The IRS and Gambling - The Tax Blotter - June 16, 2023

The Tax Blotter is a round-up of recent tax news.

Taxpayers can claim a limited deduction for gambling losses, but the IRS keeps close tabs on these write-offs.

Report all your winnings. Gambling losses are deductible only up to the amount of you winnings for the year. Casinos and other gambling payors report earnings on Form W2-G if you win $1,200 or more from your bets. The IRS computers are programmed to match Forms W-2G with amounts reported on individual returns. So, if you don’t fess up to the amount of your annual winnings, you’re likely to be snagged for a correspondence audit.

Increasing the stakes. The IRS pays more attention when big bucks are involved. In a new case, a taxpayer gambled extensively at three casinos in 2019. Based on the Forms W2-G issued to him, the IRS determined that he had $241,000 in winnings and the Tax Court agreed. But the taxpayer claimed that his losses exceeded his winnings. Not so fast: Based on the casino records and the taxpayer’s testimony, the Court limited his losses to $192,000 (Bright, TC Bench Opinion, Docket No. 10095-22, 3/30/23).

Are you really a pro? If you’re a professional gambler, you can deduct all of your losses, just like other businesses. But it’s difficult to prove. To qualify as a professional gambler, you must show that you are legitimately engaged in gambling activities in order to turn a profit. Many have tried making this claim, but few have succeeded. Latest example: A couple residing in Nevada, including one spouse who is an accountant, were frequent gamblers. Yet they failed to convince the Tax Court that they quailed as “pros” (Mercier, TC Bench Opinion, Docket No. 7499-22S, 3/8/23).