@Anon95 wrote:
Same here! Just got a 1099-K from PayPal for over $100k but I didn't actually win $100k on the gambling site. It was a lot of withdrawls that made the total go so high. Theoretically, I could use PayPal to deposit $500 into the online casino and then immediately use PayPal to withdrawl the same $500, do that 200 times over and reach $100k in withdrawl transactions without ever actually gambling a penny of it. How does the IRS reconcile this? Do we enter the PayPal withdrawls reported on 1099-K as income from online gambling but deduct the PayPal deposits to reach a "net" income?
That's the real problem. If your gambling site says you "won" $10,000 and lost "15,000", that's what you should be reporting on your tax return. But if PayPal issues you a 1099-K for more, because of the churn in the account, how do you report it?
One option that is still consistent with IRS guidelines is to leave the 1099-K off your return, report the winnings under "gambling winnings", report the losses on the deduction page, and file by mail. You would attach a copy of the 1099-K and a letter of explanation as to why you reported a different amount. This would also work if your PayPal account contains different types of income (you mixed your eBay sales and your gambling activities, for example). However, filing by mail is not preferred.
Another option would be to zero out the entire 1099-K. Report the whole 1099-K as other income, then create another item of other income with a minus sign (negative number) to cancel out the 1099-K, and use a reason like "gambling winnings reported elsewhere". Then report the actual winnings and losses as usual. The IRS may or may not send a letter asking for a more detailed explanation.
