Disgraceful IRS Actions (from the NY Times)....

[Saratoga_Mike]

ARNOLDS PARK, Iowa — For almost 40 years, Carole Hinders has dished out Mexican specialties at her modest cash-only restaurant. For just as long, she deposited the earnings at a small bank branch a block away — until last year, when two tax agents knocked on her door and informed her that they had seized her checking account, almost $33,000.

The Internal Revenue Service agents did not accuse Ms. Hinders of money laundering or cheating on her taxes — in fact, she has not been charged with any crime. Instead, the money was seized solely because she had deposited less than $10,000 at a time, which they viewed as an attempt to avoid triggering a required government report.

http://www.nytimes.com/2014/10/26/us/law-lets-irs-seize-accounts-on-suspicion-no-crime-required.html?hp&action=click&pgtype=Homepage&version=HpSum&module=second-column-region&region=top-news&WT.nav=top-news&_r=0

[Greyfox]

That's mind-boggling.
No wonder so many people no longer trust Government agencies.

[Saratoga_Mike]

That's mind-boggling.
No wonder so many people no longer trust Government agencies.

When the NY Times is outraged enough by an IRS tax collection policy to write a front-page article, you know there's a problem.

The bureaucrat behind this policy should be fired. Of course that will never happen. There's no accountability at the IRS. We've learned that over the past two yrs, if we didn't already know it.

[FocusWiz]

Yes. The bank teller said, "Oh, that’s easy. You just have to deposit less than $10,000."

I repeatedly hear people talking about avoiding $10,000 transactions to avoid transaction reporting. What they don't tell people is that the mere avoiding of this reporting is a crime and that banks and credit unions are required to file a Suspicious Activity Report if a transaction involves or aggregates at least $5,000 in funds or other assets, and the bank knows, suspects, or has reason to suspect that the transaction is designed to evade any requirements of the Bank Secrecy Act. The latter part of that statement "or has any reason to suspect" puts the bank in violation if they should have had any reason to suspect (however vague that might be) and did not report these transactions.

I think the fact that somewhat innocent individuals are falling prey to such laws is sad since the law is not intended to protect us from these individuals. However, the article reads like she was trying to prevent these transactions from being reported and that is a crime.

[Greyfox]

When the NY Times is outraged enough by an IRS tax collection policy to write a front-page article, you know there's a problem.

The bureaucrat behind this policy should be fired. Of course that will never happen. There's no accountability at the IRS. We've learned that over the past two yrs, if we didn't already know it.

Accountability in a Federal Agency? Shirley you jest. :D
You'll find a Unicorn before you'll find that.

[FocusWiz]

The bureaucrat behind this policy should be fired. Of course that will never happen. There's no accountability at the IRS. We've learned that over the past two yrs, if we didn't already know it.The "bureaucrat" behind behind this policy is Congress who passed this law to protect us from our enemies.

I agree they should be fired.

[Greyfox]

The "bureaucrat" behind behind this policy is Congress who passed this law to protect us from our enemies.

I agree they should be fired.

Congress may have passed that law, but Government flunkees are expected to use common sense in implementing it.
That didn't happen in this case.

[FocusWiz]

Read the article. She was trying to avoid reporting the transactions. I realize that "ignorance of the law is no excuse" is a bit trite, but when a law is bad, you need to take action to have it changed, not just violate it because you don't like it. The problem is that "write to your Congressman" is futile since he/she is probably out campaigning for re-election and you are probably not a major contributor if you can "hide" your transactions by breaking it into two pieces.

We allowed these stupid laws to be passed assuming they would only affect the bad guys. Now they either need to be changed or we have to live within them. I have been against these laws for about 10 years.

[Greyfox]

There are all sorts of stupid laws on the books.
When they should be applied requires a modicum of discrimination.
For example, in an Iowa city it is illegal for a man to wink at any woman with whom he is unaquainted. :faint:
In New York a license must be purchased to hang clothes on a clothes line.
In Staten Island you may only water your lawn if a hose is held in your hand.
And the list goes on.
Sure the laws are there for a specific reason, and have to enforced with discrimination occasionally.
But in many instances, common sense should be the order of the day.
In this case, a bureaucrat using common sense would not necessitate a need to campaign to have the law changed.
http://tjshome.com/dumblaws.php

[FocusWiz]

Greyfox,

Please don't assume that I am defending the IRS, because I am not. However, they are in a difficult position here. There is a minor difference between the stupid laws you cited and this stupid law. The difference is that most likely none of the crimes you mentioned have a component where they are required to be reported.

The "crime" this woman committed is required to be reported by her bank. Once a crime is reported, the IRS has certain responses they are allowed. They are not a court. They are not a prosecutor. They are not charged with discerning whether or not the woman is a terrorist laundering money, a bettor hiding winnings, a sole-proprietor hiding earnings, or a crime boss sheltering assets. She committed this crime and was hiding money that she could likely prove was none of the above. I understand our individual desires for privacy, but that is exactly what this law invades and what she was trying to protect. In other words, she was committing this crime.

