Tax changes for gamblers coming?

[AndyC]

Each year Oklahoma Senator Tom Coburn publishes what he believes to be waste in government spending. Apparently he believes that writing off gambling losses is a big tax loophole that needs to be closed. The following is quoted from an article written by Peter Fricke:

Some of the most egregious tax expenditures identified in the report, and therefore the lowest-hanging fruit for Congress, are those awarded to millionaires, businesses and celebrities.

“From deductions for yachts and second homes to tax credits for purchasing luxury cars, and write-offs for gambling losses, the tax code is spending billions of dollars subsidizing the upscale lifestyles of the well-off,” Coburn claims.

[lamboguy]

this sounds like another law maker that doesn't know the law to begin with.

you can't take gambling losses and use them against any other form of gain other than gambling itself.

if he was smart, he would push a bill to exempt all forms of gambling winnings and tax them at the point of entry. he would get a lot more revenues that would come in that way.

[Fingal]

“From deductions for yachts and second homes to tax credits for purchasing luxury cars, and write-offs for gambling losses, the tax code is spending billions of dollars subsidizing the upscale lifestyles of the well-off,” Coburn claims.

Question- Senator Coburn how well off are you & how many of these deductions do you rely on ?

Glass houses......stones..........

[Spiderman]

Each year Oklahoma Senator Tom Coburn publishes what he believes to be waste in government spending. Apparently he believes that writing off gambling losses is a big tax loophole that needs to be closed. The following is quoted from an article written by Peter Fricke:

Some of the most egregious tax expenditures identified in the report, and therefore the lowest-hanging fruit for Congress, are those awarded to millionaires, businesses and celebrities.

“From deductions for yachts and second homes to tax credits for purchasing luxury cars, and write-offs for gambling losses, the tax code is spending billions of dollars subsidizing the upscale lifestyles of the well-off,” Coburn claims.

Andy, any update on either possibility for tax relief - a) separate line item to report losses v. winnings or b) amount bet on winning ticket to reflect true odds?

[FocusWiz]

I see absolutely no significant difference between a recreational gambler and a recreational day-trader in stocks or other securities.

I think Mr. Coburn would have more credibility (and less support) if he talked about eliminating the deductibility of losses for day traders or eliminating carryforwards and limiting the losses to the amount of their gains just as it is for other gamblers.

Of course, they would need to create a legal definition of a day trader, but they generally have no problem coming up with some definition that will prove to be unacceptable to a large number of people (if not everyone).

[dilanesp]

this sounds like another law maker that doesn't know the law to begin with.

you can't take gambling losses and use them against any other form of gain other than gambling itself. If he was smart, he would push a bill to exempt all forms of gambling winnings and tax them at the point of entry. he would get a lot more revenues that would come in that way.

I suspect he knows exactly what the law allows.

He's a Christian conservative from a state that probably has few professional gamblers. He probably sees elimination of the deduction as a deterrent to gambling, and has come upon the "tax break" argument as a way to sell it.

[AndyC]

Andy, any update on either possibility for tax relief - a) separate line item to report losses v. winnings or b) amount bet on winning ticket to reflect true odds?


Haven't seen anything yet, but the chances of "a" happening are remote.

[Augenj]

I suspect he knows exactly what the law allows.

He's a Christian conservative from a state that probably has few professional gamblers. He probably sees elimination of the deduction as a deterrent to gambling, and has come upon the "tax break" argument as a way to sell it.
Pretty much sums it up. :ThmbUp:

[SandyW]

I suspect he knows exactly what the law allows.

He's a Christian conservative from a state that probably has few professional gamblers. He probably sees elimination of the deduction as a deterrent to gambling, and has come upon the "tax break" argument as a way to sell it.

The wolves of Washington are at the hen house!!!

[Stillriledup]

Taxing people on money they didn't earn or dont actually even have is....well, its the American way i guess.

