Debate On Rake/Rakeback Tax Treatment

[r1base14]

Hello all,
In searching through old posts I noticed that people sort of take it for granted and assume that rake paid is not eligible to be taken as a deduction and that rakeback is to be included in one's income. This is a position that I don't understand and theoretically does not makes sense. The way the tax laws are structured, it would makes sense that either one of the two following scenarios would be proper:

1. Take rake paid as a decudtion and include rakeback as income; or
2. Do not take a deduction for rake paid and do not include rakeback as income.

The inclusion of rakeback as income without deducting rake paid results in the worst case scenario for a taxpayer, and there is nothing else that is treated in such a manner.

I understand the argument that the rake is taken out of the pot before it is shipped to the winner, thereby reducing the winner's income automatically. The problem with this argument is that the winner SHOULD have had the extra 4 dollars in winnings (or whatever the rake was) and, because of the expense that the casino charges, now has less winnings than he/she should (Note that I am not saying the taxpayer should be entitled to the entire 4 dollar deduction, but rather just the amount that the taxpayer contributed to the rake). Rake should be treated just like any other expense that one incurs in the course of business, such as interest expense. There is no double counting here that would create an improper benefit to a taxpayer. Can someone please explain to me why this analysis is incorrect?

FYI - I am obvioiusly discussing a situation in which a player plays professionally, and not as a hobby.

Ryan

[Rainbow Warrior]

maaaaaaan..
Rake is ALREADY deducted from your winnings when you collect the pot.
You CAN NOT deduct it twice.

Rakeback is income because it's a partial refund of that previous deduction.

It's clear.

[StellarWind]

Step 1: Buy $1000 worth of chips and sit down at a poker table.

Step 2: Play poker.

Step 3: Leave table with $1500 in chips and cash out.

I don't think this could be any clearer. You have $500 in gambling winnings to declare. It doesn't matter whether there was no rake and the other players lost $500 or there was $1000000 in rake paid and the other players lost $1000500.

Step 4: The manager chases you as you walk out the door. He gives you $100 from the rake to express his appreciation for your patronage. You now have $1600 in your pocket.

It's still perfectly clear. Now you have $600 in gambling winnings to declare.

[redbeard]

somewhat along those same lines -- in stellar's example what if the manager tracks you down and give you a $50 meal comp. do you have to declare that $50 meal comp as income?

[jkpoker]

[ QUOTE ]
somewhat along those same lines -- in stellar's example what if the manager tracks you down and give you a $50 meal comp. do you have to declare that $50 meal comp as income?

[/ QUOTE ]

Yes

[Niediam]

[ QUOTE ]
somewhat along those same lines -- in stellar's example what if the manager tracks you down and give you a $50 meal comp. do you have to declare that $50 meal comp as income?

[/ QUOTE ]

No.

I forget what exactly the court ruling said but the gist of it was that if the casino gave the patrons consumable goods and/or servies (such a food, hotel, massages, etc) that they were not taxable. However, if the casino gave tangible good with resale value (watches, cars, etc) then those type of comps are taxable as gambling income.

[Wake up CALL]

[ QUOTE ]
[ QUOTE ]
somewhat along those same lines -- in stellar's example what if the manager tracks you down and give you a $50 meal comp. do you have to declare that $50 meal comp as income?

[/ QUOTE ]

No.

I forget what exactly the court ruling said but the gist of it was that if the casino gave the patrons consumable goods and/or servies (such a food, hotel, massages, etc) that they were not taxable. However, if the casino gave tangible good with resale value (watches, cars, etc) then those type of comps are taxable as gambling income.

[/ QUOTE ]

You forgot because that ruling does not exist, the IRS regs are clear, it is to be declared as gambling income.

[Niediam]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
somewhat along those same lines -- in stellar's example what if the manager tracks you down and give you a $50 meal comp. do you have to declare that $50 meal comp as income?

[/ QUOTE ]

No.

I forget what exactly the court ruling said but the gist of it was that if the casino gave the patrons consumable goods and/or servies (such a food, hotel, massages, etc) that they were not taxable. However, if the casino gave tangible good with resale value (watches, cars, etc) then those type of comps are taxable as gambling income.

[/ QUOTE ]

You forgot because that ruling does not exist, the IRS regs are clear, it is to be declared as gambling income.

[/ QUOTE ]

I swear I read this in the Gamblers Guide To Taxes by Lewis. Does anybody own this book so they can confirm if I'm crazy or not? [img]/images/graemlins/smile.gif[/img]

Actually found an excerpt to the book online at this web site.

It appears to me that the court ruled that in order for the comps to be taxable the receiver has to have an "increase in wealth".