According to the IRS, a professional player is classified as a trade or business. To prove that you are a professional player, you must prove that there is a profit motive involved. World leaders in public and management accounting Recently, the fate of professional players prevailed when the Tax Court changed the course of the deductibility of non-gambling business expenses. The May Tax Court (136 T, C.
CASUAL PLAYERS Although Sec. Over the past six decades, the Tax Court has generally followed the Offutt rule, under which courts have applied Sec. In Offutt, the petitioner's main occupation and source of income was to place bets and bet on horse racing. He tried to claim and recover a net loss from these activities against other revenues, arguing that, because gambling was his usual business, he should be treated differently from a taxpayer who carried out such activities for profit, but only sporadically.
The Tax Court noted that the predecessor statute of Sec. In practice, courts tended to interpret “betting gains” to be limited to “betting winnings”, but “betting losses” included non-wagering business expenses and were limited to betting winnings. Non-wagering winnings (e.g. “takeoffs” or table fees paid by players to a casino and sometimes transferred from the casino to an employee, who can also wager) could not be used to offset betting losses.
In addition to takeoffs, sources of income for professional players that do not come directly from their own betting activities may include “tokes” (tips to casino dealers, sometimes in the form of bets placed by players for their benefit) and “comps” (complementary goods and services that a casino provides players). Courts have also addressed the treatment of these sources of income. The taxpayer in Boyd (762 F, 2d 1369 (9th Cir. Under the contract with the casino, he participated in poker games with his own money to stimulate gambling.
The casino gave him a share of the takeoffs as compensation. The IRS and Courts Rejected Boyd's Attempt to Offset His Gambling Losses with His Takeoff Revenues. The Ninth Circuit noted that, because a takeoff is a fee, it is not a profit from bets placed by the casino or the taxpayer. Therefore, Boyd was not allowed to offset the betting losses with his contractual part of takeoffs.
Takeoffs received by taxpayer should be treated as ordinary income, court said. The Bevers Tax Court (26 T, C. The court said that if the taxpayer had been merely an observer and had not taken an active part in the games, he would not have received the tokes. Therefore, tokes are compensation for the payee's services and should be treated as ordinary income.
Also, the Fifth Circuit in Allen (976 F, 2d 975 (5th Cir. Interestingly, a federal district court came to a different conclusion, although it was overturned on appeal (Olk, 388 F. The taxpayer at Olk was employed as a casino craps dealer. Merchants were banned from engaging in unnecessary conversations with casino customers and were required to treat all customers equally.
At the end of each shift, dealers divided their tokes equally among themselves. Occasionally, players could give money to dealers or place bets on them. The district court in Olk ruled that the toke bets given to dealers were not incidents of their services, as the dealers functioned almost like a machine, making such tokes different from traditional tips for personal services. As a result, the court held that such tokes were non-taxable gifts.
In reversing, the Ninth Circuit reasoned that regularity, fair division and daily token receipts indicated that a reasonable dealer would view such receipts as a form of compensation for their services. An exception to the restricted interpretation of betting winnings is compensations. The Tax Court held that the offsets were the taxpayer's earnings from gambling transactions because “profit” is not the only meaning of the word “profit” in Sec. In addition, the court found that, although the taxpayer's receipt of compensation was not directly related to the success or failure of his bets, he received the incident of compensation for his direct participation in betting transactions.
Therefore, the relationship between the taxpayer's compensations and his bet was “close, direct, evident and strong, so that the compensations were sufficiently related to his gambling losses for the purposes of Sec. THE MAYO HOLDING AND ILLUSTRATIONS Tax Court participation in May and acquiescence of the IRS do not change precedent outlook on betting profits. Rather, they simply limit the general interpretations of “betting losses” and make the trading expenses of professional players beyond betting winnings deductible. Based on the examples in the lead counsel's memo, the different non-wagering winnings elements illustrate the Mayo rule in the following scenarios.
Suppose that all players in the scenarios qualify as professional players and that they have no income other than those specified in the scenario. Under participation in May and the acquiescence of the IRS, professional players can fully deduct their trading expenses without wagering beyond the winnings of betting. Non-gambling business expenses may include transportation, meals and entertainment, admission, subscriptions and other charges. In addition, if non-betting expenses exceed betting profits and other revenues, they may result in a net operating loss that can be carried over to previous year's returns or carried over to future years' returns.
Professional players must still justify the amount and business purpose of expenses to ensure their deductibility (Presley, T, C. The IRS agreed to the Tax Court's recent assertion that a professional player in the gambling trade or business could deduct non-wagering expenses in excess of gaming winnings under Sec. To be considered a professional player, taxpayers generally must demonstrate to the satisfaction of the IRS that they engage in gambling as a trade or business rather than casually. The IRS and courts apply nine factors in regulations under Sec.
Betting winnings include betting winnings and “comps” (the fair market value of ancillary goods and services), but not additional income to casino staff in the form of “takeoffs” and “tokes”, which are likely to be considered compensation or other non-wagering income. Tax Advisor and Tax Section The Journal of Accountancy is now fully digital. Be the first to know when the JoFA publishes breaking news on taxes, financial reports, audits or other topics. Select to receive all alerts or only alerts on the topics that matter most to you.
This quick guide guides you through the process of adding the Journal of Accountancy as your favorite news source in the Apple News app. A professional player reports the income of the game in Schedule C. When calculating the trading income from gambling, the individual can void all betting activity, but cannot report a total betting loss. In addition, the person may deduct any ordinary and necessary business expenses, which may include travel and food expenses, legal and accounting fees and subscriptions to magazines or gambling services.
Unlike the rule for recreational players who are non-resident aliens, professional players who are not residents can deduct their gambling losses to offset their gambling winnings. The short answer is yes, but becoming a professional player is not easy or without financial dangers. The game for a living invites you to a lifestyle that can carry significant financial risks, and you should consider that before you start. The provision is intended to clarify that the limitation of losses on betting transactions applies not only to the actual costs of wagering incurred by a person, but to other expenses incurred by the person in connection with the performance of that person's gambling activity.
Even in countries that regulate activities such as sports betting, illegal gaming networks find a way to. However, in determining when a taxpayer's gambling activities constitute an activity or business for the purposes of G. The TCJA, however, put an end to the ability of professional players to deduct non-betting trading expenses above net betting revenues. Therefore, the cost of these unsold tickets should be treated as gambling losses rather than ordinary business expenses, the court held.
Among the requirements to be considered a professional player who participates in the game as a trade or business, the non-profit requirement can easily cause a dispute with the IRS. A history of substantial gambling losses may indicate that the taxpayer did not engage in gambling activities for profit. As a result, professional players were not allowed to generate a net operating loss (NOL) from gaming activities. Now, although there are many people who enjoy blackjack and definitely poker, becoming a professional sports player is one of the most coveted experiences among sports fans.
Therefore, a player would be entitled to exclude the cost of a winning ticket from their associated gross winnings. Therefore, professional players were able to generate an NOL from gaming activities until the TCJA modified Sec. Finally, the IRS has in recent years granted the deductibility of commercial expenses for professional players in several cases (see,. If a taxpayer does not have substantial income from non-gambling activities, this may indicate that the taxpayer participates in gambling for profit.