This should end all of the false claims about paying US taxes on poker

[Niediam]

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Safe thing of course is just to report everything.

Using some sort of common sense method I'm though I'm sure will be fine because even if the IRS says you did it wrong they arn't going to throw a fit. Something like "report if it costs more than a date to the movies" or "report it if you would be upset if the item didn't arrive".

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I would be very upset if my mousey pad didnt arrive. [img]/images/graemlins/frown.gif[/img]

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I actually happen to have Party mousepad right in front of me that I'm not using so I have you covered if there is a problem! [img]/images/graemlins/smile.gif[/img]

[broiler]

ustaxcourt.gov has cases going back to 1995. There is another free site that goes back farther and that is legalbitstream.com. Both of those sites are free and the search function is not too bad.

The direct link to the Libutti case: http://www.ustaxcourt.gov/InOpHistor...TI.TCM.WPD.pdf

Libutti was a craps player whose average bet was ~$15k. The case history gives a pretty good detail of the comped items and the FMV that was included.

I would also note that Libutti won the case on the point that comps are gambling source income so that he could claim losses up to the amount of his winnings plus comps. When you see the schedule of deficiency listed, you will understand why this case went to court on this point.

[Billman]

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Sodomy is no longer a crime. It is on the books in some places, but enforcing it is unconstitutional after Lawrence v. Texas [img]/images/graemlins/tongue.gif[/img]

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Yeah Sodomy!

[DVaut1]

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Another tax post filled with myopic disinformation and impractical paranoia. Every single one of these threads has a poster who repeatedly says something like, "Have a nice time explaining that to the IRS when they show up at your doorstep." If you want to spew this [censored] garbage, perhaps you should make a list of the countless thousands who were audited after making a good faith claim on internet poker winnings. Also, most of the "definitive" interpretations of a session are laughable since the wording was clearly constructed in relation to B&M games. The IRS has no clear definition for internet gaming sessions--neither should you.

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Wow, so the first "ZOMG you guys are all paranoid lolz suxorz" was SO compelling, you had to post it twice!

I was still unsure the first time you posted this, but now that you've posted the exact same thing, I'm sold.

Maybe if you post it a THIRD time, all the fence sitters will finally see the error of their ways. Perhaps if you consider adding a bit more invective and a few more ad hominems, and a few more of those stinging adjectives (holy [censored] - not just disinformation, but MYOPIC disinformation!) then this we all see the wisdom of "roflz IRS guidelines and expert knowledge, I play by my own rulez".

[cardcounter0]

This is very clear.

Here are the comps:
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The automobiles and accessories included five Rolls Royces with an aggregate value of $916,300, three Ferraris with an aggregate value of $731,400 (exclusive of additional accessories of $14,875), one Bentley Corniche valued at $212,000 (exclusive of a $1,890 phone installed therein), one Mercedes Benz valued at $60,583, automobile repairs of $12,740, a $14,310 payment by Trump so that petitioner could trade a Bentley for a Rolls, and a $34,980 payment by Trump so that petitioner could trade a Bentley Turbo for a Bentley Corniche. The vacations included five European vacations with an average value of $17,568 and one vacation in California valued at $16,500. The jewelry included a Rolex watch and bracelet valued at $32,300, a 2.7-carat diamond valued at $30,000, a bracelet and diamond earrings valued at $23,426, a bracelet watch valued at $19,800, a tennis bracelet valued at $12,900, and a diamond bracelet valued at $3,286. The champagne included 178 bottles of Cristal Rosé, valued at $225 a bottle. The tickets were to theater and sporting events such as the Super Bowl, the NCAA basketball tournament, boxing events, and the United States Open in Flushing Meadows, New York.

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A nice little AC tidbit:
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Casinos in New Jersey were prohibited from transferring cash comps to patrons during the subject years. Trump and petitioner used the automobile comps to attempt to circumvent this prohibition.

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Here is why these 'comps' are taxable:
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Trump "purchased" the automobiles on behalf of petitioner, and petitioner contemporaneously "sold" the automobiles for cash

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So as I said previously, if you are using FPPs for IPODs, and turning around and selling them on EBAY, that is taxable. If you get a Book, and IPOD, and a TV for your bathroom -- those are non-taxable rebates.

I also notice Trump got nailed by the AC Gambling Commission, too much of this was too direct in the way of cash. Car repairs, transfer fees paid, etc. As I also said, if you get comped directly in cash (ie. the FPPs for cash bonus) it is taxable.

Anybody have this guy's address? He sounds like a BALLA HOLLA boy.

[Wynton]

I just want to thank Russ personally for writing this part. I have no idea how this myth got created, and I've been trying to correct people every time I see it

"Myth #12. The IRS can’t share information from my tax return with other government agencies because of the “Silver Platter” doctrine. Another falsehood. As noted above, the IRS routinely shares information with state tax agencies. In Garner v. United States (424 U.S. 648 (1976)) the Court held that the occupation listed on a tax return can be shared. If you are foolish enough to list your occupation on your tax return as “illegal drug dealer,” the IRS can forward your name to other law enforcement agencies."

[DING-DONG YO]

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In that example, you should use a schedule C.

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But you can only use a Schedule C if you're a professional.

It's possible for some online gamblers to have fairly ridiculous "Other Income" and "Gambling Loss" deductions. Take an online SNG player, who plays 30 $100 SNGs a day. He could have $100,000 in income and $80,000 in losses. Suddenly some deductions that individual (who hypothetically can't file as a professional) had are gone.

