OK, lets talk about all methods, I know about, of filing a gambling SESSION for RECREATIONAL GAMBLER and how to alleviate a high W2G amount for daily SESSION reporting and how to file the tax return:
Going to start with an extreme example so the point is better understood. Joe, a recreational gambler, is 80 years old on social security and starts gambling with $500 and wins $200,000 (gets a W2G for $200,000) then Joe has a few drinks, on the same day (in same casino), then losses everything – he loses his $500 plus the $200,000 back to casino ON THE SAME DAY (The same DAY is important as it becomes the gambling SESSION)
OK EXAMPLE:
SAME DAY IN SAME CASINO: Joe starts with $500 to gamble
SAME DAY IN SAME CASINO: Joe wins $200,000 and gets a W2G
SAME DAY IN SAME CASINO: Joe loses all $200,000 plus his initial $500
Now Joe has a dilemma as he lost $500 net e.g. started with $500 & ended with $0 but Joe got a W2G for $200,000 but he put all that money back and lost it all (SAME DAY SAME CASINO)
Most, UNINFORMED accountants would report this as $200,000 gambling income and $200,000 gambling loss (you cannot report a loss of $200,500 as gambling losses cannot exceed gambling income). The accountant seems to think it is required to report the $200,000 W2G and the established losses as the rules seem to indicate that "... individuals must include on their tax returns and pay tax on all income, including all gambling income”
If W2G is reported as $200,000 income then Joe (80 years old on Social Security) has an increased AGI (Adjusted Gross Income) of $200,000 now 85% of Joes social security is taxed and Joes Medicare costs go up $423.41 / month or $5,081 for the year (plus he is taxed on 85% of SS) – YIKES BUT JOE LOST MONEY HOW IS THIS POSSIBLE – this is what is so unfair to recreational gamblers – higher AGI has other costs, with how taxes are calculated, so even if you lose money you pay more money when you gamble– crazy but true.
OK now let’s enter the discussion of Gambling SESSION reporting to resolve this issue and lower Joes taxes:
While Joes $200,000 W2G was income the money was “Recycled” and lost on the same day in the same casino (occurred in same SESSION). The IRS determined in multiple cases that SESSION reporting would be allowed as it would be unfair to the taxpayer to have a higher AGI for an event that occurred in a same day SESSION. I will refer to these cases below – but this subject is well documented.
Now using SESSION reporting Joe can report ZERO $0.00 W2Gs on LINE 21 and ZERO $0.00 Loses – nothing to report, thereby Joe SS is not subject to taxation, but Joe must reference WHY he did NOT report the $200,000 W2G or the IRS is almost certain to send Joe a letter – IRS keeps track of W2G income and if a tax payer does not report the W2Gs – IRS computers will flag Joe as not reporting his $200,000 of income.
Now enter the complicated nature of Gambling SESSION filing of your tax return and accepted methods on how to prepare the return.
Above EXPERT MarkK1 says to report gambling SESSION amounts using a reference on other reportable income “Revenue Procedure 2015-X” – see her post above for details – using this SESSION method you would report the W2G $200,000 as income then under other gambling income put a NEGATIVE (-$200,000) netting the gambling income to $0 and referencing session reporting “Revenue Procedure 2015-X”. This would solve Joes AGI problem and no increased taxes from gambling but I do not think the IRS ever finalized the 2015-21 procedure and from reading from two gambling tax experts (I am talking about gambling tax experts not the TurboTax experts)
Let me clarify about the safe harbor act for gambling SESSION report using “Revenue Procedure 2015-X” – this was proposed as IRS NOTICE 2015-21 and others have mentioned it in these discussions. My comments on this are that when the IRS proposed 2015-21 they asked the casinos if they could provide detailed daily session records, for players using a players card as this would have required the casinos to keep and provide these daily records in event the IRS wanted to audit the gambler. The IRS NOTICE 2015-21 reporting also required the player to be playing with a player’s card. Now, the casinos, with their attorneys screamed and kicked and said this was almost impossible – they had comment meetings in Las Vegas where casino attorneys presented why the burden of a casino reporting detailed player card daily records was unreasonable. So, my understanding is that the IRS 2015-21 was never finalized.
Now I am going to list what I think is the best way for Joe to report this gambling SESSION based on information I have read from two well know gambling tax accountants:
Joe would not report any gambling income or loss but would attach FORM 8275 along with his gambling session LOG with the following language:
FORM 8275 Language = "My reported gambling winnings don't match the W-2G total because I used session accounting to arrive at the total for winnings, as per Chief Counsel Memorandum 2008-011 and Shollenberger v Commissioner, which established that wins and losses should be tracked by session, and that 'The Form W-2G that reported their gross winnings from the $2,000 jackpot should not be reported on line 21 as $2,000"
The gambling accountants also recommend Joe attach his daily log so the IRS can see how the daily log shows the session was reported correctly. Some say include the daily log others say to only provide the log if they request it later.
I had another accountant recommend you also report the $200,000 W2G as gambling income then for other gambling income you put a NEGATIVE (-$200,000) – it nets the number to $0 for gambling income but then you could also make a note “SEE FORM 8275” – this requires overriding the tax program and may be very difficult to do and I only mention it as an additional reference – NOT REQUIRED.
On a final note – even if you report using the SESSION method the gambling accountants say you probably will get a letter from IRS about the missing $200,000 W2G (this gets generated by their automated computers) – you answer the letter referring to the FORM 8275, which you filed, and that clearly states you are using the accepted SESSION method of filing.
The link below references all cases, accountants, opinions, etc. on this very complicated subject – you have to read it from top to bottom to find the part you might be looking for but the information on SESSION reporting is very detailed and explained with all references to sources.
https://easy.vegas/gambling/taxes