There are lots of stupid acts committed by the IRS in trying to follow the stupid laws that are passed. About 20 years ago, they attacked a high school student for not reporting his "business" income from his newspaper route. If you read the IRS Code, you will find an amendment specifically exempting newspaper carriers under a certain age. Of course this still leaves lemonade stands and babysitters at risk. Given enough time, I have no doubts that they will also come under IRS scrutiny.

[Saratoga_Mike]

Read the article. She was trying to avoid reporting the transactions. I realize that "ignorance of the law is no excuse" is a bit trite, but when a law is bad, you need to take action to have it changed, not just violate it because you don't like it. The problem is that "write to your Congressman" is futile since he/she is probably out campaigning for re-election and you are probably not a major contributor if you can "hide" your transactions by breaking it into two pieces.

We allowed these stupid laws to be passed assuming they would only affect the bad guys. Now they either need to be changed or we have to live within them. I have been against these laws for about 10 years.

I read the article.

"Ms. Hinders said that she did not know about the reporting requirement and that for decades, she thought she had been doing everyone a favor."

NY Times, 10/26/14, page 17 (I have a hard copy; I assume the online version that I linked is the same text).

Frankly, I don't care if she did it intentionally as long as the money is from a legitimate source.

[FocusWiz]

I read the article.

"Ms. Hinders said that she did not know about the reporting requirement and that for decades, she thought she had been doing everyone a favor."

NY Times, 10/26/14, page 17 (I have a hard copy; I assume the online version that I linked is the same text).

Frankly, I don't care if she did it intentionally as long as the money is from a legitimate source.I agree with your last statement since I likewise think this situation could have and should have been avoided.

However, there are plenty of holes in this story since the woman obviously knew there was "paperwork" that could be avoided (from her mother) and asked the teller (tax advisor?) how to avoid paying tax on this money. No one pays tax on money that gets deposited in the bank unless it comes from taxable activities. This, in itself, is a very odd question which should have raised suspicions at the bank.

However, the problem here did not start with the IRS. It comes from the bank. As I alluded to in my earlier comment, they are trying to avoid problems by "having reason to believe" that this woman was trying to avoid reporting $10,000 transactions. They reported her to the IRS. They told the IRS that they suspected her of hiding money.

[FocusWiz]

I agree with your last statement since I likewise think this situation could have and should have been avoided.

However, there are plenty of holes in this story since the woman obviously knew there was "paperwork" that could be avoided (from her mother) and asked the teller (tax advisor?) how to avoid paying tax on this money. No one pays tax on money that gets deposited in the bank unless it comes from taxable activities. This, in itself, is a very odd question which should have raised suspicions at the bank.

However, the problem here did not start with the IRS. It comes from the bank. As I alluded to in my earlier comment, they are trying to avoid problems by "having reason to believe" that this woman was trying to avoid reporting $10,000 transactions. They reported her to the IRS. They told the IRS that they suspected her of hiding money.I need to correct my assertion.

She was not the individual asking about avoiding taxes. That was Army Sgt. Jeff Cortazzo of Arlington, Va. She did say she was avoiding "paperwork" of some kind.

However, that makes it even more an issue that the bank suspected her of a crime and filed a Suspicious Activity Report on someone who had an account with them for such a long time and did not do anything else to raise suspicions.

[TJDave]

If only those posters who never once cheated on their taxes responded this would be a very short thread. ;)

[thaskalos]

If only those posters who never once cheated on their taxes responded this would be a very short thread. ;)
What do you mean? The liberals can't hide any income. Government checks are a cinch to track.

[Greyfox]

If only those posters who never once cheated on their taxes responded this would be a very short thread. ;)

Lots of people don't cheat on their taxes knowingly.

The forms I had to fill out a couple of weeks ago for a small business were of a nature that only a Chartered Accountant could read.
I'm not a CA.
I refuse to hire a CA for what should be a very simple return.
The forms were clearly set up to generate business for other accountants, not laymen such as me.
Did I fill those forms out accurately and honestly?
As near as I could tell yes.
But could they be wrong? Yes.
That doesn't make me a cheater..... nor any of the thousands of others who have difficulties understanding the ins and outs and the loopholes in Tax Law.

[Clocker]

However, that makes it even more an issue that the bank suspected her of a crime and filed a Suspicious Activity Report on someone who had an account with them for such a long time and did not do anything else to raise suspicions.

The article says it was a small local bank that had recently been acquired by a megabank. It sounds like she got crushed by the mindless bureaucracy of the bank and the IRS.

[Saratoga_Mike]

If only those posters who never once cheated on their taxes responded this would be a very short thread. ;)

Speak for yourself.

In any case, the article has nothing to do with cheating on one's taxes. It has to do with power-hungry, abusive civil "servants"/bureaucrats.

Congressional hearings will follow, and they won't be called for by Dems.

[TJDave]

What do you mean?

Ask Diogenes.

[PaceAdvantage]

In the case of the LI candy and cig distributor...how have they not been able to get their money back?

Even if you can prove you had legitimate and legal reasons to deposit the way you deposited, especially if you are a legitimate business, they still don't have to give back the money?

More than a little scary.

[Saratoga_Mike]

In the case of the LI candy and cig distributor...how have they not been able to get their money back?

Even if you can prove you had legitimate and legal reasons to deposit the way you deposited, especially if you are a legitimate business, they still don't have to give back the money?

More than a little scary.

