Attention, Signers for Slot Winnings over $1,200

[MJGolf]

I know some of you mentioned the win loss statement from the casinos. This is language from horses' mouth on Total Rewards/CET properties:

"The Total Rewards player rating system is not intended for tax reporting purposes to the IRS or any other State or Local reporting agency. Caesars Entertainment makes no representation as to either the accuracy of this information or its effectiveness as a proof of losses and expressly disclaims any liability arising out of or related to any errors contained in this statement. This amount may not include all hand-paid jackpots reportable to the IRS on form W2G. The IRS recommends keeping a diary of your gaming activity with such pertinent information as dates, slot machine or table numbers, jackpots, and total wins and losses. For specific information on tax return preparation and IRS requirements, please consult a tax advisor or the IRS at www.irs.gov. Information prior to 2006 for Ballys, Caesars, Grand, and Paris will not appear on this statement contact the property for more information."

So additional record keeping probably is important.

[Aslan]

You are legally required to keep records:

26 U.S.C.A. § 6001:

"Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe"

Anson v. Commissioner (1964):

"...the privilege of original self-assessment accorded the taxpayer carries with it the burden of support through the maintenance of records which clearly and accurately reflect income"

Netting your wins and losses is a material understatement of tax, because it will lower your AGI, and if you don't itemize, it will understate your liability by preserving your standard deduction. Understating AGI can lower your liability by affecting tax credits.

First, a journal is not a "prescribed" record keeping requirement, it's a suggested record keeping method.

Second, I always itemize, and I do not have tax credits, so there is no effect on my bottom line. I have not used a standard deduction for 50 years. Not only that, only in the case of a net win is there any effect on AGI; a net loss has no effect.

Third, the amount of gambling that I do does not warrant over-refinement of record keeping. I don't say I have no record of wins and losses, but I do not keep a detailed journal. Maybe this makes my exposure a bit greater, but the risk of audit is slim and IRS cannot reject legitimate evidence even if it does not take the form of a journal.

If you keep a journal, where do you draw the line? If you go to a casino and play VP for two hours and lose $50, do you make an entry in your journal of a VP loss? If you then play Blackjack for two hours and win $100, do you make another entry? Then if you play slots or VP for two hours and lose $100, another VP entry? Then, TCP for two hours and win $85, a TCP entry? Then you win $16 at craps, Another entry? Of do you sum up the day? Why not trip, instead of day? For the average gambler, a daily journal based on every detail he does in a casino is undue refinement of record keeping. A trip report is more reasonable. Can you say for this day I had a loss and for this day I had a win? Why not for this trip I had a loss or a win? What is sacred about how the IRS looks at it and how you look at it from your own perspective and the way you gamble? If you jump from Blackjack table to Blackjack table ten times in an evening, do you stop and record the amount won or lost on each table as you go, or do calculate at the end of the evening that you won or lost "X" amount? Why not the end of the trip? To me, these are all gray areas.

[Bodarc]

ok, first of all, you do not report NET win or loss. You total all of your wins by session, race, etc. The total wins are reported either on the front of your tax return (form 1040) or as income on your business form (1040 Schedule C). Next you total all of your losses by session, race etc. You either report your losses on your itemized deduction schedule (Form 1040 Schedule A) ..not to exceed the income you reported on the front of the return. Or, you enter your losses as a deduction on your business form Schedule C along with your travel, a portion of your meals, and any other business related expenses you have. Just as if you take a deduction for interest on your home mortgage and have to verify and prove it if you happen to be examined, so too do you have to verify and prove your expenses (losses etc) related to your gambling income. This is one case where you are guilty until proven innocent and you are the one who has to prove your deductions. If you fail to prove your losses, by keeping adequate records and documents, they will be disallowed but you will still be taxed on your gambling income. So, the passages I pointed out earlier are not suggestions, they are guidelines to enable you to prove and substantiate your expenses and losses. It is very important to keep good records.

