Tax Court decision on tournament poker expenses

[grapabo]

This decision came down from the U.S. tax court earlier this week. Didn't see it posted earlier.

Tschetschot & Tschetschot v. IRS

The taxpayers were arguing that tournament poker wasn't a wagering activity. The decision weighs in on a definition of the term and provides some case cites for some other issues having to do with taxes and gambling. The IRS conceded that Mrs. Tschetschot was a professional, but still argued that her losses from tournament entry fees were limited by the wagering loss limitation. I didn't follow that part, but I haven't filed my taxes as a professional.

The Court also held that it's not unconstitutional to treat the business of gambling different than other businesses.

Here's a Bloomberg article discussing the decision.

Link via TaxProf Blog

[broiler]

This case really brings nothing new to the area of poker. It had previously been decided that a professional gambler cannot reduce their net income below zero and cannot carry a loss back or forward.

The biggest surprise in my reading of this case is that the judge chose to add personal commentary on the loss limitation for professional gamblers. Anyone who reads these decisions will agree that personal commentary of this nature is extremely rare.

[grapabo]

But that's what threw me off in reading thie case. I understand the net operating loss carryover isn't available for gambling losses, even for professionals, but these taxpayers had nongambling income that year, and the disallowance of the (professional) wife's excess expenses resulted in additional tax due.

I was thinking that if you were a professional, you could a) net your gambling income and losses as business income and expenses without having to itemize, and b) if your business losses from gambling exceeded your business income from gambling, the net loss could reduce other (nongambling) income in that year. But if you can't do the latter, then the issue in the case make sense, even if the decision screws professional gamblers over.

[adanthar]

[ QUOTE ]
I was thinking that if you were a professional, you could a) net your gambling income and losses as business income and expenses without having to itemize, and b) if your business losses from gambling exceeded your business income from gambling, the net loss could reduce other (nongambling) income in that year. But if you can't do the latter, then the issue in the case make sense, even if the decision screws professional gamblers over.

[/ QUOTE ]

eh, if I'm ever a losing pro gambler for a calendar year, I think I'll quit [img]/images/graemlins/smile.gif[/img]

Can anybody tell me if I'm reading the decision right and tourney buyins are not a Schedule C expense according to this judge, though? Seems weird.

[olivert]

[ QUOTE ]
[ QUOTE ]
I was thinking that if you were a professional, you could a) net your gambling income and losses as business income and expenses without having to itemize, and b) if your business losses from gambling exceeded your business income from gambling, the net loss could reduce other (nongambling) income in that year. But if you can't do the latter, then the issue in the case make sense, even if the decision screws professional gamblers over.

[/ QUOTE ]

eh, if I'm ever a losing pro gambler for a calendar year, I think I'll quit [img]/images/graemlins/smile.gif[/img]

Can anybody tell me if I'm reading the decision right and tourney buyins are not a Schedule C expense according to this judge, though? Seems weird.

[/ QUOTE ]

Reading carefully:

1. Tournament winnings go on Form 1040, Line 21 as "Other Income".

2. Tournament buy-ins and associated expenses go on Schedule A as a "Miscellaneous Deduction", but only up to the amount reported on Form 1040, Line 21.

That's the way "non-pros" who have gotten W2-Gs after cashing from a poker tournaments have filed in the past. The ruling means that even tournament poker "pros" have to file in the same manner.

Disclaimer: I am not a tax attorney. Consult your attorney or tax professional before taking any action.

[adanthar]

does this actually have any consequences to a winning gambler if true?

also, reading this very carefully indeed...it doesn't say *what* expenses. it's clear she won some money and lost some more money, but it's unclear whether the disallowed 29K consisted of buyins, travel expenses, or both.

I have no idea what that means though.

[broiler]

The gambling losses are a Schedule C expense for a professional. Page 5 is poorly worded and quite a run-on paragraph.

The IRS wanted to move the gambling expenses to Schedule A. However, they conceded that her treatment of the expense was appropriate on Schedule C. It would have read much easier as two seperate paragraphs and seems to have caused much confusion.

[broiler]

The taxpayers knew that they couldn't use the net loss to reduce nonbusiness income, which is why they tried to use the equal protection argument. The case law in that area was very clear through Boyd, et al.

[Emperor]

Why does MGM and Harrahs get to file differently than Mrs. Tschetschot?

[NickMPK]

Just to clarify:
- You only deduct as gambling losses the buy-ins for the tournaments where you don't cash
- In tournaments where you do cash, you subtract the buy-in from the prize to determine your gambling winnings

In other words, every tournament is either gambling winnings or gambling losses (unless you win exactly your money back), but never both.
Is this correct?