Are comps taxable

[LiveInPeace]

My guess would be yes, casino comps are taxable, but I wondered what others thought. They can mount up over the year if received on a regular basis.

[Photoc]

They are not classified as income. They're more of a "rebate" than anything.

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They are not classified as income. They're more of a "rebate" than anything.

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I have read that the IRS has ruled casino comps as taxable. Its the same thing as when you spend points for travel rewards. I was also told this was the reason why the Borgata stopped giving out small promotional gifts like hats and jackets at the poker room. This makes sense because consumer rebates are taxable as income. I suggest you contact your tax preparer for more information, he or she will be better qualified to advise.

[Photoc]

I can't see how "comps" can be treated as income when in reality it's a rebate on theoretical losses in a casino. If you lose 100k and are comped 10k worth of items, how could that possibly be taxeable? You really only lost 90k and that money was taxed when it was originally earned by the bettor. (in normal circumstances) I hate the IRS lately.

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I can't see how "comps" can be treated as income when in reality it's a rebate on theoretical losses in a casino. If you lose 100k and are comped 10k worth of items, how could that possibly be taxeable? You really only lost 90k and that money was taxed when it was originally earned by the bettor. (in normal circumstances) I hate the IRS lately.

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although in theory I agree with you, the IRS doesn't agree with us [img]/images/graemlins/frown.gif[/img]

[esch]

Comps could be treated as income by the IRS (like gambling wins), but if so, they can probably be offset by gambling losses.

[fishyak]

Here is a little background and may either clear things up or cloud the issues. Remember when car companies started "rebates?" Rebates, which used to be bad, illegal things, became good things. Well, the IRS has always taken the position that rebates are taxable income, but price discounts are not.

So the nature of your comp. may impact whether it is classified as a rebate or a discount. Example, when I check in at the MGM and am told: "The casino has comped your room, sir." Because I am not getting a check back, that is considered to be a discount.

Look at the specific nature of your comp. If what you are getting can't be classified as a discount, you are in the zone where you may want pro advice and the comp may be taxable as either a rebate or taxable promotion, just like jackpot winnings.

This make not help you make sense of everything, but is should give you a sense of the history of dispute.

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I asked Russ Fox to join this thread, hopefully he will respond soon.

[Russ Fox]

The article that a poster in this thread linked to ( this blog post ) has nothing to do with casino comps. It has to do with casino employees and the tips (gratuities) they receive.

As to the subject of this thread, let's examine the IRS' directive on casino comps. Here are the relevant paragraphs:

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Comps are items casinos give to their customers. Generally, they are awarded based on a casino’s expected win calculated from a gambler’s prior activity. Casinos use tracking systems to determine the amount and result of a patron’s gambling, and determine the appropriate level of comps to provide to a patron. Most regular patrons participate in casinos’ favored customer programs, often called slot clubs...

The systems casinos use to market their comps programs and award the comps have generally allowed the casinos to treat comps as promotional expenses, excepted from the limitations of IRC Sec. 274 by IRC Sec. 274(e)(7).

Therefore, unless the manner in which a casino awards comps to its patrons differs markedly from the method described above, agents are directed not to challenge whether the comps qualify for treatment as promotional expenses under IRC Sec. 274(e)(7)....

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Thus, for the casino, comps are generally a legitimate business expense. This is settled tax law.

For the patron, there are differences. Most comps are ignored by the casual gambler. A patron gambles, and the pit boss gives the gambler a comp for the coffee shop. Technically, it's income for the gambler but I've never seen the IRS go after such low-value comps.

On the other hand, I know of a couple of cases where a casino comped luxury items to a gambler, and the gambler declared them as income.

Adding to the complexity, the treatment might be different depending on whether the gambler was an amateur or a professional. Saying all that, the IRS still holds that comps are taxable to the gambler.

Ok, that's the IRS' position. However, as Mr Rick pointed out, the IRS has lost most (but not all) of those battles in the courts regarding taxing of comps. Discounts are not generally taxable, and the casino offers a comp (discount) to get someone to gamble.

So, what should you do? If this situation impacts you, you need to discuss your situation with your tax professional. What Mr Rick did (discuss his situation with his accountant) is absolutely the right thing to do. For me to offer a blanket statement ("gamblers can [or can't] ignore comps") would be wrong.

Hope this helps,

-- Russ Fox

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Russ - what about airline frequent flier miles, when they are redeemed aren't they considered income, when in fact they are a rebate against existing flights previously taken?

PS: Didnt realize Mr Rick was a CPA.