The popularity of slot machines baffles me. It looks about as fun as feeding a parking meter, except you can do it all day and you get nothing as useful as a parking spot out of the experience.
Obviously others see something in it that I miss. Terri and Austin Hartsook of Maryland, for example. They were hit with over $225,000 in taxes and penalties for failing to properly document their losses at the slots. The IRS determined their gross winnings based on W-2Gs, which have to be filed for any jackpot starting at $1,200.
The nasty part is that there is no equivalent requirement to report losses to the IRS. The gambler is on his own. While it is almost a mathematical certainty that the Hartsooks lost more at Harrah's and the other casinos than they won, they failed to adequately document their losses, so the Tax Court allowed the IRS to count just the winnings.
Russ Fox, the maven on gambling taxes, has sage advice for slots players:
A contemporaneous logbook would have been a good start. If they belonged to Harrah's slot club, they should have gotten a printout of their wins and losses. (Of course, they'd also have to claim the gambling wins that were not shown on W-2G's.)
If you think it's hard to document your losses at slots, just imagine the problems that Iowa's slottery players will have. Perhaps Kum & Go will let folks use security tapes to help reconstruct their losses.
Cite: Hartsook, T.C. Memo 2006-205
Interesting footnote: the taxpayers were represented by tax blogger Stuart Levine. As far as I know, this is the first Tax Court case involving an active blogger. Presumably Mr. Levine can't blog about it, but it shows an advantage bloggers have. When Mr. Levine talks about the Tax Court, remember - he's been there.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to