They will receive their money back when Daryl Issa opens a Congressional investigation into this disgusting abuse of power.

[FocusWiz]

In the case of the LI candy and cig distributor...how have they not been able to get their money back?

Even if you can prove you had legitimate and legal reasons to deposit the way you deposited, especially if you are a legitimate business, they still don't have to give back the money?

More than a little scary.This is becoming a major problem. Google "Civil Forfeitures" and you will find quite a few similar tales.

This video would be funny if it weren't so sad:
http://www.youtube.com/watch?v=3kEpZWGgJks

[thaskalos]

The IRS has also been known to confiscate what they consider to be abnormally large amounts of cash that a person might be carrying with him, or in his car...even if the money is declared income. The excuse they cite is that they suspect that a drug deal might be going on. :rolleyes: Of course, you can recover the money through the legal system...frequently at a greater cost than the amount of the confiscated money itself.

[TJDave]

Which begs the question:

Why wouldn't a gambler accept a credit or debit card? ;)

There are very few transactions left where cash is king.

For a reason.

[Tom]

What do you mean? The liberals can't hide any income. Government checks are a cinch to track.

Did you mean to say the way you did?
All liberals are on the dole?

As far as the IRS goes, it is a terrorist organization that serve no benefit to American citizens - only the ruling elite.
The IRS must be abolished and the tax code simplified dramatically.

We cannot allow this Brown shirt group to intimidate real Americans.
Everyone should refuse to pay taxes. Everyone.

[badcompany]

If only those posters who never once cheated on their taxes responded this would be a very short thread. ;)

Horseplayers, for the most part, get screwed on taxes.

If you have a signer, the money is automatically deducted, but, to claim offsetting losses, which most horseplayers have, you have to itemize, and for someone with a day job, itemizing almost never works out better.

[FocusWiz]

Horseplayers, for the most part, get screwed on taxes.

If you have a signer, the money is automatically deducted, but, to claim offsetting losses, which most horseplayers have, you have to itemize, and for someone with a day job, itemizing almost never works out better.Actually, there is some partial help.

Though inadequately explained, the concept of "netting" is generally permitted by the IRS on a per-session (whatever that is) basis.

[badcompany]

Actually, there is some partial help.

Though inadequately explained, the concept of "netting" is generally permitted by the IRS on a per-session (whatever that is) basis.

Unless things have changed, you still have to itemize. That's not the case with, say, stock market capital gains, where only a Schedule D is required.

Moreover, there's no 3k loss allowance as there is with Capital Gains. So, Uncle Sam wants to be your pal when you cash a big ticket, but gives you the cold shoulder when things are going badly.

[badcompany]

Lots of people don't cheat on their taxes knowingly.

The forms I had to fill out a couple of weeks ago for a small business were of a nature that only a Chartered Accountant could read.
I'm not a CA.
I refuse to hire a CA for what should be a very simple return.
The forms were clearly set up to generate business for other accountants, not laymen such as me.
Did I fill those forms out accurately and honestly?
As near as I could tell yes.
But could they be wrong? Yes.
That doesn't make me a cheater..... nor any of the thousands of others who have difficulties understanding the ins and outs and the loopholes in Tax Law.


Having done a few years of tax prep for HR Block, I don't consider myself an expert in taxes, but I know my way around the forms.

From what I've seen, there are so many clauses, qualifiers and exceptions, even the people who work for the IRS and the state agencies get confused on occasion.

[davew]

Did you mean to say the way you did?
All liberals are on the dole?

As far as the IRS goes, it is a terrorist organization that serve no benefit to American citizens - only the ruling elite.
The IRS must be abolished and the tax code simplified dramatically.

We cannot allow this Brown shirt group to intimidate real Americans.
Everyone should refuse to pay taxes. Everyone.


could have been implying they work for government agency because many on the dole get EBT cards


the only thing worse with this article would be if it was discovered these people donated to a republican campaign

[FocusWiz]

Unless things have changed, you still have to itemize. That's not the case with, say, stock market capital gains, where only a Schedule D is required.

Moreover, there's no 3k loss allowance as there is with Capital Gains. So, Uncle Sam wants to be your pal when you cash a big ticket, but gives you the cold shoulder when things are going badly.Things are constantly changing. Eva Rosenberg is an enrolled agent and this article discusses the concept of netting in somewhat lay terms. Basically (with proper record keeping) each "session" (undefined) stands alone. Winning sessions are reported on page 1 and losing sessions are reported on Schedule A. Each wager does not need to be looked at separately. In other words, a $3,000 win where you put it all back into the machine during the same day while trying to make it bigger, does not need to be reported as a $3,000 win on page 1. She refers to these "sessions" as a "day" which does make a lot of sense, but many folks at the casinos are there all night and I see a lot of folks playing Australia and Hong Kong and then starting with London and the east coast of the United States.

http://taxmama.com/tax-quips/netting-gambling-losses/

[FocusWiz]

For anyone who is really interested in this, here is the original memorandum published by the IRS Office of Chief Counsel. In this very simple example, they treat a session as from the time the taxpayer gets her chips to when she cashes them in at the end of the day. In other words, they treat each day as a session and it goes from cash in to cash out. I have seen lots of other opinions as to what constitutes a "session" but there have been (to my knowledge) no court cases that would say that a day playing multiple games at multiple casinos (or multiple tracks, for that matter) constitutes a single session or many sessions. I have seen at least one author insist that a "session" consists of one game at one table, but I have not seen anything from the IRS supporting that.

