Rough draft #2 to IRS (self employment tax issue)

[geormiet]

For background see web page


The deadline I have is Sept 7. Two issues I am wondering about: I hired a cpa to help proofread, and he suggests opening with "gentlemen." My girlfriend has taken a bunch of taxation classes and she says this is a big no no. What should I use instead?

Also, my father has suggested perhaps I add at the end something like "for 2006 my situation is different because I do play in a professional manner and i plan on paying self employment tax this year." Thoughts on this idea?


Here's the letter:

George Dxxxxxx

xxxxxx 16th Ave

San Francisco, CA 94118

(xxx) xxx-xxxx


August 31, 2006


Re: 1040 - 2004

xxx-xx-xxxx


Gentlemen:


You have sent me a letter suggesting a change to my 2004 return. The income reported on my return is from gambling, which I reported as miscellaneous income on form 1040. You suggest my gambling activity qualifies me for self employment status and that I amend my return accordingly.

I disagree with your proposed changes to my return, and I believe that I do not qualify for self employment status.

In 1978 in Robert P.Groetzinger v. Commisioner of Internal Revenue the issue was addressed whether gambling can constitute a trade or business, and if it is possible for a gambler to qualify as a professional. The final ruling was that it is indeed possible for a gambler to qualify as a professional (and thus be eligible for self employment status) if certain conditions are met. Because Groetzinger gambled with the intent to earn a living and devoted a substantial amount of time to his activity it was ruled that he was allowed to file as a professional gambler.


In 2004 I did not gamble with the intention for profit, and I did not gamble with regularity. I was a full time student at the University of Southern California, and I played online poker sporadically. Most of my time spent gambling online was during the summer. I made one four day trip to Las Vegas for the purpose of gambling in March, and in November through December I frequented Los Angeles cardrooms about twice per month. In 2003 I did not earn any money from gambling, hence I did not play with the intention for profit in 2004. In order to pay for living expenses and tuition I had taken out school loans, in addition to receiving a stipend from the University. These amounted to roughly $18,000 in loans and a $7500 stipend, enough to cover all my expenses.


Since the 1978 case, there have been several similar cases in which a gambler fought to attain professional status, such as the Estate of Dan B. Cull v. Commissioner of Internal Revenue, Gentile v. Commissioner,and Louis and Ann Noto v. United States. Over time the courts have decided the following are some of the conditions that must be met to qualify as a professional gambler:

-There must be a profit motive. The expectation of making a profit to be able to support oneself must be evident. A profit must be shown in at least three of the last five years.

-A considerable amount of time must be spent gambling. Gambling must be done with regularity.

-A business operation must be evident. The IRS requires all businesses to maintain a set of books and records that document the activity. Other items that would indicate business intentions include business cards, letterhead or stationery, all required business licenses and registrations, a business telephone listing, and an office address or post office box.


Since I met none of the above conditions in 2004, I believe it is incorrect for me to have filed as a professional gambler, and that I am not eligible for self employment tax.




Sincerely,


George Dxxxxx

[Lottery Larry]

Did a majority of your income derive from gambling?

[geormiet]

Yes.

[gaming_mouse]

George,

I don't know anything about the tax or legal issues, but this letter is well-written and clear.

Jonah

[*grendel*]

Hi George, I'm a CPA and manage the tax practice of a public accounting firm. I think you did fine with your letter, however, I'd change the 4th paragraph to be much less specific. Try this:

"In 2004, I was a full-time student at USC and only played poker as a hobby. I frequented the cardrooms of LA and made occaisional trips to Las Vegas whenever my studies allowed. My poker playing was for recreational purposes only and the fact that I made a profit does not change that".

You don't need to go into so much detail about your gambling activities. The IRS does not need to know how live or spend your money. Be general about your personal info. As long as you reported your winnings as Misc income, and your losses on Sched A, you should be fine.

Also, instead of "Gentlement" as the salutation, use "Dear Sir or Madam." It's more PC, but not a big deal.

If you have any more questions, PM me. I don't post much, but I lurk daily. Good luck.

[geormiet]

Grendel,

Thanks for your advice. I will do just that, i think it's a good idea.

[Lottery Larry]

Then I doubt being a student is going to help you

[geormiet]

Did you even read the letter? That's not my argument.

[The Truth]

Be sure to let us know how this turns out.

[Poker_Hoar]

Good letter.

I am self employed and hate paying this tax. I hope you can get out of it.

Good luck.