So I called a CPA..

[DING-DONG YO]

[ QUOTE ]
It is time for some professional disagreement.

The reason that any CPA tells someone to net is solely based upon the likelihood of getting caught. No CPA that deals with IRS auditors on a regular basis would advise to net.

Are you familiar with the IRS circular on knowingly giving incorrect advice? My office has had the local IRS examiners in our office to audit gamblers, so they know that we know better than to net. Our local IRS office has cracked down on firms caught giving bad/fradulaent tax advice.

Just because a tax program will let you put the information in any way that you want, doesn't make it correct according to the law/tax court rulings.

To repeat: netting is always incorrect, but the decision to do so is up to the person preparing and signing the tax return.

[/ QUOTE ]

Good post, some professional disagreement is always heathly.

I'm curious, have any of these people ever taken the IRS to court over this?

Also, what income range were the audited individuals in and was gambling their sole source of income?

Sorry for the 20 questions, but if you work at a firm that regularly deals with the IRS and has had some real deal IRS experience in regards to gamblers, you could help add a lot here.

[broiler]

I have been involved with cases that went to tax court, but none of any significance. Any case that went to a hearing was in an attempt to reduce large (negligence/fraud)penalties and not the tax itself. All of these cases were referred by a local attorney, after it was determined that the prior accountant had helped prepare a bad return.

The largest income from gambling was in the range of 750k, but he reported nothing. The IRS caught him because he was unaware of bank reporting requirements. You can't ship $250k to the US from your offshore book without it getting reported. He then bought a house with a briefcase full of cash, thinking that would also go unreported.

Most of the people that I deal with are in the 50-150k range for income, sometimes more, sometimes less. After our first audit, we sat down with the agent to get an idea of what they deemed ok for documentation and reporting. The local office knows all of the games that can be played and they don't play around when they get a whiff of something that doesn't look right.

I'm sure that many on the boards here see me as one of the fearmongers, but I only report on what I have seen from experience. I would imagine that the experiences from other branches differ greatly based upon experience of the auditors.

[Megenoita]

Broiler, in your experience, what is the average % that is owed for a gambler that makes 6 figures? If they file legally, such as a Schedule C, what are they looking at?

[broiler]

There is a wide range on the ending tax rate. I've seen anything from the low 30's to the low 40's. These percentages include state taxes and NY is not a low tax state by any means.

Many clients have been convinced of the benefits of good retirement planning, which can substantially reduce the tax paid. There is nothing like having the government fund a third of your retirement contribution. Once you figure out all of the possible deductions, the average tax rate really does drop.

[Ron Burgundy]

[ QUOTE ]
[ QUOTE ]
If you play online, days can count as sessions.

[/ QUOTE ]
That's only true if you actually play one session per day. If you play everyday from 10AM until noon and then again from 9PM to 11PM, I don't think any reasonable person (or court) would agree with you that that was exactly one session per day.

[/ QUOTE ]

If you play a lot online, I don't think any reasonable person or court would expect you to be able to accurately record 20-30 actual sessions per day. Not to mention the fact that they couldn't legally prove you wrong if they disagreed about your number of sessions.

[Wake up CALL]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
If you play online, days can count as sessions.

[/ QUOTE ]
That's only true if you actually play one session per day. If you play everyday from 10AM until noon and then again from 9PM to 11PM, I don't think any reasonable person (or court) would agree with you that that was exactly one session per day.

[/ QUOTE ]

If you play a lot online, I don't think any reasonable person or court would expect you to be able to accurately record 20-30 actual sessions per day. Not to mention the fact that they couldn't legally prove you wrong if they disagreed about your number of sessions.

[/ QUOTE ]

Another poster that does not understand the IRS statutes. NEWS FLASH::: The IRS won't have to prove anything. They are allowed by statute to state what you owe by any method they choose and it is up to YOU to prove otherwise, not them.

[Ron Burgundy]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
If you play online, days can count as sessions.

[/ QUOTE ]
That's only true if you actually play one session per day. If you play everyday from 10AM until noon and then again from 9PM to 11PM, I don't think any reasonable person (or court) would agree with you that that was exactly one session per day.

[/ QUOTE ]

If you play a lot online, I don't think any reasonable person or court would expect you to be able to accurately record 20-30 actual sessions per day. Not to mention the fact that they couldn't legally prove you wrong if they disagreed about your number of sessions.

[/ QUOTE ]

Another poster that does not understand the IRS statutes. NEWS FLASH::: The IRS won't have to prove anything. They are allowed by statute to state what you owe by any method they choose and it is up to YOU to prove otherwise, not them.

[/ QUOTE ]

The IRS doesn't have to prove anything... about what? Please explain how the IRS could force someone to report their taxes differently than how they did based on records that don't exist.

[broiler]

The IRS is allowed to estimate under a "reasonable method" your income and deductions if they can prove that your records are either incomplete, incorrect, or nonexistent. Failure to keep or provide adequate records makes you subject to negligence penalties and possibly worse. Courts have repeated ruled that failure to keep or provide adequate records is not a valid way to avoid the payment of taxes.

When the IRS estimates income, they always shoot high to see what sticks. You would be surprised how fast a person can come up with their records when their income is estimated at 2-3 times actual. Surprisingly, the IRS never seems to be able to estimate any deductions in the process.

Also, you should remember that the IRS has access to all of the gamblers who file tax returns in the prescribed manner. These returns can be used as their defense of how much income one person can make in a year when they suspect your gambling income is incorrectly reported.

[driller]

I've posted about this elsewhere, but maybe my experience is unique because I have tried to file correctly and my non poker income is relatively high - around $160k.

For 2004 I had a loss - about $2k. I wouldn't have bothered to report it but I was doing so well in early 2005, I thought it might look suspicious if I reported a large win in 2005 and nothing in 2004, so I got all my sessions using the poker tracker definition and put in about $80k in wins then $80k in losses on schedule A. Doing this increased my taxes about $3k!

My winnings in 2005 finally amounted to about $20k, but my gross winnings were in the $160k range and my deduction was in the $140k range. The 160k pushed my overall gross income to the point where I was not allowed the personal exemptions for me and my wife. I didn't closely examine where else it cost me extra taxes, but I'm sure there were other places...the deal about no personal exemptions really stood out!

I probably would have been better off filing as a professional, but from what I have read, your earnings must be a substantial amount of your income. Never-the-less I might try it next year...I just don't want to go through an audit.

[driller]

Also I believe somewhere in IRS publications on record keeping they suggest you record such things as the table number, who the other players were, etc. To me this means that the IRS defintion of a session and the poker tracker definition of a session are the same.

With keeping track of sessions with PT being so easy and with the software being so well known, I don't think it would be easy to argue that keeping track of all the sessions would be impossible.