This is fairly easy reading for something from the IRS:
http://www.irs.gov/pub/irs-utl/am2008011.pdf

[Stillriledup]

The IRS has also been known to confiscate what they consider to be abnormally large amounts of cash that a person might be carrying with him, or in his car...even if the money is declared income. The excuse they cite is that they suspect that a drug deal might be going on. :rolleyes: Of course, you can recover the money through the legal system...frequently at a greater cost than the amount of the confiscated money itself.

Its amazing how we elected politicans who passed laws that say you're not allowed to have money and the "authorities" can just take it if they feel like it. Its amazing to me how they don't just set up a check point at America's most busy roads and stop cars and check everyone and take their cash. They could set up a big road block into and out of Vegas and just take everyone's money, they're missing a big payday.

[Ocala Mike]

Its amazing to me how they don't just set up a check point at America's most busy roads and stop cars and check everyone and take their cash.





They already have this in place and we're so used to it we accept it; it's called the withholding system.

[AndyC]

For anyone who is really interested in this, here is the original memorandum published by the IRS Office of Chief Counsel. In this very simple example, they treat a session as from the time the taxpayer gets her chips to when she cashes them in at the end of the day. In other words, they treat each day as a session and it goes from cash in to cash out. I have seen lots of other opinions as to what constitutes a "session" but there have been (to my knowledge) no court cases that would say that a day playing multiple games at multiple casinos (or multiple tracks, for that matter) constitutes a single session or many sessions. I have seen at least one author insist that a "session" consists of one game at one table, but I have not seen anything from the IRS supporting that.

This is fairly easy reading for something from the IRS:
http://www.irs.gov/pub/irs-utl/am2008011.pdf

You might want to check out this article paying attention to the discussion of "session" near the bottom. http://www.gambling-law-us.com/Articles-Notes/Gambling-Session.htm

[badcompany]

Here's a heartwarming tax story:

I get a letter from the NYS Dept of Taxation saying that I didn't pay the amount I owed for this past year. I disagreed, and a copy of the cancelled check for the amount due, which the state had cashed, quickly put an end to the debate.

Now, if I made a mistake that amounted to a false accusation being made about someone and I cost that person time to effort to clear his name, my instinct would be to apologize.

New York state's version of that apology was a letter telling me that the matter would not be pursued further.

Gee, thanks.

[Tom]

Gee, thanks.

You're velcome.

[Greyfox]

Here's a heartwarming tax story:

.

I stopped reading right there.
There is no such thing as a heart warming story from the IRS. ;)

[AndyC]

I stopped reading right there.
There is no such thing as a heart warming story from the IRS. ;)

The notice from the IRS has been known to increase acid reflux which certainly can create heat where your heart is located.

[FocusWiz]

You might want to check out this article paying attention to the discussion of "session" near the bottom. http://www.gambling-law-us.com/Articles-Notes/Gambling-Session.htmI would say that I strongly disagree with him, but he is entitled to his opinion. The most cautious way of dealing with it would be to treat a single game at a single table as a session as he indicates (which the IRS Memorandum did not indicate). The more liberal view offered by Eva Rosenberg that a day is a session is more in line with the memorandums and court cases to date which often talk about "visits" without regard to the type of wager nor whether it was at a table or a machine.

The reason I emphasize this is that for modern track players, a "session" may more reasonably be assumed to be a day's play through your ADW rather than each race or each track (or each wager type; superfecta, double, exacta, straight etc). If I ever meet Mr. Fox, I will certainly explain to him why he is being overly cautious in his definition and will provide him with the proper interpretation of the court cases he has obviously not understood.

[badcompany]

The notice from the IRS has been known to increase acid reflux which certainly can create heat where your heart is located.

As I said earlier, I did Tax Prep for HR Block and know what to expect, but, for those not used to it, it's a nightmare.

[AndyC]

I would say that I strongly disagree with him, but he is entitled to his opinion. The most cautious way of dealing with it would be to treat a single game at a single table as a session as he indicates (which the IRS Memorandum did not indicate). The more liberal view offered by Eva Rosenberg that a day is a session is more in line with the memorandums and court cases to date which often talk about "visits" without regard to the type of wager nor whether it was at a table or a machine.

The reason I emphasize this is that for modern track players, a "session" may more reasonably be assumed to be a day's play through your ADW rather than each race or each track (or each wager type; superfecta, double, exacta, straight etc). If I ever meet Mr. Fox, I will certainly explain to him why he is being overly cautious in his definition and will provide him with the proper interpretation of the court cases he has obviously not understood.

Please cite some of the court cases that you refer to.

In your view, why not call the entire month of October a "session"? How about entire meets? I could see calling the play of one track a session but to say that your play at Santa Anita is somehow linked to Belmont does not logically follow.

[Spiderman]

Its amazing how we elected politicans who passed laws that say you're not allowed to have money and the "authorities" can just take it if they feel like it. Its amazing to me how they don't just set up a check point at America's most busy roads and stop cars and check everyone and take their cash. They could set up a big road block into and out of Vegas and just take everyone's money, they're missing a big payday.

