greeklandjohnny wrote:
I read most of the summary of this case (
http://www.taxabletalk.com/posts/1201212605.shtml?).
What is most scary about this is the IRS doesn't understand at all
how slot machine gambling works.? Once they saw the cash receipts
from the casino and corresponding W2s, the case should have been
over.
I'm more scared by the IRS's complete lack of understanding than
anything.
I find the case instructive, not scary.
What more is there to expect of the IRS re gambling than it understand
that even in playing a negative expectation game a player can come out
ahead over any given period of time?
The IRS dictates that you report all gambling related income (and
offsetting losses, if you choose) and that you maintain appropriate
records to substantiate your reporting. It has specified that
appropriate documentation is a gaming log.
If you come to a ball court to play a game, bringing your own set of
rules that you deem reasonable, but you're not the one hiring the
refs, don't expect that it's going to do a whole lot of good to become
indignant when the whistle is blown against you.
Documentation of cash withdrawals and markers is dubious documentation
in itself. While you may wish the presumption be made that you
gambled the cash away, there's nothing within those documents to
preclude the possibility you brought home a pile of cash and stuffed
it into your mattress.
A gambling diary is hardly an irrefutable document. Nor is a set of
books for a business, for that matter. However, each represents a
rigorous system for which there's evidence of a diligent accounting
that is more complete than merely holding onto cash withdrawal slips
(although those are not bad backup to the diary to better establish
that entires haven't been contrived).
Casino win/loss statements (not submitted as documentation in this
case) also lack the full substantive value for the IRS to rely upon
them alone. Among other things, there's no fixed instruction against
which the documents must be prepared nor is there any legal penalty
against an intentional misstatement (and, unlike W-2G and 1099
reporting, no copy is submitted to the IRS). Once again, however,
they're not bad backup to one's gambling diary.
I don't read this case as establishing that a gambling diary is now a
dispersible document, in favor of other evidence, as some here would
appear to. Instead, if you fail to maintain a diary and your return
is questioned, you may be required to go to extraordinary lengths to
sustain your return.
As I see it, there were two key pieces of evidence that resulted in a
decision for the taxpayer. Ample evidence that his play was habitual
and expert testimony that established that under the conditions in
which he played it was phenomenally unlikely that the player turned a
profit within any given year. The submitted documentation of gambling
related transactions alone would not be sufficient in absence of this
additional evidence, which was presented only to the tax court.
From the decision:
http://www.ustaxcourt.gov/InOpHistoric/gagliardi.TCM.WPD.pdf
"The voluminous contemporaneous and other documentary evidence, the
corroborating testimonial evidence of an eyewitness to petitioner's
gambling and daily activities during the years in issue and of
petitioner's return preparer, and the testimonial evidence of two
experts in addition to petitioner's testimony substantiate and
establish that petitioner incurred the disallowed gambling losses."
I don't envision that a similar case in the future will be won without
the presentation of comparably exhaustive evidence.
- Harry