[Russ Fox]

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The IRS does not seem to very often win the hobby v. business cases in which the taxpayer keeps complete and accurate records of his endeavor and seems to try the endeavor repeatedly. I would guess that these factors are not present in most cases because most taxpayers are slobby.

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Absolutely correct. Most taxpayers try to put a hobby on their tax return to write it off as a business. When called to the carpet, they don't have records, don't have a separate bank account, and don't have a business plan...and they don't stand much of a chance at audit, appeals, or at the Tax Court.

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So if a poker player keeps good records of profits and losses and plays a great deal, how could the IRS ever challenge the poker playing as a hobby and not a profession?

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Most poker players don't keep good records. The next time you play, look to see if anyone at the table has a diary/logbook (when they sit down, they should make a note in their log).

The other problem is that even if you do play for "a great deal [of time]," are you playing for your livelihood? That's the standard in the Groetzinger decision. Take the case of a full-time (40/hr week) individual who earns a good salary, and plays poker 20 hours per week. Suppose the individual earns $100,000 year in his day job and $60,000 (net) playing poker. Is that individual playing for his livelihood?

The IRS can argue that he or she isn't. The IRS would likely win at audit and appeals (the latter is very dependent on who you draw as an appeals officer). Then you have to go to Tax Court. You must spend time and money to fight the IRS; if you want professional representation (an attorney or an individual authorized to practice in Tax Court) it can get quite expensive. One possible outcome is a Pyrrhic victory: you win in Tax Court, but it costs you more than the amount of your win. Most cases are settled (with both sides compromising) during appeals because of the expense.

Do I expect the IRS to change its stance? They already have to one extent; the IRS now routinely goes after individuals who show only gambling income on their tax return and attempts to force such individuals to file as a professional. I don't expect the institutional bias at the IRS (a bias that there is no such thing as a professional gambler) to change quickly. The case at question cannot be used as a precedent.

-- Russ Fox