What's next, strong arm robbery? Why not just go knocking door to door, force entry and just raid the jewelry box, isnt that the same thing?

[AndyC]

What bothers me most is that writing-off gambling losses has now been put in the category of a tax loophole. All of the talk concerning new tax legislation revolves around the idea that tax loopholes need to be eliminated so that taxes would be "fair" for everybody. For a tax loophole to be eliminated it needs to first be identified and then demonized regardless of the underlying facts.

[FocusWiz]

To me a "loophole" is more like an "unintended consequence" than a law.

For example, a person with millions in real estate holdings and non-dividend paying stocks might take a small job at a local non-profit organization just "to help out" and then find himself/herself eligible for the earned income credit which is really not intended for millionaires but works that way due to the way the law was constructed. Nothing illegal, but certainly not one of the purposes of the credit.

It is my understanding that the way gambling income and expenses are reported are well in line with what Congress intended and, thus, mischaracterized as a loophole.

However, gambling with stocks rather than horses or cards, is considered investing and thus becomes subject to the rules for short-term gains and losses. To me, that sounds more like a loophole.

[dilanesp]

Taxing people on money they didn't earn or dont actually even have is....well, its the American way i guess.

What's next, strong arm robbery? Why not just go knocking door to door, force entry and just raid the jewelry box, isnt that the same thing?

Well, if it were actually illegal.... After all, we don't allow drug dealers to deduct their business expenses.

And that's the point. Coburn and other people who favor this sort of thing would prefer a legal regime where gambling is illegal. Since they can't achieve that, the next best thing for them is a legal regime where gambling is taxed in the manner that illegal activities are taxed.

Hopefully, he doesn't have the votes to do this. This already exists in some state income tax laws, though, and professional gamblers need to seriously take that into account in deciding where to locate.

[FocusWiz]

After all, we don't allow drug dealers to deduct their business expenses.Drug dealers are required to report their income even though derived illegally. Would they not be allowed to reduce that by the legally paid expenses. I can understand not allowing them to deduct fines and penalties, but aren't valid business expenses allowed?

Perhaps this is another loophole. We probably don't want drug dealers to be allowed to deduct business expenses, but I could not find anything in §162 to prevent it.

Was this perhaps from a recent court case?

[dilanesp]

Drug dealers are required to report their income even though derived illegally. Would they not be allowed to reduce that by the legally paid expenses. I can understand not allowing them to deduct fines and penalties, but aren't valid business expenses allowed?

Perhaps this is another loophole. We probably don't want drug dealers to be allowed to deduct business expenses, but I could not find anything in §162 to prevent it.

Was this perhaps from a recent court case?

I am not a tax lawyer, but my understanding of the way ILLEGAL activity is taxed is as follows:

1. Any income that you derive from illegal activity must be reported to the IRS and taxes paid. If there is any fifth amendment issue with respect to the activity, it should be reported as "income from illegal activity".

2. There are no deductions authorized for business expenses in connection with an illegal business.

Thus, Al Capone was required to report all income he received from bootlegging, and was not permitted to claim a deduction for his business expenses in connection with the activity.

Any wonder why they were able to bust him for tax evasion?

Without defending this rule in any way, the reasons for it, as I understand them, flow directly from the fact that the underlying activity is illegal. You aren't supposed to do it anyway, so imposing what might be a more than 100 percent income tax rate on it poses no particular problem for the government.

But if an activity is legal, the government really shouldn't do this. And of course, the people who are trying to eliminate deductions for gambling losses are trying to use the tax code to impose de facto ban on gambling.

As I said though, this exists in a number of state tax systems, so professional gamblers should be aware of this.

[FocusWiz]

I am not a tax lawyer, but my understanding of the way ILLEGAL activity is taxed is as follows:

1. Any income that you derive from illegal activity must be reported to the IRS and taxes paid. If there is any fifth amendment issue with respect to the activity, it should be reported as "income from illegal activity".