It is also important to note that even if you are considered a professional gambler, you can not deduct gambling losses in excess of your gambling income in order to create a loss. http://www.irs.gov/pub/irs-utl/am2008013.pdf

[Bodarc]

Aslan

I will say this: If you are audited, a lot depends on the agent's perception of your actions. If (I don't use he/she, I use IT!) If IT thinks you are being honest and trying to report your income, usually you won't have any problem but, if the IT finds evidence or suspects that you are trying to under report your income and hide earnings etc, then they become very aggressive and that is when your problems start. Now this isn't written into the law but that is how things work in real life. I will say that I have been doing this kind of work for many years and I have NEVER had an agent who was not pleasant and easy to work with and who did not give me the benefit of the doubt. Most could have assessed something or more than they did if they had so desired. It is the same with anyone. No one who is mad or agitated at you is going to give you a break, so even if you don't have perfect records, at least have enough information available so they can tell that you are reporting your income as best you can. It is just common sense.

[Aslan]

ok, first of all, you do not report NET win or loss. You total all of your wins by session, race, etc. The total wins are reported either on the front of your tax return (form 1040) or as income on your business form (1040 Schedule C). Next you total all of your losses by session, race etc. You either report your losses on your itemized deduction schedule (Form 1040 Schedule A) ..not to exceed the income you reported on the front of the return. Or, you enter your losses as a deduction on your business form Schedule C along with your travel, a portion of your meals, and any other business related expenses you have. Just as if you take a deduction for interest on your home mortgage and have to verify and prove it if you happen to be examined, so too do you have to verify and prove your expenses (losses etc) related to your gambling income. This is one case where you are guilty until proven innocent and you are the one who has to prove your deductions. If you fail to prove your losses, by keeping adequate records and documents, they will be disallowed but you will still be taxed on your gambling income. So, the passages I pointed out earlier are not suggestions, they are guidelines to enable you to prove and substantiate your expenses and losses. It is very important to keep good records.

When I do have a substantial win, I am diligent about keeping track of documented losses to offset that win as best I can.

I may be wrong, but I don't mess with the small stuff, like $50 bucks I won or lost playing pool or betting on a football game with a friend. That stuff more or less evens out over time, and I feel no religious scruples about ignoring them. Also, if in a 3-day trip I have net wins or losses totaling $1,000 income, I don't see the need to break it down. Is it written somewhere that it has to be down to the specific sessions of Blackjack and VP? Remember, every hand of Blackjack is a win, loss or push.

It seems reasonable to write a three day trip up as a win or a loss, without the undue refinement of every bet made or session played. It seems like a gray area anyway. I'm not talking about big money here. Also, there is no difference in my tax liability.

As a practical matter, 99% of people who have a net loss for the year don't file anything unless they've signed a W2G. I doubt anyone files small wins either.

But everything you say seems reasonable.

[bigplayer]

A fellow I know signed W2-G's for $15,000 in slot winnings one year. A few years later the IRS told him he owes taxes on another $35,000. Either the casino provided the information on the player's other winnings (he played rated), or the IRS asked the casino to provide a profile on him and discovered he won another $35,000 from table games. His win/loss statement shows $50,000 in overall winnings and breaks it down between slots and table games. His only hope is to find loss offsets from other casinos for that time period.

Casino slot club records are generally not considered valid for tax purposes. If he has a contemporaneous diary of his play that disagrees with the IRS bill he would be able to get a revised ruling. Likewise he may have played unrated and lost. . If you aren't using a loss deduction you aren't required to keep records of anything. Just put your best guess as to your win on form 1040 but if you keep no records and the IRS comes up with an alternative figure for your gambling win you're gonna have a tougher time fighting them.

[Aslan]

Aslan

I will say this: If you are audited, a lot depends on the agent's perception of your actions. If (I don't use he/she, I use IT!) If IT thinks you are being honest and trying to report your income, usually you won't have any problem but, if the IT finds evidence or suspects that you are trying to under report your income and hide earnings etc, then they become very aggressive and that is when your problems start. Now this isn't written into the law but that is how things work in real life. I will say that I have been doing this kind of work for many years and I have NEVER had an agent who was not pleasant and easy to work with and who did not give me the benefit of the doubt. Most could have assessed something or more than they did if they had so desired. It is the same with anyone. No one who is mad or agitated at you is going to give you a break, so even if you don't have perfect records, at least have enough information available so they can tell that you are reporting your income as best you can. It is just common sense.

