vpFREE2 Forums

Help! IRS says I owe money

#1

Has anyone else dealt with this problem?:

- In 2007, I kept a pretty good gambling journal, which showed winning days totalling about 32K and losing days about 38K. I filed a 1040, noting the 32K in earnings but itemizing 32K (only up to my winnings).

- Well, today I receive a letter saying I owe $1,700! They added up the W2-G's and it comes to 38K, above the 32K I reportedly won. This part is true, HOWEVER, they only see teh w-2G's and not the losses that came immediately after being paid those jackpots. I mean, it's possible to win a 4K royal jackpot and then within hours blow that entire sum back playing $5 VP. So net for that day is zero, not 4K.

I can file a response, they say, with documentation. Should I file my complete journal for that year with an explanation on the cover sheet? Or can I take it to an IRS office?

Or am I screwed?

Help!

Thanks.

#2

Has anyone else dealt with this problem?:

- In 2007, I kept a pretty good gambling journal, which showed winning days totalling about 32K and losing days about 38K. I filed a 1040, noting the 32K in earnings but itemizing 32K (only up to my winnings).

- Well, today I receive a letter saying I owe $1,700! They added up the W2-G's and it comes to 38K, above the 32K I reportedly won. This part is true, HOWEVER, they only see teh w-2G's and not the losses that came immediately after being paid those jackpots. I mean, it's possible to win a 4K royal jackpot and then within hours blow that entire sum back playing $5 VP. So net for that day is zero, not 4K.

I can file a response, they say, with documentation. Should I file my complete journal for that year with an explanation on the cover sheet? Or can I take it to an IRS office?

Or am I screwed?

Help!

Thanks.

I'd just tell them what you did. Tell them that, since you
misunderstood what you were supposed to include as your income, you
didn't include the total of your w-2gs, as you should have. That your
original deduction was limited to what you stated as your income
should give you a credible reason to deduct the higher amount,
although, not being a tax professional, for all I know, you can't. It
sounds like you hit $38,000 in jackpots and lost $44,000 besides them.
Tell them that. I think it's likely that they'll accept that
explanation without you having to show details of your plays. I know
of many people who were originally told they owed far more than you
did because they didn't report all of their w-2gs in their income and
none of them ever ended up owing anything once what they did was made
clear to the IRS. Many people are far more stressed than they should
be by the first amount that the IRS says they owe.

#3

There was an IRS opinion by their legal council published in Dec 2008 that states that for the casual gambler session reporting was okay. It stated that it couldn't be used as a precedent but that didn't make any sense. I plan to file using the session method and enclose a copy of the regulation with my taxes.
Jean published a copy of the reg here about 1-2 weeks ago. If you can't finds and want a copy e-mail me privately.

Has anyone else dealt with this problem?:

- In 2007, I kept a pretty good gambling journal, which showed winning days totalling about 32K and losing days about 38K. I filed a 1040, noting the 32K in earnings but itemizing 32K (only up to my winnings).

- Well, today I receive a letter saying I owe $1,700! They added up the W2-G's and it comes to 38K, above the 32K I reportedly won. This part is true, HOWEVER, they only see teh w-2G's and not the losses that came immediately after being paid those jackpots. I mean, it's possible to win a 4K royal jackpot and then within hours blow that entire sum back playing $5 VP. So net for that day is zero, not 4K.

I can file a response, they say, with documentation. Should I file my complete journal for that year with an explanation on the cover sheet? Or can I take it to an IRS office?

Or am I screwed?

Help!

Thanks.

[Non-text portions of this message have been removed]

···

Subject: [vpFREE] Help! IRS says I owe money

#4

Thanks! I will just attach a letter with the response explaining that. Rightly or wrongly, I always do my accounting on a daily basis -- I don't know how to do it otherwise. So in a single day, it's quite easy to lose more than the single taxable jackpot that gets recorded ...