The police are beating the IRS to the punch, read this:

http://www.washingtonpost.com/sf/investigative/2014/10/11/cash-seizures-fuel-police-spending/

[Greyfox]

The police are beating the IRS to the punch, read this:

http://www.washingtonpost.com/sf/investigative/2014/10/11/cash-seizures-fuel-police-spending/

That article brings to mind what happened in the mid 1930's in Germany.
Guilty without trial.

[Spiderman]

That article brings to mind what happened in the mid 1930's in Germany.
Guilty without trial.

And widespread abuse of power.

[FocusWiz]

Please cite some of the court cases that you refer to.

In your view, why not call the entire month of October a "session"? How about entire meets? I could see calling the play of one track a session but to say that your play at Santa Anita is somehow linked to Belmont does not logically follow.I am traveling this week, but will try to reply when I can. Basically, my position (and the position of most knowledgeable tax professionals) is that you cannot likely treat a session as extending beyond a day, but that you are not required to slice it into the different wagering options at a casino as Mr. Fox describes. Here is the court case that interestingly occurred some time while they were writing their Chief Counsel opinion:

http://www.ustaxcourt.gov/InOpHistoric/LaPlante.TCM.WPD.pdf

The key points I take from this case are that they never discuss what the wagers were. The taxpayer travelled to the casino, spent a day or two gambling and received W-2Gs and sometimes courtesy compensation from the casino. The taxpayer's attorney attempted to report only $4,000 net winnings and deducted $4,000 on Schedule A for her losses. The taxpayer also took the position that a session is not complete until she decides to leave the casino (after a day, a weekend or even a week). Here was the rationale:Applying her theory to her own situation, petitioner
determined her $4,000 in gambling winnings and losses for 2004 in
the following manner. Petitioner claims that on only one
occasion in her 25 to 30 visits did she leave the casino with
more money than she brought. On that one occasion, she won a
single jackpot of $8,000 on Monday, August 30, 2004, of which
Foxwoods held back 25 percent or $2,000 for petitioner’s Federal
income tax withholding. Petitioner claims she gambled and lost
$4,000 of the winnings, and left the casino with the remaining
$2,000. Consequently, according to petitioner her one net win of
$2,000 plus the $2,000 in withholding represents her sole
gambling winnings for the year totaling $4,000.Interestingly, the IRS did not challenge this, so much as the taxpayer's recordkeeping. Also, this is one of the cases I refer to where it talks about "visits" since the IRS maintains that the taxpayer did not document which "visits" resulted in a net win or a net loss (nor the amount of that win or loss). The concept of a "visit" as being comparable to a "session" is what I believe Mr. Fox is missing.

Nowhere in the document is there any discussion of the type of machine she played nor any discussion of further demarking of a "session" other than a visit. Though vague (as I have variously indicated above), the IRS concedes that had proper records been kept, they would have accepted a per session determination of wins and losses, but they do not define this session here any more than they did in the memorandum. They also do not specifically address the taxpayer's contention that some of her "visits" lasted a week. However, I believe it is Barba vs United States (1983??) where the IRS specifically eliminated the idea that an entire year could be treated as a "session."

If I get time later I will try to find some more information for you.

In my opinion it would be very difficult to say playing every track all day and all night for a year constitutes a single session. However, depending on how you play and what you play, a session could (in my mind) constitute a day's wagering.

Suppose you play nothing but BridgeJumpers. Any track. Anywhere. You have a program set up to find and document a BridgeJumper any time it occurs at a dog park, a standard bred track or a thoroughbred park. I could see where proper documentation could allow all races in a day to count as a single session.

Suppose you run your software every night and it spits out a dozen spot plays for you every morning. I could see calling that dozen spot plays a session (regardless of whether they occur at different tracks).

Suppose you play Belmont and make a pile of money there and decide that you are on a winning streak so you will take on Santa Anita (which you might normally not play). In this scenario, I could see arguing that these are indeed two sessions of play. I think the facts and circumstances of how you play and what you play will determine your "session" characteristics. The IRS did consider how the taxpayer played in identifying what a session was and then used the term "visit" to describe them.

It is the lack of IRS clarity that causes there to be multiple interpretations here and if I were Mr. Fox publishing something on the internet, I might have also chosen to be more cautious, but Ms. Rosenberg is equally competent as are a couple of the more vocal folks in this thread (Not sure if you can see this discussion or not, but Davc is a very knowledgeable tax professional from Oregon and New York Enrolled Agent is a two-time president of the National Association of Enrolled agents):

http://forum.thetaxbook.com/showthread.php?16919-Gambling-Income-and-Losses

My problem is that a casino is generally a well defined area. If you go to a "racino" can you call all your wagering part of the same session? If you go to the tables and then to the slots and then to the races are there three sessions? (Mr. Fox seems to imply that each table game [perhaps each table itself] is a session). I strongly believe that a day at a site constitutes a "visit" and thus constitutes a "session." While some will argue that they did not sleep from the bus ride on Friday morning to the bus ride on Monday night, I have doubts that the IRS would accept this as one long three-day session although I think you would have a valid argument. I was a bit unhappy that they did not clarify this during the above court case. One of the reasons, most tax professionals have focused on a day is that in the tax memorandum each session lasts a day.