2. There are no deductions authorized for business expenses in connection with an illegal business.

Thus, Al Capone was required to report all income he received from bootlegging, and was not permitted to claim a deduction for his business expenses in connection with the activity.

Any wonder why they were able to bust him for tax evasion?

Without defending this rule in any way, the reasons for it, as I understand them, flow directly from the fact that the underlying activity is illegal. You aren't supposed to do it anyway, so imposing what might be a more than 100 percent income tax rate on it poses no particular problem for the government.

But if an activity is legal, the government really shouldn't do this. And of course, the people who are trying to eliminate deductions for gambling losses are trying to use the tax code to impose de facto ban on gambling.

As I said though, this exists in a number of state tax systems, so professional gamblers should be aware of this.Let's agree to disagree, then. I am also not a Tax Attorney, but my understanding has always been that people are taxed on "Net Income" from illegal activities rather than "Gross Proceeds" which appears to be what you describe or "Gross Income" which would be "Gross Proceeds" minus Cost of Goods Sold.

I have never seen a court case that disallowed valid business expenses for a person conducting an illegal business activity. However, that being said, I have not read every tax court case, but, for example, in Commissioner v. Tellier the court allowed the deduction for legal expenses (which anyone conducting illegal activities would likely have).

If you come up with a cite, I would be quite interested in learning more about where you obtained your information.

Thanks.

[AndyC]

To me a "loophole" is more like an "unintended consequence" than a law.

For example, a person with millions in real estate holdings and non-dividend paying stocks might take a small job at a local non-profit organization just "to help out" and then find himself/herself eligible for the earned income credit which is really not intended for millionaires but works that way due to the way the law was constructed. Nothing illegal, but certainly not one of the purposes of the credit.

It is my understanding that the way gambling income and expenses are reported are well in line with what Congress intended and, thus, mischaracterized as a loophole.

However, gambling with stocks rather than horses or cards, is considered investing and thus becomes subject to the rules for short-term gains and losses. To me, that sounds more like a loophole.

I certainly concur on your definition of a loophole but that definition is not shared by many congressmen. To them a loophole is any deduction or credit taken by an individual or an industry that is not walking in lockstep with the party in power.

[FocusWiz]

I am not a tax lawyer, but my understanding of the way ILLEGAL activity is taxed is as follows:

1. Any income that you derive from illegal activity must be reported to the IRS and taxes paid. If there is any fifth amendment issue with respect to the activity, it should be reported as "income from illegal activity".

2. There are no deductions authorized for business expenses in connection with an illegal business.

Thus, Al Capone was required to report all income he received from bootlegging, and was not permitted to claim a deduction for his business expenses in connection with the activity.

Any wonder why they were able to bust him for tax evasion?

Without defending this rule in any way, the reasons for it, as I understand them, flow directly from the fact that the underlying activity is illegal. You aren't supposed to do it anyway, so imposing what might be a more than 100 percent income tax rate on it poses no particular problem for the government.

But if an activity is legal, the government really shouldn't do this. And of course, the people who are trying to eliminate deductions for gambling losses are trying to use the tax code to impose de facto ban on gambling.

As I said though, this exists in a number of state tax systems, so professional gamblers should be aware of this.Al Capone would have been allowed to deduct his business expenses had he reported his business income.

However, an interesting thing you taught me was that in another section of the code is a special rule for drug trafficking.

§ 280E. Expenditures in connection with the illegal sale of drugs

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

This was enacted after Capone was convicted of tax evasion.

[AndyC]

Let's agree to disagree, then. I am also not a Tax Attorney, but my understanding has always been that people are taxed on "Net Income" from illegal activities rather than "Gross Proceeds" which appears to be what you describe or "Gross Income" which would be "Gross Proceeds" minus Cost of Goods Sold.

I have never seen a court case that disallowed valid business expenses for a person conducting an illegal business activity. However, that being said, I have not read every tax court case, but, for example, in Commissioner v. Tellier the court allowed the deduction for legal expenses (which anyone conducting illegal activities would likely have).

