Irs Gambling Sessions
A basic definition of a gambling session for a gambler tax payer is a period of continuous play without cashing out. However, a session cannot last more than one day. Gambler Tax Proof of Winnings and Losses. All gamblers, both professional and casual, need to keep appropriate records to document their wins and losses from gambling sessions. Now the IRS allows gamblers to record net winnings and losses per gambling session. A casual gambler can then report the sum of all net winnings from those sessions on Form 1040. A casual gambler can then report the sum of all net winnings from those sessions on Form 1040. So enter all ATM funds received to fund gambling sessions, as additional evidence, for your gambling diary. A player’s reward cards are frowned on by IRS, too. The reward card is often a shaky way. The IRS classifies all gambling winnings as taxable income–whether or not these winnings were earned legally. Such income can come from raffles, lotteries, horse races, and casinos. The IRS doesn’t mention sports betting on its website, but these do count as gambling winnings. In Your Gambling Diary, Track Wins and Losses by Session. If keeping a gambling diary meant I had to track every single play, I probably wouldn’t bother (and I doubt anyone else would either). Thankfully, that’s not how the IRS asks you to track your wins and losses.
By Sally P. Schreiber, J.D.
Irs Gambling Sessions
Notice 2015-21 contains a proposed revenue procedure that would permit gamblers engaging in electronically tracked slot machine play an optional safe harbor method to determine a wagering gain or loss from their slot machine play based on day-long play sessions.
Under the safe-harbor, a taxpayer would recognize a wagering gain if, at the end of a single session of play, the taxpayer’s total gains exceeded his or her losses and would recognize a loss if, at the end the session, the total amount of wagers exceeds the amount of payouts. A session would be treated as beginning when a gambler places the first wager on a particular type of game and ending when the same gambler completes his or her last wager on the same type of game before the end of the same calendar day, i.e., beginning on or after 12:00 a.m. and ending at 11:59 p.m.
A gambler using the safe harbor would be required to use the same session of play if he or she stops and resumes the same game in the same establishment during the same calendar day. Also, gamblers cannot offset gains and losses from separate sessions. Once a gambler goes to another gaming establishment, a new session would begin, even if it is on the same calendar day.
Under current IRS rules (Chief Counsel Advice Memorandum AM 2008-011), gamblers are allowed to calculate gambling gains and losses when they cash out of a single gambling session—in the words of the memo, “at the end of slot machine play.” However, determining what constitutes a single session has been difficult, especially with the advent of electronically tracked slot machines, which have led to less redemption of tokens by players.
The safe harbor will not be available until it is published as a final revenue procedure, after which it would apply to tax years ending on or after that date. A provision permitting taxpayers to claim this treatment on their tax returns by providing a note that the return is filed using these procedures will not apply until tax years beginning on or after Jan. 1, 2016.
Before it issues the final rules, the IRS is asking for comments. Specifically, taxpayers should comment on:
- Alternative definitions for the term “slot machine”;
- Whether an interruption in play should result in more than a single session;
- Whether a session should be based on a period other than a calendar day;
- Whether the definition of a single session should be determined by other factors;
- Whether the safe harbor should include merchandise and bonus reward payouts;
- Whether the issue should be part of the IRS’s Industry Issue Resolution program;
- Whether a safe-harbor method should be developed for other forms of gambling; and
- Whether the proposed safe harbor poses problems in administration for stakeholders.
Irs Gambling Sessions
—Sally P. Schreiber is a JofA senior editor.
The Tax Court held in a memorandum decision released Monday that taxpayers who were casual gamblers recognized wins or losses when they redeemed their tokens and that they could not net their wins and losses across the year (Shollenberger, TC Memo 2009-306).
In this decision, the court accepted the IRS’ methodology for determining wagering gains and losses, which the Office of Chief Counsel put forth in a legal memorandum in 2008 (AM 2008-011).
The taxpayers in the case were a married couple who gambled occasionally at a casino in the small town of Charles Town, W.Va. On March 29, 2005, the husband hit a $2,000 jackpot at a dollar slot machine. The couple continued gambling and lost $400 from the jackpot; they left the casino that day with $1,600 in winnings. They did not report any gambling income on their tax return for 2005, and the IRS issued a deficiency notice for $2,000 in unreported gambling winnings.
Irs And Gambling Sessions
IRC § 165(d) states that “losses from wagering transactions shall be allowed only to the extent of the gains from such transactions” but does not provide a technical definition of the terms “gains” and “losses.” As AM 2008-011 explains, the term “transactions” in section 165(d) could mean every single play in a game of chance or every wager made. That interpretation would require a taxpayer to calculate the gain or loss on every transaction separately and treat every play or wager as a taxable event and also to trace and recompute the basis through all transactions to calculate the result of each play or wager.
Irs Gambling Session Rules
Because that method would be “unduly burdensome,” the IRS legal memo allows a casual gambler to recognize a wagering gain or loss at the time he or she redeems tokens.
At trial, the IRS conceded that under that method, the taxpayers should have reported $1,100 in gambling winnings rather than the $2,000 in the deficiency notice. According to the court, the lesser amount would be calculated as follows: $2,000 in jackpot winnings minus $500 in wagering money originally brought into the casino by the taxpayers minus the $400 lost by the taxpayers after the jackpot that day.
The taxpayers argued that they should be allowed to offset their gambling winnings with $2,264 of other gambling losses that they claimed to have incurred in 2005. Because section 165(d) uses the term “transactions,” the court held that the taxpayers could not net their gains and losses throughout the year. Instead, the court accepted the IRS’ treatment of transactions as occurring when the gambler cashes in his or her tokens at the end of play and held the taxpayers to have $1,100 of unreported gross income for the year.
According to the court, to allow the taxpayers to net gains and losses throughout the year would defeat the purpose of IRC § 63, under which losses of casual gamblers are allowable only as itemized deductions.
For more on IRS legal memorandum AM 2008-011, see Beavers, “IRS Issues Guidance on Determining Wagering Gains and Losses,” 40 The Tax Adviser 129 (February 2009).