gambling losses

[dantaxman52]

How would I report a gambling session loss of $1000 for a client who does not itemized when the client receives a form w2-g reporting $2000 in winnings for the same session?   It is is the only activity for the year.

[TAXOH]

It won't be deductible on the federal if they don't itemize.

[IRonMaN]

Using tax lingo, that would be known as a SOL loss.

[TaxGuyBill · Accepted solution]

You can "back it out" as a negative number on the "other income" line (use the amount of the winnings as a negative number, don't create a loss on the tax return).

As you pointed out, if there was no "session" gain, there there is $0 of taxable gambling income to report.  But the IRS wants to see that W-2G, so you need to enter that same amount as a negative number (I would call it something like "per-session gambling W-2G offset").

[Veronica]

Could you show me how to do this ? I would be happy to pay a consultation fee. I have several customers that could benefit from this information and it was not common in my area until this year.. 

[rbynaker]

Was this slot machines or something else?  If slot machines, keep reading, otherwise I agree with the SOL treatment.

There's an IRS CCM from 2008 that may be relevant:

https://www.irs.gov/pub/irs-utl/am2008011.pdf

The IRS also issued a notice of a proposed revenue procedure in 2015 but (as far as I know) never actually finalized anything so I'm not sure it has much value:

https://www.irs.gov/pub/irs-drop/n-15-21.pdf

You may also want to read the Schollenberger case (and the associated references therein):

https://www.morrellawpllc.com/court-cases/schollenberger-v-commissioner-us-tax-court/

If you determine that session treatment is appropriate, I would report a negative "other income" item to offset the W-2g and attach an explanation referencing the cites above.

Rick

[TaxGuyBill]

I haven't reviewed things lately, but to me, the same rules are likely applied to other forms of gambling as well.  There may not be direct statements from the IRS or courts stating that, but when I read the IRS information and court cases, the 'reasons' for the sessions apply to other forms of gambling as well.

But I admit, it has been a while since I researched it.

[BobKamman]

@TaxGuyBill  Don't both the W-2G amount and the session losses show up on the same "other income" line?  I'm not sure that IRS sees anything but the net amount, not the gross and the subtraction.  I would try to attach an explanation, not that anyone will look at it but it will be handy to copy and send in response to an IRS notice.  

[rbynaker]

Could be, but there's not as much to hang your hat on.  The IRS planned to issue a revenue procedure with a safe harbor that specifically applies to slot play so that's a pretty good indication that they acquiesce to the court rulings with regard to slot play.  To me it's less clear that they would treat other gambling the same way but there's probably enough evidence to meet the reasonable basis standard.

[PhoebeRoberts]

"Could you show me how to do this ?"

In Lacerte, Screen 14.1 Miscellaneous Income, 2nd section titled Alimony and Other Income, 2nd to last entry, "Other Income (Ctrl+E)." Use Ctrl+E or click on the button just to the right of that field to open up the detail box. Enter some sort of description (I use "Session Netting") and the amount (losses are negative amounts).

[qbteachmt]

Please stop Spamming this forum.

[Terry53029]

@TaxGuyBill Irs topic 419, gambling income and losses:

Gambling Losses

You may deduct gambling losses only if you itemize your deductions on Schedule A (Form 1040) and kept a record of your winnings and losses. The amount of losses you deduct can't be more than the amount of gambling income you reported on your return. Claim your gambling losses up to the amount of winnings, as "Other Itemized Deductions."

Link: https://www.irs.gov/taxtopics/tc419

[BobKamman]

Wish it were that simple. See Notice 2015-21 at

https://www.irs.gov/pub/irs-drop/n-15-21.pdf

It’s a proposed revenue procedure, which six years later has not been issued in final form. But it starts out by agreeing with Tax Court opinions involving slot machines. If you have a compulsive-gambler client who actually tracks each “session” of play, there’s no reason not to rely on this.

“Gross income from a slot machine wagering transaction is determined on a session basis. See Shollenberger v. Commissioner, T.C. Memo 2009-306 (2009); LaPlante v. Commissioner, T.C. Memo. 2009-226 (2009). Determining whether a series of wagers is a “session” requires analyzing the relevant facts and circumstances and can present practical difficulties. Shollenberger, supra. . . .

“Session of Play. A session of play begins when a patron places the first wager on a particular type of game and ends when the same patron completes his or her last wager on the same type of game before the end of the same calendar day. For purposes of this section, the time is determined by the time zone of the location where the patron places the wager. A session of play is always determined with reference to a calendar day (24-hour period from 12:00 a.m. through 11:59 p.m.) and ends no later than the end of that calendar day.”

There are obsessive gamblers, and then there are obsessive tax preparers who want every number on an information return to match a number on the 1040.  It isn't going to happen, in these situations.  Tell your client to stop gambling, but to call you if IRS sends a CP-2000 (which they aren't going to do for a $1,000 discrepancy in income).  And then, send IRS a copy of the attachment you filed with the return. 

[AndyFeed]

Have you got any update?

[11Buster]

Maybe missing something here, but agree with the post above as to only being able to deduct losses (up to winnings) if itemizing deductions OR is a professional gambler (schedule C).