Gambling Tax Write-Off Q

I've been having a lot of trouble with finding a good answer to a tax question I'm having.

Normally recreational and degen gamblers can write off their gambling losses on Schedule A only up to their reported wins, including W2-G's and wins recorded via personal journal.

As some readers of this thread may know, this normally doesn't apply to any 1099's issued by casinos showing the retail value of prizes won (cash or not).

One casino had it in small print that you shouldn't write it off, yet there is an old IRS tax court ruling Libutti v. Commissioner which states that if there is a "strong nexus" between gambling activity and earnings from a 1099, then gambling losses CAN be written off from said 1099.

This has become an issue for me this year since I have won a bunch of drawings, but it required a lot of gambling at a loss in order to win the prizes. This is because of additional entries to drawings being granted with added play (eg. earn "X" number of points to gain another entry).

Ordinary members of the public can gain one free entry to the draws, which weakens the nexus explained in the Libutti ruling since anybody from the public can theoretically win, but the odds would have been astronomically against my winning what I did without lots of play generating comp entries.

Do I have a valid write off in this case? It's been a very tough question with professionals giving mixed opinions on this one.

I’m not a tax attorney, but personally, I would write them off. Taking an aggressive tax position is not tax fraud. It only becomes an issue if you get audited. Worse thing that can happen is paying the back taxes plus interest. They’d probably waive any fine if you settled. You could take it to tax court but it’s not worth the cost and effort. In this case the risk is probably worth the reward.

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Originally Posted by Jayjami

I’m not a tax attorney, but personally, I would write them off. Taking an aggressive tax position is not tax fraud. It only becomes an issue if you get audited. Worse thing that can happen is paying the back taxes plus interest. They’d probably waive any fine if you settled. You could take it to tax court but it’s not worth the cost and effort. In this case the risk is probably worth the reward.

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Agree.

You actually would have a pretty good case in establishing the nexus between the drawings and gambling activity.

You could simply first state that you have to gamble in order to earn these drawing tickets, and that while you won some drawings, you lost a lot of money while earning those tickets. Don't even mention the public's ability to get free entry, let them counter with that themselves. They may not even be aware.

Then, if they do counter, state that this is something they do in order to comply with gaming laws, but that in reality, it can be as much as billions-to-one for someone who doesn't gamble to win one of these, and that it essentially never happens.

One of two things is likely to occur if you try this writeoff:

1) Nothing, and it will work out fine. Since it's not tax fraud, they have 3 years to catch it, meaning that you'll be 100% in the clear if you hear nothing by April 15, 2023.

2) The IRS will send you a letter demanding you remit the additional taxes they think you owe. At that point, you just need to call them at 1-800-829-1040, and explain the whole thing on the phone. Often the entire thing will be dismissed and zeroed there. It's possible they will ask you to write a letter explaining this, which you should if they ask, and again, you will probably get the matter dismissed.

An actual audit triggering from this is unlikely. Audits tend to occur when they feel that a more complete scrutiny of your taxes will result in an additional large payment to them, or if they feel that a large portion of your tax strategy is invalid. In most cases, they just send you a letter telling them you owe more money, which you can easily appeal as described above.

Good luck.

I had originally intended to aggressively write off against the 1099's, but one thing that really held me back was my yellow copy of the payment request form for one of the prizes I picked up. It was for $2,500 at a large Boyd property, but still only a small fraction of what I need to deal with next year.

It states in the "Taxes" section near the bottom of the form:

--"This promotional win is different from Wins and Losses and is not tax deductible."

Given the likely army of tax accountants and lawyers working for Boyd (or at the very least outsourced to a stellar firm), all I could think was, "Uh oh, time to reach out for a little help now. Maybe I shouldn't do this write-off after all?"

(Copy of claim form available if necessary.)

Quote:

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Originally Posted by Benford

I've been having a lot of trouble with finding a good answer to a tax question I'm having.

Normally recreational and degen gamblers can write off their gambling losses on Schedule A only up to their reported wins, including W2-G's and wins recorded via personal journal.

As some readers of this thread may know, this normally doesn't apply to any 1099's issued by casinos showing the retail value of prizes won (cash or not).

One casino had it in small print that you shouldn't write it off, yet there is an old IRS tax court ruling Libutti v. Commissioner which states that if there is a "strong nexus" between gambling activity and earnings from a 1099, then gambling losses CAN be written off from said 1099.

This has become an issue for me this year since I have won a bunch of drawings, but it required a lot of gambling at a loss in order to win the prizes. This is because of additional entries to drawings being granted with added play (eg. earn "X" number of points to gain another entry).

Ordinary members of the public can gain one free entry to the draws, which weakens the nexus explained in the Libutti ruling since anybody from the public can theoretically win, but the odds would have been astronomically against my winning what I did without lots of play generating comp entries.

Do I have a valid write off in this case? It's been a very tough question with professionals giving mixed opinions on this one.

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If you're on facebook contact this gal.. She specializes in tax stuff for gamblers and does a lot of work for some of the bigger names in Poker especially https://www.facebook.com/theresa.fox https://www.facebook.com/FoxAndAssociatesInc/

Quote:

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Originally Posted by Benford

I had originally intended to aggressively write off against the 1099's, but one thing that really held me back was my yellow copy of the payment request form for one of the prizes I picked up. It was for $2,500 at a large Boyd property, but still only a small fraction of what I need to deal with next year.

It states in the "Taxes" section near the bottom of the form:

--"This promotional win is different from Wins and Losses and is not tax deductible."

Given the likely army of tax accountants and lawyers working for Boyd (or at the very least outsourced to a stellar firm), all I could think was, "Uh oh, time to reach out for a little help now. Maybe I shouldn't do this write-off after all?"

(Copy of claim form available if necessary.)

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was it a form 1099Misc? or form W2-G? W2-G is for "certain gambling winnings" per the IRS, implying that there are other gambling winnings reported using some other form, such as Form 1099.

if it was a W2-G you would seem to have a much stronger case for including the prize in your gross winnings from gambling...if a 1099Misc, then its not so clear.

also, in which box of the form were the amounts entered into---IRS computers will compare the form 1099 entry to your return, and that may trigger an inquiry letter if you don't post the number where the IRS expects.

(also, if you are using a DIY tax software, such as TurboTax, you may have difficulty keying in data using the software's forms--that software is not very flexible and forms input maps to specific schedules/lines of your return).

Still, without doing any research imho you can include that win in total against which you deduct your gambling losses if you can establish/convince an auditor that your patronage/selection of that venue was in a large part motivated by the prize drawing. A log or calendar of you visits to that casino, your activity there, and the rules to qualify for the prize will help; also that you had other casinos in the area that you could have chosen to play at---and imho most IRS office auditors, particularly those in gaming dependent cities like LV, will understand--undoubtedly they've seen similar cases.

check the irs publications/treasury regulations/tax court rulings for guidance, or just google your situation