New Gambling Forums

[Corduroy Frog]

The conventional taxation of gambling has been quite one-sided - with a demand to report winnings, and no valid way to report losses and get around all the gatekeeping that comes with itemizing.  And now, no "miscellaneous" categories allowed anymore.

Enter new online gambling forums that are popping up in various states.  Tennessee, for one, has new forums that spend so much money on advertising that you've got to wonder whether any of the participants are making winnings.  The technology is so sophisticated that if you are in Georgia and go online, the forum will not respond.

Suppose a $1000 deposit is required.  Over the course of the year, the taxpayer wins $15,000 and loses $10,000.  The host sends him $4000 of the $5000 won, and keeps $1000 on deposit.

At the end of the year, taxpayer receives a 1099-G from the host.  Anyone have any idea what this thing is going to look like?

1. Winnings of $15,000 are reported.  Taxpayer pays on all of the $15,000 income.
2. Winnings of $5,000 are reported.  That is the amount of "net" winnings.
3. Winnings of $4,000 are reported.  That is what the taxpayer received.
4. None of the above.

The stuff is relatively new, and I haven't been immersed in it yet. 

Opinions?  Cites?

 

[Lion EA]

I don't have any gamblers, but research on IRS.gov re gambling session. Suggest your clients keep a gambling log by session as documentation.

[Corduroy Frog]

Thanks Lion, your suggestion is always appropriate.  I suspect that one of the advantages of these new gambling services is they will keep up with all details.

[Abby Normal]

On 6/26/2021 at 10:33 PM, Corduroy Frog said:

Thanks Lion, your suggestion is always appropriate.  I suspect that one of the advantages of these new gambling services is they will keep up with all details.

I suspect they'll just summarize annually, like brick and mortar casinos do, and the gambler needs to be the one keeping track of sessions.

[Corduroy Frog]

Thanks to Lion and Abby - upon further investigation it appears that after 2017 the 2% Miscellaneous Category was eliminated, however the "Other" Itemized Deductions was retained and includes Gambling Losses to the extent of winnings.

Unless something changes, looks like the taxation is still one-sided.  Total amount of winnings are taxable and are NOT netted out against losses.  Losses become an itemized deduction which do not survive unless the taxpayer itemizes.

Look for lobbying on the part of the new gambling forums.  A typical gambler faces risk to begin with, and with the taxation the way it is, that would kill anyone's chances with any common sense.  The gambling forums represent a huge boost to the economy, so I would not be surprised if they bend some ears of legislators.

[JohnH]

They might change the taxation of winnings vs losses at some point to allow netting out , but I wouldn’t bet on it. 

[Lion EA]

Notice 2015-21, I.R.B. 2015-12, March 3, 2015 was proposed as a Safe Harbor for gambling "sessions" that net gambling income with losses within a "session" and referred to slot machines. If you have gambling clients or expect to have gambling clients, I would call the author's telephone number at the end to see if the notice was finalized or superseded by a more recent notice or expanded to include more gambling methods or...

Note that the netting was proposed for discreet sessions within a day and not annual and would require a detailed log or diary.

[Abby Normal]

1 hour ago, Lion EA said:

require a detailed log or diary.

And there's the problem. None of my few gamblers have any interest in keeping detailed logs.

[schirallicpa]

I don't know why I am looking for advise on how to handle gambling reporting - I know!  I continue to get clients every year that bring the annual win/loss statement from the casino and tell me that they don't have to report the 1099 that came with it.  I hate every aspect of gambling, but I especially hate the way the casinos report this win/loss crap - it's always a loss and the client always thinks he's got an out.