Let me start off by saying I know this has been asked hundreds of times, and the answers seem to change with each discussion. This year, I decided to hop on the online social casino trend, and I did fairly well considering. I redeemed a little over $180,000, however, I made a little over $90,000 in purchases. The biggest issue I am finding, and even my own CPA is uncertain about, is whether or not the IRS considers this as gambling, therefore, allowing for the purchases to be claimed as a deduction. After speaking with my CPA, and doing mounds of research, I am 80% convinced this would be considered gambling and any purchases could be deducted up to the amount I won. The biggest counterargument I have seen is that these purchases could not be deducted as the "casinos" operate under a very grey area and that the SC is gifted to you when you purchase gold coins. I understand this reasoning, but I feel as though the methods these sites use to operate and the IRS tax code should not be considered the same. Additionally, while not explicitly stated, you must pay to enter the SC promotion and play these games. I will do my best to outline my reasons, and would love it if someone, preferably a tax expert or regular social casino player could chime in.
- Per IRC 165(d): Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions. For purposes of the preceding sentence, in the case of taxable years beginning after December 31, 2017, and before January 1, 2026, the term "losses from wagering transactions" includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction.
The word I am focusing on in this code is wagering. The IRS considers a wager as something with a prize, chance, and consideration. The biggest factor here is the consideration which from what I understand is the actual money spent on the pull of the lever. These social casinos use games of change, which need a wager placed to be given an unpredicted outcome of winning more SC which is cash. Most of these sites have a disclaimer that reads "NO PURCHASE IS NECESSARY to enter free game promotion." The "free game promotion" would be considered gold coins, and not the sweep coins. The IRS does not allow deductions on "no purchase necessary to win" based on an NATIONAL OFFICE TECHNICAL ADVICE MEMORANDUM :CASE-MIS No.: TAM-145576-03, CC: ITA: B01. The memorandum is from 2003 and refers to entering a sweepstakes through means of the radio and calling in for the word of the day. This I understand, the tax paper was stating the postage fees could be deducted, which they could not be. However, things have changed drastically since 2003, and this is not a case of winning a sweepstakes from Better Homes & Garden.
If anyone has any ideas, recommendations, or personal experience, I would greatly appreciate any help. Thanks!