The Tax Code isn't fair. But how you are supposed to treat gambling for the non-professional is very, very clear.

-- Russ Fox
co-author, "Why You Lose at Poker"

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this has probably been addressed already in the thread, so forgive me.

I agree that how you are supposed to treat gambling for the non-pro is clear.

What is not near as clear is how to decide if you are or are not a professional. My point in the example above is that, if your play results in numbers such as these, I do not think you would have a very difficult time in filing as a professional.

Russ, I think you missed what I was saying.

[ozziepat]

Forest vs Trees

It's all too easy to get lost in the tax code. Here is some simple, common sense advice:

1. File a return, especially if you have ever previously filed a return of any kind for any amount. Simply filing evidences good faith of a sort and avoids leaving a "hole" in your tax history.

2. Keep records. Bad records are better than no records. Good records are highly preferred. If you are audited, and have no records, you might find some arbitrary guidelines being applied and have no way to fight them.

3. Pay a professional tax preparer, and I do not mean H&R Block. An accountant who is already familiar with gambling-related tax regulations would be best. Otherwise find a smart, capable accountant who is willing to learn. Then stick with them. This is money well-spent even if gambling income/loss is only a fraction of your total financial picture.

4. The typical outcome from a "mistake" found in the IRS' favor on a return is payment of amount due with some percentage tacked on as a penalty. You do not, however, ever want to be flagged as someone who habitually and beneficially errs in his/her favor.

Remember: In the US (but NOT in many other countries), tax evasion is a crime, tax avoidance is your patriotic duty. As a taxpayer, you are entitled to decide in your favor in borderline (do I declare/pay or don't I) cases. Problem is, unless you are an expert in the field of current relevant tax law, you aren't a good judge of this - another reason to have sound professional advice. Blog forums, however well-intentioned, do not substitute. And in closing, don't depend on the IRS for information either. Their personnel are notorious for being inconsistent with the advice they hand out over the phone.

[Russ Fox]

I'm going to reply to a bunch of things in this thread. I'll probably miss an item or two, but I'm busy...doing tax returns, so forgive me.

1. The $1 MM gross winnings and $999,000 losses. If someone runs up such ridiculous totals, they may be gambling in a full-time way, and be able to file as a professional.

Let's take an example of an attorney, making $250,000/year. He has netted $1,000 from his online gambling, playing 16 $115 turbo SNGs a night, and barely eeking out a profit. He has those ridiculous numbers. If he were audited, and he had filed as a professional, that probably wouldn't hold up.

Of course, he might net the numbers (which he is not able to do legally), and get away with it. Because I am a licensed, professional tax preparer, on a public forum I cannot advise anyone to act contrary to the Tax Code.

2. Many people aren't declaring their gambling income. Of course that's the case. But the Tax Code is quite clear that all gambling winnings, from $1 up, are taxable. And those who lost money still must declare their winnings. There was a Tax Court case a couple of years ago about that.

3. Are comps taxable? Thank you, Broiler, for posting the link to Libutti v. Commissioner. As the Court noted in the case, it's gains from gambling that are taxable, not winnings. If you go to a casino, and they give you a comped lunch which you eat, there's no gain. If you sell the comp (and the casino allows that) to John Doe for $20, you've made $20 in taxable income.

If a casino gives you a Rolls Royce as an enticement to gamble, that's a pretty big gain.

4. You make a mistake on your return; what kind of penalties? There are thousands upon thousans of errors made annually on tax returns. Many are math mistakes; some are forgetting a W-2 or 1099-MISC, etc. Almost everyone who makes such an error will get a notice in the mail, the error will be pointed out, and you can agree with the IRS and pay the additional tax and interest (and possibly a small penalty) or you can disagree and point out why.

You're not going to jail for that.

And you're not going to go to jail if you honestly completed your tax forms, and are generally complying with the law. Where you can get into trouble is not counting part of your income due to using one of the frivolous tax protestor arguments (e.g. Wesley Snipes' claim that only foreign income is taxable), deliberately understating your income by a large percentage (e.g. you show income of $100,000, but you won $200,000 more playing poker), etc.

Let's say that today is the first time you realized that your $200,000 in gambling winnings from 2005 is taxable. If you amend your return, pay the additional tax, interest, and penalties, you will likely just suffer a monetary penalty. If the IRS finds you, then you could face a worse situation.

I think that's it for today. I'll try to respond to additional questions/issues daily. Sorry if I missed something.

-- Russ Fox

NOTE: This opinion is limited to the one or more Federal tax issues addressed in the opinion. Additional issues may exist that could affect the Federal tax treatment of the transaction or matter that is the subject of this opinion and the opinion does not consider or provide a conclusion with respect to any additional issues. With respect to any significant Federal tax issues outside the limited scope of this opinion, the article was not written, and cannot be used by the taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

[EMc]

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3. Are comps taxable? Thank you, Broiler, for posting the link to Libutti v. Commissioner. As the Court noted in the case, it's gains from gambling that are taxable, not winnings. If you go to a casino, and they give you a comped lunch which you eat, there's no gain. If you sell the comp (and the casino allows that) to John Doe for $20, you've made $20 in taxable income.

If a casino gives you a Rolls Royce as an enticement to gamble, that's a pretty big gain.




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Russ,

Im pretty sure that the comp is still taxable but not as gambling income.