While we all no doubt agree, "the government" (by which you mean federal government, many states - see below - are worse) does not tax "income" as we define it; the government taxes whatever it can and does so according to its own definitions. These are in statute and in the Internal Revenue Code, and need not be rational to hold up in court. So this would not be "laughed out of court" no matter how much documentation you have, without regard to the size of the dispute.
It's even worse in some places ... many states have a gross income tax, and do not allow gambling losses to offset gambling winnings. In those states, all your winnings are subject to the state income tax, even if you had no net income from gambling at all. In those states, I don't think there's any way to make any aspect of gambling a positive EV activity.
$100 is pretty trivial compared to how all this impacts many others, although I understand $100 means different things to different people. But the IRS is not banking on the amount being trivial; they are banking on the fact that the courts will uphold the law, and that it has nothing to do with a taxpayer's (or all taxpayers') idea of how the tax laws and IRS Code should work. The entry level clerks can quickly be bypassed; I've had one audit and, on my own, took it above the "first responders" of the IRS, and then I was able to negotiate a compromise (this was not a gambling issue, so don't ask about the details) -- but no matter how high up you take it, they will look to the law and the IRS Code for guidance.
And don't forget, all "income" under these definitions should be reported - not just income that generates a W2G. So every trip to a casino, even if you use a daily log and net income / loss per day, will generate "income" if there's a winning day, and it must be reported. This makes it even worse. And unlike taking deductions that are disallowed, which is usually correctable by just paying the tax and penalty if caught, failure to report income is criminal and can result in much worse consequences. So don't think that a payout that does not generate a tax form is not reportable and it not taxable -- it is.
Most gamblers I know only report W2G income. This does not surprise me; what surprises me is how freely they admit it to total strangers!! If the IRS had undercover agents hanging around casinos, they'd get a mess of tax offenders just listening to their "confessions."
It sucks. So do a lot of other aspects of taxes. It can be changed -- by the legislature -- but not easily, and not likely even then. You know what they say about death and taxes -- but the bright side is you only have to die once.
--BG
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7a. Re: Tax question number 1,565,876
Posted by: melbedewy1226@hotmail.com chicken2692002
Date: Mon Mar 18, 2019 4:53 pm ((PDT))
....
I think it is wrong. The government taxes "income". If you can prove you are a net loser for the calendar year you have no gambling income; regardless of whether you itemize or not.
Income is taxed, not W-2 forms. ...
This is pure sophistry.
Some entry level IRS clerks may be getting away with this nonsense. If someone pushes the issue-and IF they have the proper documentation-this would be laughed out of court. Of course for minimal amounts of money no one wants to go through the trouble, which is what they are banking on.
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Posted by: Barry Glazer <b.glazer@att.net>
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