1l. Re: IRS news for the Casual Gambler
Date: Mon Jan 26, 2009 11:24 am ((PST))
...
In 2006 I had a net loss from gambling activities. If I sum my
winning sessions separately, let's say they added up to $W. However
the total of my W2Gs for 2006 was nearly three times $W.Method 1: report $W in winnings on 1040, deduct $W in losses on
schedule A.Method 2: report 3x$W in winnings on 1040, deduct 3x$W in losses on
schedule A.Method 2 would have resulted in over $2000 in increased federal and
state tax liability. I chose method 1. You may well ask whether I
still feel I chose correctly, now that I'm being audited. Well, (a)
I might still prevail, and (b) I'm going to have the same issue on
an even larger scale for my 2007 return, so it's probably worth
going through the exercise anyway.
I had forgotten that inflating income and having an offsetting inflation of losses can affect federal filings as well as state; good point for those to whom it applies.
Since you are going thru an audit and anticipate the possibility of another (one does seem to beget another) for the same issue, if you are successful in negotiating any kind of compromise, be sure that, if you're satisfied with it, that the letter agreeing to the compromise details the basis on which it was arrived at and something saying that it establishes a precedent for similar situations for you in the future. That letter can accelerate the audit process if 2007 is also audited; it should allow the same compromise to be applied without the need for a meeting, I would think - or should make the meeting pretty short.
Of course, the alternative is to hold your breath and hope they don't audit you again, and then if you are, produce the 2006 audit results (to the extent that you were satisfied with them) and THEN argue that it's the same story -- and, if you were NOT satisfied with the 2006 outcome, you can start all over again, hoping you are more effective in your arguments or get assigned to an agent who is more receptive to them -- but they WILL have access to the prior audit results, and it's not likely you'll do any better.
And, although the letter under discussion has been identified clearly as not applying to any other situation or establishing precedent, it certainly can be brought to an audit in support of your own arguments.
Final advice from someone who's been audited (although it's been a long time) - if you have the time and some knowledge of the applicable rules and are able to express yourself well, don't be afraid of the audit, of representing yourself at it, and of appealing as high as you can without extra expense (I know there's one automatic level of appeal, and I think another beyond that) -- unless, of course, the amount at stake is high enough to warrant professional representation by a tax attorney or CPA.
--BG
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