1040X W2G Win/Loss

[MGC94]

Taxpayer filed 2021 taxes with 166,764 w2g income and 25,678 in losses owing $33,000. 

Taxpayer wants to amend their 2021 taxes and write off everything that they won because they lost everything, and they are a "compulsive gambling addict" and stated they "put back in what they won." 

The reason $25,678 was written off was because they provided one win loss statement and not all of them as "some casinos won't give them to them" 

Should this return get amended if they can't prove the losses to the tax return preparer or does one amend it anyway and they will have to prove it to the IRS, and I am supposed to take their word....    

[Terry53029]

To take loses off winnings a TP has to keep a log of winnings and losses. See link.

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

[MGC94]

@Terry53029 Lets say the re create the log for IRS purposes is it okay to amend the return? I am under the impression that they do not have to prove it to me per say (that I take their word for it) but would have to prove it if they were audited to the IRS. 

[sjrcpa]

You can take their word for it if you believe it.

But amending a return to add $140K Gambling Losses might trigger a flag in the IRS' computer.

[MGC94]

@sjrcpa I do believe the person and I have seen others struggle to get their win / loss. I believe them because I see the pattern for tax year 2022 and 2023. The person one can tell is struggling financially. Little to no income around $20,000. Nominal SS.  Living in a trailer park (not all are bad I know) and I think they just so happen to hit big that year (online) and claims they spent it all again online. 

I also don't want someone to have to pay $30,000 that they don't truthfully owe. 

If trigger flag, would I get in trouble for amending it in anyway?  

[Terry53029]

I believe it is pretty difficult to document gambling losses to withstand an audit.  I think the IRS wants contemporaneous journal , not a complied win/loss statement. Personally I would want to see the clients log to see if they at least keep one then I don't believe you would get any blowback from IRS, but if no log I would not amend. 

[qbteachmt]

"and claims they spent it all again online."

In which tax year? Did they live on some of the money (new appliance, better hotel room) and did they gamble some of it in the next tax year? You can't win in one year, regamble in that and the next year, and then expect to treat it as a loss for just the year you won it by amendment.

That's why you need proof, a log, a record. If they gamble with a member card, yes, that log is available.

[PATAX]

In my opinion, Such a very large amount of gambling losses like that on a regular return would significantly increase the chance of an audit. Now if you put that on an amended return, which  may be scrutinized, then I would say there's even a greater chance of an audit. Years ago a tax professional told me one of her clients were audited for gambling losses and they wanted to see all of the receipts/tickets/documentation. And the amount of gambling losses was far less than the amount in your situation. But that is my opinion, and you do what you want to do.