|
US
Court Rules Not Reporting Gambling Activity When Net is a Loss is a Crime
By Yolanda Smulik-Roche, E.A. and Roger C. Roche, E.A.
Over
the years we have tried to inform the gaming public that they must report the
total amount their winning sessions separately from their total losing sessions
when filing their annual Federal income tax return Form 1040. You are not allowed
to net your winnings and losses and if the result is a net loss, fail to report
either. You think, "why should I report anything my net is zero (or negative,
an overall loss) so there will be no effect on my total income tax since I can
only deduct losses to the extent of winnings" Read the following recent
court case and you will know why you had better start reporting these losing
years.
In
a decision rendered by a Federal District Court, it ruled that a false return
was a crime, though there was no tax deficiency. The case involved, of all people
a Superior Court judge in the Arizona court system until his indictment for
filing false federal income tax returns. A compulsive gambler, didn't heed his
accountant's advice to report both gambling winnings and losses. In years that
gambling losses exceeded winnings, he reported neither gambling gains nor gambling
losses. In other years, he reported only the small gambling winnings reported
to IRS on Forms W-2G.
This
taxpayer was convicted in a Federal District Court jury trial on the filing
a false return charge. The taxpayer had argued against conviction because he
owed no tax on his gambling activities — he had just netted losses and winnings.
The jury found him guilty of the crime of filing a false return which was recently
upheld by the Ninth Circuit Court of Appeals.
This
is a shocking case because we suspect there are many gamblers who do the same
thing, only claim winnings if they are reported to the IRS on a W-2G, "Certain
Gambling Winnings", then offset that amount with losses of an equal amount.
The rest of their gaming activities do not get reported because of the faulty
premise that it does not matter because there is enough losses to offset the
winnings that were not reported to the IRS. In the years that they do not receive
a W-2G, they, as did the judge in the case above, do not report either their
winnings or their losses.
The
IRS taken a very hard line in this case. Probably because of the status of taxpayer,
it would make such a good news article. They like to make examples out of high
profile taxpayers, hoping the publicity will act as a deterrent. But do not
get me wrong, they will and can do it to anyone.
What
makes this case a criminal offense rather than a lesser violation of the tax
laws. Let’s examine the elements of the false return offense under IRC Section
7206(1), which are:
1.
Defendant signed a return that was incorrect as to a material matter;
2.
The return was made under the penalties of perjury;
3.
The defendant didn't believe the return to be true as to every material matter;
4.
The defendant signed the return with the specific intent to violate the law.
These
elements were present here. The material incorrectness results from the failing
to report the winnings which would increase your adjusted gross income which
determines the phase out values for certain itemized deductions and other tax
breaks. Every return you sign, in the fine print it you have declared "Under
penalty of perjury, I declare that I have examined the return and accompanying
schedules and statements, and to the best of my knowledge and belief, that the
are true, correct and true". Even if you have your return prepared
by a preparer, it does not effect This declaration you, as the taxpayer, signed
under penalty of perjury. The argument that the net loss from gambling would
not effect the amount of tax. In this case court ruled that "Whether there
was an actual tax deficiency is irrelevant because the statute is a perjury
statute."
IRS
instructions on reporting gambling gains and losses aren't ambiguous. Gains
go on Form 1040, line 21. Losses go on Schedule A, line 27. Gambling losses
aren't subject to the 2 percent floor, or the overall limit on itemized deductions.
The IRS Publication 529 (1998) Miscellaneous Deductions says "You
cannot reduce your gambling winnings by your gambling losses and report the
difference. You must report the full amount of your winnings as income and claim
your losses (up to the amount of winnings) as itemized deductions.".
So
we hope this case will motivate those of you may be doing the same thing to
report all your gambling activities, even when your loses are limited to your
winnings to you too could be facing criminal charges in the near future. And
as always, we hope have more wins than losses. Good luck and keep that diary.
***************
Yolanda
Smulik Roche, E.A. and Roger C. Roche, E.A. are tax consultants specializing
in the tax issues that face professional and recreational gamblers, casinos
and cardrooms. Their firm, R.B.S. Tax Services, represents clients nationwide.
Visit their web site http://www.rbstaxes.com.
If you have a question regarding the tax laws and regulations as they apply
to gaming that you would like answered, please mail your question to: R.B.S.,
PO Box 60908, Sunnyvale, CA 94088-0908, or e-mail it to questions@rbstaxes.com.
We will keep your identity confidential. If you would like to utilize
our professional services or order our book, The Tax Guide for Gamblers, please
call (800) TAX-7271 (We accept all major credit cards).
Check out AnteUp's other Articles in the Archives
|
