has a profit every year, and claims she has acquired a heuristic tendency to notice things when a slot machine is going to pay off. Don't know that I believe her or not, but the fact remains she makes several thousand dollars annually. I believe her winnings were $55K in 2007, and we deducted $38K based upon an abstract of card-tracking by the casinos.

I tell them that without this record, we are absolutely sunk and I cannot defend them if their Schedule A deduction is ever challenged. I also tell them that this card-tracking will pick up WINNINGS NOT REFLECTED on the W-2G.

As an interesting note, MS has changed their withholding. Used to be 5% of winnings deducted on the spot. Most non-residents are in a bracket below 3%, so they simply filed and got most of their MS tax back. In recent years, they now withhold only 3%, so most people don't even file. Saves MS money plus not having to process thousands of returns. Smart on their part.

[JohnH]

In past years I had several situaitons in which clients received notices for unreported W2G income when they had significant winnings fully or partially offset by losses on the Schedule A. They would provide me with additional info on losses and we would just change the Schedule A to reflect the revised numbers and send it to IRS without any supporting documentation. To my surprise, every one of them was acccepted and the case closed.

The Mississippi situation is interesting to me because North Carolina requires a copy of the reutrn submitted to the other state if a NC resident claims a credit for taxes paid to that state. Failure to provide a copy of the other state's tax return and withholding form will invalidate the credit. I learned that simply printing off a copy of the Mississippi notice stating that the W-2 constitutes a return for Mississippi purposes, along with a copy of the form showing the withholding, is accepted by NC as sufficient proof to claim the credit.

[OtisMozzetti]

Statistical Odds That Losses Exceed Winnings

I cannot say that this helps with the IRS (which expects to see a diary of wagers), but maybe it sheds some perspective.

If a client received ONLY ONE W2-G, and the odds are only moderately in favor of the house, then the long-run expected distribution of gambling losses vs. the winnings includes maybe a 60% chance that the losses were as much as the winnings.

If a client received TEN W2-G's or ONE HUNDRED W2-G's, and the odds are only moderately in favor of the house, then the long-run expected distribution of gambling losses vs. the winnings includes maybe a 96% chance or a 99% chance that the losses were as much as the winnings.

[BHoffman]

No Dispute

I've had the same experience as JohnH. Amemded to include the unreported W-2G and adjusted Sch A. I include a copy of the casino's statement showing losses in excess of winnings. I've done 4 of these, no questions asked.