IRS Audited my 2004 return

[Holden97]

Also, since it can be argued that poker isn't earned income (vs. a W-2 from a job, which is clearly earned income), you can use other sources of income - dividends, interest, etc. - to justify that you aren't carrying on your poker as a business.

[Russ Fox]

The three of five year test went by the wayside some time ago. The Tax Court now uses a nine-factor test (see, for example, Morrissey v. Commissioner ). These factors are:
1. The manner in which the taxpayer carried on the activity; 2. The expertise of the taxpayer or his or her advisers;
3. The time and effort expended by the taxpayer in carrying on the activity;
4. The expectation that the assets used in the activity may
appreciate in value;
5. The success of the taxpayer in carrying on other similar or dissimilar activities;
6. The taxpayer’s history of income or loss with respect to the activity;
7. The amount of occasional profits, if any, which are earned;
8. The financial status of the taxpayer; and
9. Whether elements of personal pleasure or recreation are involved.

The IRS may still be using the three of five year test in-house to decide which taxpayers to pursue.

As to being a professional gambler, it's not making a profit, it's earning a livelihood. Are you using your winnings to pay your mortgage? Or for savings?

-- Russ Fox

[Holden97]

While, the nine factors outlined in Morrissey have been in Treas. Reg. 1.183-2 since 1972, the IRS manual also includes references to the rebuttable presumption provided in 183(d) and 1.183-1 (issued in the same treasury decision as 1.183-2) regarding 3 of 5 years to establish a profit motive.

[Python49]

[ QUOTE ]

Changing to a gross amount actually wouldn't sting terribly, I made mortgage payments the last two months or the year. I'd take it in an instant if I got them away from seeking SE tax.

[/ QUOTE ]
You can only deduct if you have daily logs and records to support the deductions. Also, depending on which state you live in, you cannot even deduct gambling losses. There are 9 of these states.

[ QUOTE ]
If I was the auditor, I'd start snooping around your bank statements and ask you to substantiate various deposits and wire transfers. I'd like to see those two winnings cleanly hit your bank. And I might just ask you to pull up your Neteller history and what the heck your PartyPoker History.

[/ QUOTE ]

Party Poker history isn't too hard to get. Could just find a few days worth of winning and use that. And if you are like alot of people you just cash out profits without making many deposits then lets say you have 15k worth of cash outs on 3 different occasions. Could you just get records to show 5k worth of winnings on those dates along with the processed cash out from party poker?

[BlackAndRed]

[ QUOTE ]

You can only deduct if you have daily logs and records to support the deductions. Also, depending on which state you live in, you cannot even deduct gambling losses. There are 9 of these states.

[/ QUOTE ]

Anyone know the 9 states?

[shapinator]

I am definitely interested in hearing how things progress.

Thanks

[rustyboy]

Bump for an update?

[stormy455]

Thanks for the bump. I'd seen the update here but hadn't seen the original post. BTW, the IRS accepted his explanation and rescinded their proposed adjustment.

[Off Duty]

This is why you should keep records of your expenses AND your wins/losses.

It just astounds me why there are so many losses at the horse track after a major race. They are usually easy to find, as folks tend to discard them on the ground because losing tickets have no value. Go figure.

[DVaut1]

[ QUOTE ]
[ QUOTE ]

You can only deduct if you have daily logs and records to support the deductions. Also, depending on which state you live in, you cannot even deduct gambling losses. There are 9 of these states.

[/ QUOTE ]

Anyone know the 9 states?

[/ QUOTE ]

Michigan is one. If you live in one of those states (like Michigan), you can't deduct your losses on your state tax return. Obviously, you can still deduct your gambling losses on your federal return, even if you live in one of these states.