vpFREE2 Forums

re our IRS problem - Cash Back Issue

#1

In a message dated 11/18/2006 5:45:08 A.M. Central Standard Time,
harry.porter@verizon.net writes:

Since either of these are strictly contingent upon play, I see their
economic value as being little different than cashback in nature --
which if accurately accounted for, likely should be recorded as
gambling income.

I do believe that cash back is different than 1099 income. I understand that
some include cash back in their diary numbers and some do not. Cash back is
of course a fixed amount based on your play and I was under the impression,
that cash back is a rebate of a part of your expenditure and therefore not a
taxable event.

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

#2

Jaycee5351 wrote:

I was under the impression, that cash back is a rebate of a part of
your expenditure and therefore not a taxable event.

I've seen the rebate argument put forth before. However, a rebate is
seldom treated as a non-taxable event when part of a transaction that
has tax consequences.

For example, if you buy a car and receive a rebate, the rebate is
clearly not taxable when the car is for personal use and no portion of
it is treated as a deductible expense. It is, as you indicate,
treated as a reduction of the purchase price, and not income.

However, if the car is used in business and its cost is taken
(amortized) as a deduction against income, I think one would be hard
pressed to argue that the rebate need not be accounted for.

When the win/loss aspect of gaming has tax consequences, I don't think
there's an argument that cashback is non-taxable. It's very unlikely
that this is a position that could be supported before the IRS.

This might be particularly true in a hypothetical case where play of a
very poor paytable involves an unusually strong cashback rate -- a
situation that might ensure a large reportable loss on the play yet
with a likely cashback amount that can be counted on offsetting the
greater part of that loss. Such an arrangement might otherwise
effectively be tapped as a modest risk tax shelter of other gaming income.

- Harry