I retract my earlier post stating that I hoped the IRS would strike a deal, because we don't want the gamblers who keep the game alive getting discouraged -- I forgot, when I was posting, that he didn't just under-report or non-report income, but falsified his tax ID in an attempt to completely evade taxes.
I agree with those who said that the IRS will not be sympathetic to such a situation. I suspect he will not only receive a substantial tax bill, but a criminal conviction for tax evasion, rarely pursued (according to my friend in the IRS collection division) except in cases of clearly intentional fraud / evasion - as is obviously the case here.
I also agree with those who feel it's not right that the state taxes that don't allow gambling losses to offset gambling winnings - but I'm not too optimistic about any states changing it. Until there is a significant number of taxpayers facing this problem every year, the legislatures can ignore the unfairness / irrationality of the state approach, and just take the money and run.
The good news is, with gambling becoming available in more and more states and with more and more people entering this arena, that the "significant number" might occur at some time in the future.
I wonder if the states with legalized gambling will be more sympathetic to this approach to taxes -- I doubt it; I know in Indiana, the state income tax is immediately withheld (and shown as such on the W2G) by casinos, without an option for the player to say "no, I'll take care of the tax when I file".
--BG
···
=============