[broiler]

Adanthar,

Driller is correct that there are different taxable incomes based upon how much was paid to enter. You have forgotten that you are allowed to reduce the winnings by the amount paid for the entry.

The amount of income from a winning bet or wager is the full amount of the winnings less the cost of placing that winning bet or wager. But, a taxpayer can't reduce the amount of income from winnings by the cost of losing tickets (or other forms of wager). Source: Hochman, David,(1986) TC Memo 1986-24. Also, Lutz TC Memo 2002-89 has the same conclusion.

The Hochman case is much clearer on the treatment, but I am unable to find a free site with a link to that case. Lutz is not as clear because the phrase deduction from winnings is used in the same paragraph as itemized deduction for gambling losses. However, it does reference Hochman for the proper treatment of the "recovery of capital".