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Tax Court channels Kenny Rogers

December 29, 2009

Kenny Rogers famously said "You never count your money when your sitting at the table. There'll be time enough for counting when the dealing's done." The IRS has often questioned this advice, saying you should compute your gambling winnings as you go.

Russ Fox reports that the Tax Court is on Kenny's side. The court yesterday favorably quoted this IRS position:

The better view is that a casual gambler, such as the taxpayer who plays the slot machines, recognizes a wagering gain or loss at the time she redeems her tokens. We think that the fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount above or below basis (the wager) realized.

In other words, count your money when the dealing's done. But Mr. Fox, a gambling maven, adds:

There is a major caveat to this decision: You need good records. By far, the lack of backup documentation is what trips us most gamblers in audits. For those gamblers who do keep good records, the Tax Court has given you a very nice belated Christmas present.