···

--- In vpFREE@yahoogroups.com, Tom Robertson <madameguyon@...> wrote:

>Has anyone else dealt with this problem?:
>
>- In 2007, I kept a pretty good gambling journal, which showed winning days totalling about 32K and losing days about 38K. I filed a 1040, noting the 32K in earnings but itemizing 32K (only up to my winnings).
>
>- Well, today I receive a letter saying I owe $1,700! They added up the W2-G's and it comes to 38K, above the 32K I reportedly won. This part is true, HOWEVER, they only see teh w-2G's and not the losses that came immediately after being paid those jackpots. I mean, it's possible to win a 4K royal jackpot and then within hours blow that entire sum back playing $5 VP. So net for that day is zero, not 4K.
>
>I can file a response, they say, with documentation. Should I file my complete journal for that year with an explanation on the cover sheet? Or can I take it to an IRS office?
>
>Or am I screwed?
>
>Help!
>
>Thanks.

I'd just tell them what you did. Tell them that, since you
misunderstood what you were supposed to include as your income, you
didn't include the total of your w-2gs, as you should have. That your
original deduction was limited to what you stated as your income
should give you a credible reason to deduct the higher amount,
although, not being a tax professional, for all I know, you can't. It
sounds like you hit $38,000 in jackpots and lost $44,000 besides them.
Tell them that. I think it's likely that they'll accept that
explanation without you having to show details of your plays. I know
of many people who were originally told they owed far more than you
did because they didn't report all of their w-2gs in their income and
none of them ever ended up owing anything once what they did was made
clear to the IRS. Many people are far more stressed than they should
be by the first amount that the IRS says they owe.

#5

There was an IRS opinion by their legal council published in Dec 2008 that states that for the casual gambler session reporting was okay.

I think just about any method of reporting that's honest and accurate
is ultimately acceptable. But the IRS initially wants to be able to
match what the casinos report to what taxpayers report. Doing that
will usually avoid letters as caseydog got.

#6

Has anyone else dealt with this problem?:

- In 2007, I kept a pretty good gambling journal, which showed winning days totalling about 32K and losing days about 38K. I filed a 1040, noting the 32K in earnings but itemizing 32K (only up to my winnings).

- Well, today I receive a letter saying I owe $1,700! They added up the W2-G's and it comes to 38K, above the 32K I reportedly won. This part is true, HOWEVER, they only see teh w-2G's and not the losses that came immediately after being paid those jackpots. I mean, it's possible to win a 4K royal jackpot and then within hours blow that entire sum back playing $5 VP. So net for that day is zero, not 4K.

I can file a response, they say, with documentation. Should I file my complete journal for that year with an explanation on the cover sheet? Or can I take it to an IRS office?

W2-G's dont't have anything to do with anything. It's the total of your winning sessions against the total of your losing sessions. If you list your winning sessions as the total of your W2'G's against your losing sessions expect those punks to fire you up.

···

--- In vpFREE@yahoogroups.com, "caseydog73" <caseydog73@...> wrote:

Or am I screwed?

Help!

Thanks.

#7

You should be aware of a new memorandum from IRS Chief Counsel. It says in part:

"....The better view is that a casual gambler, such as the taxpayer who plays the slot machines, recognizes a wagering gain or loss at the time she redeems her tokens. We think that the fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount
above or below basis (the wager) realized. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). For example, a casual gambler who enters a casino with $100 and redeems his or her tokens for $300 after playing the slot machines has a wagering gain of $200 ($300 - $100). This is true even though the taxpayer may have had $1,000 in winning spins and $700 in losing spins during the course of play.

Likewise, a casual gambler who enters a casino with $100 and loses the entire amount after playing the slot machines has a wagering loss of $100, even though the casual gambler may have had winning spins of $1,000 and losing spins of $1,100 during the course of play...

http://www.irs.ustreas.gov/pub/irs-utl/am2008011.pdf

Hope this helps.

mrick

···

--- In vpFREE@yahoogroups.com, "caseydog73" <caseydog73@...> wrote:

Has anyone else dealt with this problem?:

- In 2007, I kept a pretty good gambling journal, which showed winning days totalling about 32K and losing days about 38K. I filed a 1040, noting the 32K in earnings but itemizing 32K (only up to my winnings).