I think record-keeping and documenting how and what you wager on is key for horse players in determining what a session is, but, like I keep saying, in my opinion, in most cases a "day" of race wagering would likely be acceptable (as opposed to separating them by track and wager type).

Also, one should note that the IRS seems very adamant that anything you receive as a result of your wagering (such as any bonuses or rebates) would be considered gains from wagering transactions.

I will see what else I can dig up.

[FocusWiz]

Here is the one that I was looking for and that also bothers me:

http://www.ustaxcourt.gov/InOpHistoric/shollenberger.TCM.WPD.pdf

In this the description of the situation is that the taxpayer, "...entered the casino with $500 and took home $1,600 of winnings," and that the IRS, "...conceded that petitioners’ gross income from their March 29, 2005, slot machine play was $1,100." Thus, this supports a day's play and the concept of netting.

This decision goes on to say that, "...a casual gambler’s gross income from a
wagering transaction should be calculated by subtracting the bets
placed to produce the winnings, not as a deduction in calculating
adjusted gross income or taxable income but as a preliminary
computation in determining gross income" which is similar to the concept they use for determining gross income from a trade or business (gross proceeds minus cost of goods sold) or hobby income.

However, they specifically refer to TC Memo 1986-24 and then say that "This
Court has also recognized the practical difficulties of tracking the basis of each wager individually in a session of like play" which causes me two problems. One is that TC Memo 1986-24 specifically talks about horse racing and defines income as the proceeds minus the cost of the ticket. The other is that, with most if not all ADWs, it is quite simple to get a printout of each individual "play."

The memorandum does not specifically say that the reason they accept "netting" is due to the difficulty of determining each individual transaction. In fact, they say that the gain or loss may be calculated over a series of separate plays or wagers.

This is where it is unclear whether or not this specific netting can only be applied to casinos and slot machines (where you could still get a statement of all transactions if you are a card-holder) or whether it is allowed for all wagering events including racing (they seem to allow table games since they talk about "chips" in the memorandum).

Again, as I indicated, I believe that netting is allowed on a per session basis even for horse racing and I believe that a "session" is based on a day's activities, not something smaller. I think most of us who play regularly go for an overall win not something specific and that our documentation capability with our ADWs is no different than someone with a casino card.

This is hardly a settled topic, but these are my opinions.

[lamboguy]

my opinion is that there should be no such thing as a tax on gambling winnings. it should be tax exempt and taxed at the point of entry. maybe something like 1/10 of 1 % and i am sure the revenue difference would be positive for the government and more people would gamble without the tax consequences.

[AndyC]

I am traveling this week, but will try to reply when I can. Basically, my position (and the position of most knowledgeable tax professionals) is that you cannot likely treat a session as extending beyond a day, but that you are not required to slice it into the different wagering options at a casino as Mr. Fox describes. Here is the court case that interestingly occurred some time while they were writing their Chief Counsel opinion:

http://www.ustaxcourt.gov/InOpHistoric/LaPlante.TCM.WPD.pdf

The key points I take from this case are that they never discuss what the wagers were. The taxpayer travelled to the casino, spent a day or two gambling and received W-2Gs and sometimes courtesy compensation from the casino. The taxpayer's attorney attempted to report only $4,000 net winnings and deducted $4,000 on Schedule A for her losses. The taxpayer also took the position that a session is not complete until she decides to leave the casino (after a day, a weekend or even a week). Here was the rationale:Interestingly, the IRS did not challenge this, so much as the taxpayer's recordkeeping. Also, this is one of the cases I refer to where it talks about "visits" since the IRS maintains that the taxpayer did not document which "visits" resulted in a net win or a net loss (nor the amount of that win or loss). The concept of a "visit" as being comparable to a "session" is what I believe Mr. Fox is missing.

Nowhere in the document is there any discussion of the type of machine she played nor any discussion of further demarking of a "session" other than a visit. Though vague (as I have variously indicated above), the IRS concedes that had proper records been kept, they would have accepted a per session determination of wins and losses, but they do not define this session here any more than they did in the memorandum. They also do not specifically address the taxpayer's contention that some of her "visits" lasted a week. However, I believe it is Barba vs United States (1983??) where the IRS specifically eliminated the idea that an entire year could be treated as a "session."

If I get time later I will try to find some more information for you.

In my opinion it would be very difficult to say playing every track all day and all night for a year constitutes a single session. However, depending on how you play and what you play, a session could (in my mind) constitute a day's wagering.

Suppose you play nothing but BridgeJumpers. Any track. Anywhere. You have a program set up to find and document a BridgeJumper any time it occurs at a dog park, a standard bred track or a thoroughbred park. I could see where proper documentation could allow all races in a day to count as a single session.

Suppose you run your software every night and it spits out a dozen spot plays for you every morning. I could see calling that dozen spot plays a session (regardless of whether they occur at different tracks).

Suppose you play Belmont and make a pile of money there and decide that you are on a winning streak so you will take on Santa Anita (which you might normally not play). In this scenario, I could see arguing that these are indeed two sessions of play. I think the facts and circumstances of how you play and what you play will determine your "session" characteristics. The IRS did consider how the taxpayer played in identifying what a session was and then used the term "visit" to describe them.

