"misscraps" Wrote:
The first thing we got was a CP2501 letter listing apparent discrepancies in
our return (from what was reported to the IRS and what we reported). The 2
major problems were a larger W2G total than we listed (because we using
winning and losing sessions and our winning sessions were less than the W2G
totals). The other thing was that 1099s for gambling-related income (such as
drawings) were not on a separate line (we'd lumped them in with gambling income).
Linda Boyd Wrote:
In May of 2002 I received the less than joyful "We Are Proposing Changes To Your 2000 Tax Return" from the IRS. (Note that every heart- stopping word was capitalized, as you see it.)The notice number was CP-2000--I mistakenly thought the 2000 represented the year since, coincidentally, the form number and year were the same. The trigger was the "Gambling Income" W2G's sent to the IRS exceeded the amount I reported. Truly a stupid mistake that was entirely my fault and not my accountant's. One repercussion is my dividend income , accurately reported, was included in the audit, since the combination sent me to a higher bracket.
Long story short, I wrote a cover letter explaining what happened in the simplest terms possible. I did not send them detailed session reports or anything that would possibly convolute the situation. I received a printout of all gambling trip/ session withdrawals from my bank and highlighted/annotated this. I further explained that a more detailed diary with specifics was available if questions remained. (I did have the specifics as described in one of the insets of my book, "The Video Poker Edge", available to the IRS upon request. I chose not to send it to keep things simple--but would have, if they wanted it. I have survived several IRS audits and learned that the less complicated the better. What happens when you send too much information is they end up asking more questions based on the extra information-- "hoist by his own petard" comes to mind.) I'm sure I sent it registered with a return receipt requested--trust the IRS to lose things. (See epilogue.) They accepted my documentation and indicated that it wasn't necessary to send more --I thought it was a story with a happy ending. (I chose to handle the audit myself even though my accountant offered--as a long-time jaded gambler, I figured I could do it.)
Epilogue: A few years later the state of Arizona sent me a letter indicating I had been assessed additional taxes based on the CP-2000 sent to them by the IRS. It never dawned on me to save the resolution papers. I assumed that the IRS would send a copy of the resolution to Arizona, since they sent a copy of the CP-2000 paper audit. I won't go into the details, but it took a long time and several years off my life to straighten things out. The IRS had completely lost/ misfiled the paperwork. The moral of the story is to make sure you keep a copy of the resolution and notify the state where you reside.
As Jean says, gambling taxes are a gray area. Now I play it safe by adding my W2G's to my 1099's and give the aggregate amount to my accountant--this is the amount I use when fading the winnings to loses.
Linda Boyd
Author: "The Video Poker Edge"
www.squareonepublishers.com
Toll Free: 1-877-900-2665
Amazon.com/Bookstores: Stocked or By Order
Best Tutorial Software: WinPoker
www.videopokerpractice.com
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