Overlooked IRS plan would help gamblers, tax pro says
While the casino world focuses on fighting an IRS idea to track slot jackpots starting at $600, a little-noticed companion proposal would benefit gamblers, a tax expert says.
The proposed change in Internal Revenue Service procedure would establish a “playing session” concept, which could allow players to report less gambling income on their tax return than what is listed on a W2-G the casino issues to jackpot winners and the IRS.
“The IRS is actually doing something that's taxpayer-friendly with the session method,” says Marissa Chien, co-author of “Tax Help for Gamblers” (Huntington Press) and president of Advantage Tax Plus accounting firm in Nevada.
“That's what is getting lost in all this $600 nonsense.”
Chien is an Enrolled Agent, one of about 11,000 federally licensed tax specialists who is allowed to represent taxpayers before the IRS. Her 300 individual and corporate tax clients include professional gamblers whose W2-Gs total hundreds of thousands of dollars each year. She also plays poker and video poker.
Since March, the IRS has been criticized by casinos and gamblers outraged that the agency said it is considering reducing the threshold for reporting slot jackpots to the government. Under a rule in effect since 1977, a casino must issue a W2-G for a slot jackpot of $1,200 or more; the IRS said it might reduce the limit to $600.
That proposal drew more than 14,000 comments on the IRS website, and more than 10,000 people signed an American Gaming Association petition protesting the idea. The $600 suggestion is mentioned in a proposed regulation to “update and simplify” rules for businesses paying slot, keno and bingo winnings.
The many strong arguments from players and the industry might kill the $600 idea, but Chien hopes a separate proposal — this one a “revenue procedure” — will be adopted. The procedure, detailed in IRS Notice 2015-21 , endorses the session concept that Chien and video-poker guru Jean Scott championed in “Tax Help for Gamblers,” first published in 2007 and now in its third edition.
Essentially, that approach would allow a gambler who keeps good records to report a session's net result rather than the W2-G total.
“You may hit $5,000 in W2-Gs but only win $1,000 for the day,” Chien tells Player's Advantage. “So you record only $1,000 winnings for that one day (on your tax return).
“I think the IRS is trying to alleviate a lot of the burden on gamblers because they realize that just because you hit a W2-G doesn't mean you get to keep that money.”
Such a change would help all gamblers. Now, getting even one W2-G presents what Chien calls a gambler's conundrum, especially for those who play back all or most of their winnings. Under current rules, they're left with two unappealing options at tax time. They can add the full amount of the W2-G to their income, which could cost them in many ways by artificially inflating income. Or, they could report the true session outcome and run the risk of having to defend it in an audit.
“I think the regulators are trying to ease the burden on taxpayers,” Chien says.
“When you have a lot of W-2Gs and you still end up losing it all anyway, it really, really distorts your taxes, especially with all the new Obamacare taxes.”
The proposed IRS “safe harbor” procedure defines a session as continuous play on similar types of machines in one casino within a calendar day. It specifies that gains or losses from separate sessions may not be netted against each to determine overall gain or loss.
Taxpayers are supposed to report all gambling winnings as income. Those who itemize deductions may claim losses up to the amount of their winnings.
“This (casino industry) is not built on winners,” Chien says. “All those shiny buildings are not built because people are winning and hiding their winnings.”
Like many, she says the IRS should raise the slot-reporting threshold because of inflation since 1977. Regardless of the outcome of that proposal, she's hopeful about the safe harbor procedure.
“Everyone's so focused on these proposed regulations that they're totally ignoring this (safe harbor) notice,” Chien says. “That's what's really going to create some relief for the taxpayer.”
Mark Gruetze is administrative editor for Trib Total Media. He can be reached at 412-320-7838 or email@example.com.