It is the lack of IRS clarity that causes there to be multiple interpretations here and if I were Mr. Fox publishing something on the internet, I might have also chosen to be more cautious, but Ms. Rosenberg is equally competent as are a couple of the more vocal folks in this thread (Not sure if you can see this discussion or not, but Davc is a very knowledgeable tax professional from Oregon and New York Enrolled Agent is a two-time president of the National Association of Enrolled agents):

http://forum.thetaxbook.com/showthread.php?16919-Gambling-Income-and-Losses

My problem is that a casino is generally a well defined area. If you go to a "racino" can you call all your wagering part of the same session? If you go to the tables and then to the slots and then to the races are there three sessions? (Mr. Fox seems to imply that each table game [perhaps each table itself] is a session). I strongly believe that a day at a site constitutes a "visit" and thus constitutes a "session." While some will argue that they did not sleep from the bus ride on Friday morning to the bus ride on Monday night, I have doubts that the IRS would accept this as one long three-day session although I think you would have a valid argument. I was a bit unhappy that they did not clarify this during the above court case. One of the reasons, most tax professionals have focused on a day is that in the tax memorandum each session lasts a day.

I think record-keeping and documenting how and what you wager on is key for horse players in determining what a session is, but, like I keep saying, in my opinion, in most cases a "day" of race wagering would likely be acceptable (as opposed to separating them by track and wager type).

Also, one should note that the IRS seems very adamant that anything you receive as a result of your wagering (such as any bonuses or rebates) would be considered gains from wagering transactions.

I will see what else I can dig up.

In the interest of full disclosure, I am a CPA specializing in taxation.

My initial response to your post about "sessions" was to point out that assuming a day at the races or OTB was equivalent to a "session" of slots, poker, roulette, etc. might not be on solid ground. The IRS laid out their position on sessions in Chief Counsel Advice Memorandum 2008-011 based on what had transpired in court cases. Essentially the courts allowed "sessions" because they found it unduly burdensome and unreasonable to require a bettor to compute and treat every play as a taxable event. Whether a horseplayer or sports bettor could hang their hat on the burden and unreasonableness of the required record keeping is dubious at best.

[FocusWiz]

Thanks, Andy.

As you may have gotten from my last post, I don't think this is 100% settled for horse racing, though I believe it should apply.

For the first case, the individual had a card with the casino and could have gotten detailed transaction listings showing the exact amount she played for each of her "winning" plays. Thus, she could have documented the "cost" for each winning transaction. In the 1986 case, the courts decided that a horse race winning could deduct the cost of the wager (as opposed to any netting that was documented in later discussions). You win a $2 exacta that payed $20 and I would assume that the IRS thinks you should report $18. However, you played a key box with a horse and five others costing $20, so it isn't a net win. Depending on how the "ticket" comes out you might break even or win $18 in the eyes of the IRS. If you used six horses, the "transaction" is actually a loss.

My perspective for believing it should apply to players who might play a series of plays to try to make a profit (like the members of this forum), is that it becomes harder to identify a "wager." You played the double and now are hedging this wager with a series of win bets on the horses you did not play. In my mind, if one of the win bets wins, it would not have been placed without the doubles wager. If the double wins, you should (I know that the tax law is not fair) be allowed to deduct the win bets that you were part of the overall transaction. If you are playing a "system" where you always bet on the horse number 3 (okay...dumb system), why wouldn't this be equivalent to always playing 3 at the roulette table?

I realize that this could prove wrong if it ever went to tax court, but I believe that many players do not play wager by wager but win or lose on a "session" basis. I am open to learning that this perspective is wrong and I appreciate your openness. As you know, record-keeping, now aided by computers, is hardly a problem for a card-carrying slot player. In fact, the court case asked why the taxpayer did not include more detailed listings from the casino. The more detailed listings would likely have shown the nickel spent on winnings of $2000 (surmising that something like this would be there) just as our listings would show the $20 payment on the $2 exacta ticket.

The reason why I believe there is a chance it applies is that their argument about record keeping would apply to chip-playing table games more so than to slots and yet the court cases where they applied it to were primarily slot plays. No one uses chips at a slot machine (and they did not in 2009 when the memorandum was written).

I would appreciate anything you can turn up (besides the 1986 case) that indicates that if more records are available, they will not allow netting. I appreciate your input.

Thanks again.

[Ocala Mike]

New York state's version of that apology was a letter telling me that the matter would not be pursued further.




My old employer (NY State Dept. of Taxation and Finance) was not known for being kind and gentle in its treatment of taxpayers.

We had some really onerous practices, such as issuing immediate assessments if the taxpayer failed to sign a waiver agreement extending the statute of limitations, arbitrarily picking people's names and addresses out of directories because they looked like high-income targets, and writing down Florida license tags in parking lots because the vehicle's owners might be tax-evading snowbirds.

Glad you got a "no change" (to your taxes). Issuing a "no change" to a taxpayer was considered apology enough for putting them through the wringer.

[Tom]

Too bad these slime balls don't realize they work for US.
Hopefully, a tax code re-write will put many of them on the street, where they belong.