If you come up with a cite, I would be quite interested in learning more about where you obtained your information.

Thanks.

The only codified disallowance of expenses would be found in 280(E) for trafficking in illegal substances.

[FocusWiz]

The only codified disallowance of expenses would be found in 280(E) for trafficking in illegal substances.Thanks, Andy. It took me a while to figure that out. Other illegal activities are allowed to deduct their business expenses.

[Spiderman]

Each year Oklahoma Senator Tom Coburn publishes what he believes to be waste in government spending. Apparently he believes that writing off gambling losses is a big tax loophole that needs to be closed. The following is quoted from an article written by Peter Fricke:

Some of the most egregious tax expenditures identified in the report, and therefore the lowest-hanging fruit for Congress, are those awarded to millionaires, businesses and celebrities.

“From deductions for yachts and second homes to tax credits for purchasing luxury cars, and write-offs for gambling losses, the tax code is spending billions of dollars subsidizing the upscale lifestyles of the well-off,” Coburn claims.

The concern of Coburn should allow for gambling losses v. winnings in a separate line item and nowhere else.

[taxicab]

Egads!
This guy is an elected official ? :eek:
Can you imagine how much the tracks would be crying at the good senators door if the write offs were axed ?
Would there be any top end players remaining without the write offs ?
Handle would crash.
Here's a trade off for you Senator burn.....
As horseplayers we will let you eliminate all tax write offs if you stop taxing our winnings........roll that up and smoke it Senator burn. :cool:

[drib]

Right now, there are several states that do not allow ANY deductions for losses against gross gambling winnings:https://ttlc.intuit.com/questions/1528811-can-you-deduct-gambling-losses

Imagine putting, say, $3,000 in a giant pick 6 carryover. It chalks out and pays $1,000. If one lives in these states, not only do you lose 2k on the bet, but must pay state taxes on the $1,000 you do get back.
On a yearly basis, say you put a total of $100k into Pick 6's, and break even. These states would hit you for taxes on that 100k.

[Robert Goren]

A crackpot of the first order who has stated he will seek re-election in 2016. The sad part is that gamblers vote for people with similar beliefs all the time because they like how they stand on other issues without ever checking out their stances on gambling issues. Sen. Coburn is well respected in the republican party.

[lamboguy]

as far as those states that don't let you itemize loser's minus winner's. how can they call that an income tax when you have no income?

shouldn't they just call it pickpocket taxes?

[cato]

Everything said here about Coburn is true (at least that's my opinion) except that he is not running for re-election.

Maybe the gambling lobby can hire him.. bring him over to the correct side of things...

Cato

[AndyC]

In defense of Coburn, he shines a light on a lot of government waste and we need more people like him in Washington. He just happens to be wrong about gambling deductions.

[tanner12oz]

this sounds like another law maker that doesn't know the law to begin with.

you can't take gambling losses and use them against any other form of gain other than gambling itself.

if he was smart, he would push a bill to exempt all forms of gambling winnings and tax them at the point of entry. he would get a lot more revenues that would come in that way.

not allowing for the writeoff of losses vs winnings would cripple the industry

[Spiderman]

In defense of Coburn, he shines a light on a lot of government waste and we need more people like him in Washington. He just happens to be wrong about gambling deductions.
Right, each year he compiles a list of wasteful government spending. For the most part, his proposals are shot down by the "earmarks" lovin' crowd.

[Flysofree]

I see absolutely no significant difference between a recreational gambler and a recreational day-trader in stocks or other securities.

I think Mr. Coburn would have more credibility (and less support) if he talked about eliminating the deductibility of losses for day traders or eliminating carryforwards and limiting the losses to the amount of their gains just as it is for other gamblers.

Of course, they would need to create a legal definition of a day trader, but they generally have no problem coming up with some definition that will prove to be unacceptable to a large number of people (if not everyone).