- Well, today I receive a letter saying I owe $1,700! They added up the W2-G's and it comes to 38K, above the 32K I reportedly won. This part is true, HOWEVER, they only see teh w-2G's and not the losses that came immediately after being paid those jackpots. I mean, it's possible to win a 4K royal jackpot and then within hours blow that entire sum back playing $5 VP. So net for that day is zero, not 4K.

I can file a response, they say, with documentation. Should I file my complete journal for that year with an explanation on the cover sheet? Or can I take it to an IRS office?

Or am I screwed?

Help!

Thanks.

#8

Even with this improved definition of "session" accounting, it is still probably a good idea to insure that your net win equals or exceeds the total of your W2-G's. If you read the memorandum literally it advises you to recognize a wagering gain or loss when tokens are redeemed. Given that most W2-G type events are immediately paid in cash (and the credits debited from the machine) it seems logical to me (and perhaps this is what the IRS assumes) that a W2-G type event is in and of itself a wagering gain because there has been a conversion from tokens to cash or a check if you choose to go that route.

Assume for example over the course of play at a machine you insert $500 into the machine and manage to hit a $1200 W2-G (a hand pay in cash) then continue playing until the credits go to zero. Rather than count this as a +$700 session, I suspect you would count it as two discrete sessions. A -$500 session indicative of the amount of money exahnged for credits that were all subsequently lost and a +$1200 session, the W2-G event whereby the casino immediately exchanged your tokens or credits for cash.

The above scenario is probably representative of 99%+ of W2-G transactions. For those cases where you are playing at high enough stakes whereby someone makes a hand tally of all W2-G type events without an actual hand pay or redemption of credits for cash, there might be a better case for stating a session win is less than the aggregate W2-G's issued.

SB

···

--- In vpFREE@yahoogroups.com, "mrickcpa" <mrickcpa@...> wrote:

You should be aware of a new memorandum from IRS Chief Counsel. It says in part:

"....The better view is that a casual gambler, such as the taxpayer who plays the slot machines, recognizes a wagering gain or loss at the time she redeems her tokens. We think that the fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount
above or below basis (the wager) realized. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). For example, a casual gambler who enters a casino with $100 and redeems his or her tokens for $300 after playing the slot machines has a wagering gain of $200 ($300 - $100). This is true even though the taxpayer may have had $1,000 in winning spins and $700 in losing spins during the course of play.

Likewise, a casual gambler who enters a casino with $100 and loses the entire amount after playing the slot machines has a wagering loss of $100, even though the casual gambler may have had winning spins of $1,000 and losing spins of $1,100 during the course of play...

http://www.irs.ustreas.gov/pub/irs-utl/am2008011.pdf

Hope this helps.

mrick

--- In vpFREE@yahoogroups.com, "caseydog73" <caseydog73@> wrote:
>
> Has anyone else dealt with this problem?:
>
> - In 2007, I kept a pretty good gambling journal, which showed winning days totalling about 32K and losing days about 38K. I filed a 1040, noting the 32K in earnings but itemizing 32K (only up to my winnings).
>
> - Well, today I receive a letter saying I owe $1,700! They added up the W2-G's and it comes to 38K, above the 32K I reportedly won. This part is true, HOWEVER, they only see teh w-2G's and not the losses that came immediately after being paid those jackpots. I mean, it's possible to win a 4K royal jackpot and then within hours blow that entire sum back playing $5 VP. So net for that day is zero, not 4K.
>
> I can file a response, they say, with documentation. Should I file my complete journal for that year with an explanation on the cover sheet? Or can I take it to an IRS office?
>
> Or am I screwed?
>
> Help!
>
> Thanks.
>