6a. Fighting the IRS
Posted by: "caseydog73" caseydog73@yahoo.com caseydog73
Date: Fri Jun 5, 2009 6:50 pm ((PDT))Some of you may remember that I posted here a couple of months ago about
receiving a letter from the IRS saying I owe $1,700 for 2007 underreported
gambling winnings.Basically here was the deal:
- The IRS had W2G's in the amount of 38,800.
- My journal showed gambling winnings of 32,000, based on daily sessions. I won
many jackpots, but I had bigger losing days.
- I itemized losses up to 32,000, my real winnings.
...
Should I just re-file everything and make them happy by actually reporting what
THEY consider my winnings are? Or should I try to got to tax court? Do I need a
lawyer for tax court? It that's the case, then I should probably just redo the
forms to make them happy, even though it's not accurate.Any thoughts?
First of all, you should have itemized ALL your losses up to their full amount, even though they are not deductible beyond the amount of your winnings. If you had submitted $150,000 in winnings and $255,000 in losses, even with $200,000 in W2Gs, you would still have owed no tax, but this looks more "honest" than just showing equal winnings and losses. The actual figures are different for you, of course.
Secondly, there used to be (don't know if it's still the case) one level of appeal in the IRS between the first person who you discuss things with and going to court. Make sure that court is NOT your next option, ask about a "supervisor" to discuss the matter further before going to court, to see if that option is still there.
Often that non-court level of appeal is with someone who understands the issue a little better, and who has more authority to accept a compromise too. I might, for the $200, accept a compromise of paying the tax this year in exchange for a letter acknowledging that your methodology is correct and applicable to future returns, but what is acceptable to you is your business. Ask for a face to face meeting with that person, and perhaps take some documentation (such as the previously discussed / shared non-binding letter from the IRS about what constitutes proper record-keeping) to back up the way you did it.
If you're already at that non-court appeal level, and only court is next, I agree that going to court is not fiscally correct, as you will need an attorney to have a decent chance of winning, and you sure don't want to lose. If you really have done it right (and again, not reporting ALL your losses may be an error that weakens your case in court), and think you "have a case" and have a good chance of winning, it might still be worth the expense to you, since (1) the court case will establish a precedent, and (2) you will establish with the IRS that you are a taxpayer willing to fight for what's right, which might make THEM more willing to back down in the future on this and other matters (unless, of course, the IRS wins in court).
Those are my thoughts. This is a tough decison when the amount of tax is small.
--BG
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