@JCAP25
Lubetti discusses casino "comps". The taxpayer reported them as gambling income so he could offset them with losses. The court ruled this was reasonable because the comps would not have been paid except for their connection to his wagers. " The comps are sufficiently related to his gambling losses for purposes of section 165(d). We hold that petitioner’s comps are “gains from * * * [wagering] transactions”under section 165(d)."
Your situation seems to be different. It sounds like a contest of skill, rather than wager. If it is not a wager, the costs are not deductible. (see the bottom for quotes from the court case).
Consider a professional golfer. Their tournament fees, travel, etc. are deductible as schedule C business expenses, not as gambling losses. The pro athlete is not involved in a wager, they are involved in a contest of skill with prizes at the end. If you engaged in this activity with regularity and a profit motive, you might be allowed to treat it as a business.
You know the event better than I do. If you deduct the entry fees and other costs as gambling losses, you would need to show (if audited) that these were wagers, and not a skill contest. And if you deducted the expenses as a business, you would need to show the IRS that it really was a legitimate business.
https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax...
From Lubetti:
Section 165(d) provides that an individual may deduct his or her “Losses from wagering transactions * * * to the extent of the gains from such transactions”. Neither the Code nor the regulations define the phrase “gains from such transactions”. We apply the “plain, obvious, and rational meaning.” Liddle v. Commissioner, 103 T.C. 285, 293 n.4 (1994), affd. 65 F.3d 329 (3d Cir. 1995); see also Boyd v. United States, 762 F.2d 1369, 1373 (9th Cir. 1985) (sec. 165(d) interpreted according to its “ordinary meaning”).
According to Webster’s New World Dictionary 551 (3d coll. ed. 1988), the primary meaning of the word “gain” is “an increase; addition; specif., a) [often pl.] an increase in wealth, earnings, etc.; profit; winnings”. (Brackets in original.) A primary meaning of the word “from” is “out of; derived or coming out of”. Id. at 542. The word “wager” means “bet”, id. at 1500, which, in turn, connotes “an agreement between two persons that the one proved wrong about the outcome of something will do or pay what is stipulated”, id. at 133. The word “transaction” is the noun of the infinitive “to transact”, which means “to carry on, perform, conduct, or complete (business, etc.)”. Id. at 1419.
