Got a letter from the IRS

[geormiet]

Thanks for the advice thus far.

I'm in the bay area. What would be a good way to seek out a CPA?

How much would I expect to pay for services, and what could the CPA do to help me? The only records I have from 2004 really are pokertracker and pokercharts.com (similar to statking).

I could use these to show a number of hours played well below full time, but I don't know what else.

[yukoncpa]

CPA’s may be expensive. An accountant designated as an, “Enrolled Agent” will most likely be cheaper ( I’m not entirely sure on this ) and just as effective.
Hopefully, you could just make some phone calls and get an estimate over the phone when you explain your situation.

As far as what they could do for you - a simple letter may be all it takes to solve your problem, stating something like this: The changes you propose are incorrect. I do not owe self-employment tax. I am a recreational gambler, with no expertise on the subject. I do not engage in the business or occupation of gambling. I do it for fun and do not expect to make a profit in the future. Please correct your records and respond back to me. ( I just made this letter up incidently, someone else could do a better job )

Otherwise, if the above is false, and you do intend to make money ( even if doing it only part time ), then you may have to do some negotiation (maybe not), but you would need to file an amended return. This would be time consuming and would end up costing you some money. I don’t know how much. But at least you could add in some additional expenses other than just poker losses.

Or you could accept the IRS’s changes and just pay them.

P.S. It’s been a very long time since I’ve done any of this. So my advice may only be worth what I’m charging. Zero.

[WichitaDM]

Got this same letter a month ago. Talked to several CPAs and they all said the same thing. I am also a full time student. They all said the following

1)IRS is correct you owe SE Tax and most likely will have to pay
2)They recommended refiling as a pro and taking all the deductions i could.

I mean the IRS isnt stupid as i found out. If you have filed several years returns in this manner you are even more screwed most likely as its obvious its a pattern of income.

In the end i did the math. Figured out how many additional deductions i could claim. Found out how much it would cost to have a CPA redo my tax return (depends on the CPA but at least 300-500$) and figured out approx how much time it would take me to find all my paperwork and get it to a cpa etc. After doing this i decided at best it was close and most likely a losing proposition to either fight it or refile and just paid it.

It really sucks honestly but dont forget that the longer you delay taking care of it the higher the penalties and fees are. I have yet to hear a single case of fighting this type of battle and winning. If you do let me know. PM me if you want to know more.

[XChamp]

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I have yet to hear a single case of fighting this type of battle and winning. If you do let me know. PM me if you want to know more.

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Here's one.

[WichitaDM]

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I have yet to hear a single case of fighting this type of battle and winning. If you do let me know. PM me if you want to know more.

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Here's one.

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Wrong this guy had a job and poker was not his sole source of income. For a number of reasons this is not even close to being the same situation. If you have no job and have been playing poker for a few years as your sole source of income its a lot different from playing 9 hrs a week and having a job that pays most of the bills...

[geormiet]

You make a good point, but I'm still going to try to fight it.

The way I see it, in 2004 I was playing for enjoyment and not in a professional manner. I didn't depend on poker for my livelihood, because I had student loans. I played for 15 hours a week on average, with extended periods of no playing. I had other income from teaching and cello playing, and most of my time was taken up by being a student.

If I had played poker one time during the year and won a tournament for the same amount, would I then have to pay SE tax? I'm pretty sure I wouldn't.

What if I had played 5 tournaments to get to that income? What about 10 hours a week of cash games? It seems it is a gray area and I think it's still worth my time to argue it.


If I do wind up having to pay SE tax I will go ahead and take all the deductions I can. Netting my wins and losses for one, as well as computer equipment and trips to las vegas.

If hiring a CPA and making these deductions comes out to the same amount as not refiling, then I will do it anyway. For one, I will at least learn how to save money in the future, and two, [censored] the irs.

[geormiet]

According to "the gambler's guide to taxes" by Walter L. Lewis:

some of the qualifications to be a professional gambler:

"
-There must be a profit motive. The expectation of making a profit to be able to support enoeslf must be evident. A profit must be shown in at least three of the last five years.

- A considerable amount of time must be spent gambling. Gambling must be done with regularity.

-A business operation must be evident. The IRS requires all businesses to maintain a set of books and records that document the activity. OTher items that would indicate business intentions include business cards, letterhead or stationery, all required buiness lincenses and registrations, a business telephone listing, and an office address or post office box."

[Guthrie]

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It's not about whether you are a pro or an amateur.

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I disagree. It has everything to do with this. If a guy working at McDonald's wins the lottery, he rightfully only owes SS/Medicare on his W-2 income, not his lottery winnings.

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What if he spent 30 hours a week playing the lottery and bought lottery tickets totaling 100 times his McDonald's salary over the course of the year?

[2ndGoat]

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According to "the gambler's guide to taxes" by Walter L. Lewis:

some of the qualifications to be a professional gambler:

"
-There must be a profit motive. The expectation of making a profit to be able to support enoeslf must be evident. A profit must be shown in at least three of the last five years.

- A considerable amount of time must be spent gambling. Gambling must be done with regularity.

-A business operation must be evident. The IRS requires all businesses to maintain a set of books and records that document the activity. OTher items that would indicate business intentions include business cards, letterhead or stationery, all required buiness lincenses and registrations, a business telephone listing, and an office address or post office box."

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I only really scanned through that case (comissioner v groezner or something like that?), but it was sort of tricky... since it was for a pro that was actually petitioning to be called one, rather than someone trying to prove his ameteurness, and our situations are trying to establish the opposite, the wording didn't seem fully applicable to our situation throughout. But I don't remember specifics; it's been a couple months since I dealt with it.

Regardless, I did quote it in my letter to the IRS, and they did let me off the hook.

Now I'm waiting for them to tell me that in 2005 when I did NOT have a full-time job that I was not a pro and I can't claim deductions and should have filed as misc income, heh.

2nd

[yukoncpa]

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What if he spent 30 hours a week playing the lottery and bought lottery tickets totaling 100 times his McDonald's salary over the course of the year?



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He would be a sick gambler.
Spending a great deal of time at something doesn’t necessarily make that something a trade or business. You may spend 50 hours a week working on your rental units, but the money you collect as rents is not subject to self-employment tax.

As far as does being an amateur have anything to do with it: That depends. The word “amateur” in my mind, implies a degree of skill. Maybe I’m just caught up in the nuance of the word, but if I won a poker tournament after having never played poker and never read a book on the subject and never talked to anyone about a strategy and the IRS wanted to classify my earnings as subject to Self-employment tax, then:
I would use the word “recreational" gambler in my letter. I wouldn’t describe myself as an amateur poker player. But this is just my preference and the only reason I mentioned above that being an amateur has nothing to do with it.