I totally agree. I think reasonableness counts, too. I have seen millions of people in the casinos over the years, and yet to see one take out a journal and record his or her win or loss at the end of a session. But technically, that is what is being suggested by IRS.

[Aslan]

Casino slot club records are generally not considered valid for tax purposes. If he has a contemporaneous diary of his play that disagrees with the IRS bill he would be able to get a revised ruling. Likewise he may have played unrated and lost. . If you aren't using a loss deduction you aren't required to keep records of anything. Just put your best guess as to your win on form 1040 but if you keep no records and the IRS comes up with an alternative figure for your gambling win you're gonna have a tougher time fighting them.

I agree with everything you say.

[Bodarc]

Here is something to think about that I feel sure moo321 will agree with. If you are audited, the first thing the agent will do is ask for 3 years of bank statements. He will go through all of your deposits and analyze them to determine the source of each deposit. If you have made deposits from your gambling activities, he will list them as income. Now it is up to you to show that you withdrew $5,000 to take on a trip and this is $4,000 that you are re-depositing or that somewhere you have losses to offset these deposits. The only way you can prove this is with records, receipts etc. If you can't show these things, you will be taxed on the full $4000 that you deposited.

[Aslan]

Here is something to think about that I feel sure moo321 will agree with. If you are audited, the first thing the agent will do is ask for 3 years of bank statements. He will go through all of your deposits and analyze them to determine the source of each deposit. If you have made deposits from your gambling activities, he will list them as income. Now it is up to you to show that you withdrew $5,000 to take on a trip and this is $4,000 that you are re-depositing or that somewhere you have losses to offset these deposits. The only way you can prove this is with records, receipts etc. If you can't show these things, you will be taxed on the full $4000 that you deposited.

Fair enough. And that is exactly how they might try to characterize it on an audit, myself being a former auditor. But if you took out $5,000 at your destination, and redeposited $4,000 before you left, it is a reasonable explanation that you lost or spent $1,000. They might not allow the loss deduction, but they will likely allow that the $4,000 does not represent income. It would be a case worth pursuing in the courts. It is not a reasonable imputation of income. How is it that a journal is somehow sacrosanct and that the person using it cannot fudge the figures to suit his predetermined outcome? Believe me, a journal can be disallowed just as easily. In our system, you are always at the mercy of the IRS, but thank God, we can take it to court if it is simply unreasonable on the IRS's part. I have taken the IRS to court and prevailed; I know. They suddenly ruled in my favor before we ever stepped before a judge. I have had clients whom the IRS said owed thousands of dollars, when in reality it was an IRS error. They were so filled with fear that they said, forget about it, I'll pay. Sad, but true. Anyway, my penny ante gambling is so far beneath the radar that I'd probably have to run for Congress to get audited, and then the result would still be de minimis.

[biggg]

Can the IRS make up gross winnings and losses? For example suppose someone won 10000 one year (net income) and any reasonable audit would suggest that 10000 was an accurate number, and this was reported as income and taxes were paid. Can the IRS go back and say, "you played poker and we know you probably won 510000 and lost 500000 to win that 10000 so you should pay taxes as if this were true".

[Three]

The IRS can do whatever it wants. It is its own overseer.

[Bodarc]

No bigg

They can not just do anything they want. They have to have a reasonable basis for making an assessment. Even if it was broken down as you show it, whether you are a regular individual or a professional, it wouldn't make much difference since you are allowed to deduct your losses and gambling losses are not subject to the phase-out limits on itemized deductions.

It is possible that breaking it down that way could cost you a little if it made your income higher than the phase-out limits because you could possibly lose some of your deduction related to mortgage interest, property tax and contributions. See this: http://www.arahcpa.com/blog/higher-i...hase-out/37025