Maybe they will meet some people in shelters that THEY put here and then they can all sing Kumbya together. If you get my drift.

[lamboguy]

with everyone that lives in this country, the IRS seems to be everyone's least favorite agency, but not for our current president, its seems to be his favorite one.

[thaskalos]

My old employer (NY State Dept. of Taxation and Finance) was not known for being kind and gentle in its treatment of taxpayers.

We had some really onerous practices, such as issuing immediate assessments if the taxpayer failed to sign a waiver agreement extending the statute of limitations, arbitrarily picking people's names and addresses out of directories because they looked like high-income targets, and writing down Florida license tags in parking lots because the vehicle's owners might be tax-evading snowbirds.

Glad you got a "no change" (to your taxes). Issuing a "no change" to a taxpayer was considered apology enough for putting them through the wringer.

How do you make this determination by just looking at a car in a parking lot?

[lamboguy]

How do you make this determination by just looking at a car in a parking lot?New York has a high state tax rate and Florida has none. in order to be a resident of Florida you have to reside there 181 days a year. what they probably do is video tape you and your car on a daily basis to see if you are telling the truth on your tax forms. if they find a discrepancy they will nail you for that. i have residences in both Florida and Mass., but i still pay Mass. taxes because i hardly make anything these days so it doesn't pay to cheat.

[Ocala Mike]

in order to be a resident of Florida you have to reside there 181 days a year.




Actually, this is a common misconception. My specialty was residency cases, and I successfully pursued many taxpayers who spent less than six months in NY State but who had failed to show a change of domicile to another state. Won't bore you with details, but maintenance of a "permanent place of abode" in NY without severing all business and social ties was usually enough.

thas, you don't "determine" residency by looking at a car in a parking lot, but if it's July in Suffolk County, NY and you see a nice late-model car with Florida tags, you simply get the registration information from Florida (they're very cooperative), and look to see if the guy's filed in NY (usually a non-resident return), and you investigate further to determine if he's a good audit subject.

I leave it to my professional counterpart from the "other side of the aisle", FocusWiz, to elaborate on the battles he must have had with IRS and state auditors.

[FocusWiz]

I have also heard that generalization, and tell people to think of New York residency as gum you stepped on...easy to acquire, but much harder to get rid of.

You may have handled a case a friend of mine was involved in years ago. Her client moved to Florida, and bought a condominium and car that was registered there. He was some kind of manager for the southeastern United States. He came to New York for holidays, birthdays and his kids' graduations. He voted in Florida and had a Florida driver's license. He spent much less than six months in New York each year.

He never fully gave up his New York domicile where his wife and children lived and he maintained numerous personal items there. He also maintained quite a few professional ties to New York (including the CPA who prepared his joint federal tax return). It did not matter how many days he was in New York nor where he worked nor voted.

As I recall, he decided not to pursue this in the courts and I think he ended up paying 14 years of back taxes plus interest (New York tax rates are not low, especially when his income had to be added to that of his spouse).

Regarding license plates, New York is also very protective of their retailers by collecting Use Tax on out of state purchases. When the first Ikea opened in the metropolitan area in New Jersey, lots of NY plateholders who happened to be in their parking lot got letters asking whether or not they happened to buy something there. Even though things have changed, I still hear of people getting letters to remember to include use tax on their tax return after visiting the New Jersey malls.

They also watch sporting events, soap operas and talk shows to collect tax from anyone who might forget to declare their income. About 30 years ago, a friend showed me a letter received by a New Jersey jockey who had been in a single race at Aqueduct (I think he finished third). Not easy to hide from New York.

[Ocala Mike]

Good stuff, FocusWiz; you sound like you would have been a worthy adversary for me back in the day. I am not familiar with the exact case you are referring to, but it sounds like a textbook example of a good domicile case. I love your analogy to stepping in gum, by the way.

Not to brag, but I had a very high percentage of "agreed" cases relative to the other auditors in my group. Only had a handful go to conciliation, and none to the tribunal level. I always believed that it was good policy to waive some or all of the penalties (those that I could justify waiving) in return for getting an agreed case.

I only spent about 4 years as an Income Tax Auditor in the early 90's, and much preferred working at the track as a Pari-Mutuel Auditor up until early 1991, when the state let us go.

[badcompany]

My old employer (NY State Dept. of Taxation and Finance) was not known for being kind and gentle in its treatment of taxpayers.

We had some really onerous practices, such as issuing immediate assessments if the taxpayer failed to sign a waiver agreement extending the statute of limitations, arbitrarily picking people's names and addresses out of directories because they looked like high-income targets, and writing down Florida license tags in parking lots because the vehicle's owners might be tax-evading snowbirds.

Glad you got a "no change" (to your taxes). Issuing a "no change" to a taxpayer was considered apology enough for putting them through the wringer.

Thanks. It wasn't much of a wringer, more of an annoyance.

If you happen to actively trade stocks, you're likely to get a very scary letter from the IRS.

If, for some reason, one of your trades isn't reported by you or your broker, or if the IRS makes a mistake, you get a bill not for the tax on the profit but on the notional amount.

Example, you buy 100 shares of Apple for $100 per share, and it isn't reported, you get a bill from the IRS for $10,000. It can ruin your day. :(