Day trading companies... give big money to elect this type of scum in Oklahoma..

[Dave Schwartz]

not allowing for the writeoff of losses vs winnings would cripple the industry

It would close tracks from coast-to-coast. Just like what happened in MA.

[cato]

Flyso free says -

"Day trading companies... give big money to elect this type of scum in Oklahoma.."

Wow that's a pretty specific industry (day trading companies) focused on the scum of one state! Who's focusing on getting the scum elected in Virginia?

[badcompany]

Question- Senator Coburn how well off are you & how many of these deductions do you rely on ?

Glass houses......stones..........

This

These guys always act as though the government is a scraping by on bread and water, when, in fact, it takes in over 2 Trillion dollars a year, and it's still not enough.

[Robert Goren]

Right, each year he compiles a list of wasteful government spending. For the most part, his proposals are shot down by the "earmarks" lovin' crowd.An old politician trick made famous by former Wisconsin democratic senator William Proxmire. They make list of the government programs used by people who did not contribute to their campaigns. They leave off the list any program used by their contributors. It is sort of blackmail. Either contribute or go on the list. Highly effective! The amazing thing is that so many voters actually think the list about government waste.

[thespaah]

this sounds like another law maker that doesn't know the law to begin with.

you can't take gambling losses and use them against any other form of gain other than gambling itself.

if he was smart, he would push a bill to exempt all forms of gambling winnings and tax them at the point of entry. he would get a lot more revenues that would come in that way.
As Andy C states in his post, "low hanging fruit"..
This is typical of politicians who would like some good publicity.
So they target the easy stuff.
This is what I refer to as "hey look at what I'm doing!"

[thespaah]

Question- Senator Coburn how well off are you & how many of these deductions do you rely on ?

Glass houses......stones..........
According to ballotpedia.com Coburn has a net worth of about $3.6 million.
Chances are he is using many of the tax breaks and loopholes available to high wealth/income individuals.
He should just stow it because he is stepping on the toes of his main constiuency

[Flysofree]

Of course he's wealthy....now it's all about "power"..

[thespaah]

I agree 100%.
One this nation's biggest hypocrisies is the relative ease in which one can invest( wager) their money or the money of others for a commission( vig) on whether or not the price of a stock will rise or fall.
Yet the law prohibits( in 46 states) a person to invest ( wager) their money or the money of others on the outcome of a sporting contest.
In both cases, past performance is no guarantee of future performance. AND both activities involve risk...
Someone PLEASE show me the difference.

[thespaah]

Haven't seen anything yet, but the chances of "a" happening are remote.
I think this stands little chance of making out of committee.
Same as the Unlawful Internet Gambling Enforcement Act of 2006 which made it much more difficult to wager offshore.
The Bill passed the House but not in the Senate.
The UIGEA was stuffed into the Port Security Act of 2006 by Anti gambling crusader Ted Stevens of Alaska.
On its own, the bill stood little chance of Senate passage. So Stevens sneaked it in the Ports Bill.
In fact lots of unpopular and wasteful legislation gets passed this way...
It's garbage.

[thespaah]

as far as those states that don't let you itemize loser's minus winner's. how can they call that an income tax when you have no income?

shouldn't they just call it pickpocket taxes?
My response is rather simplistic but I believe to be plausible.
Taxes on gambling winnings and the activity itself are politically palatable.
That politicians proposing these taxes and sponsoring bills for same are safe from voter backlash.
Because of religious and morality considerations, these taxes are a politically easy money grab
JMHO

[dilanesp]

I agree 100%.
One this nation's biggest hypocrisies is the relative ease in which one can invest( wager) their money or the money of others for a commission( vig) on whether or not the price of a stock will rise or fall.
Yet the law prohibits( in 46 states) a person to invest ( wager) their money or the money of others on the outcome of a sporting contest.
In both cases, past performance is no guarantee of future performance. AND both activities involve risk...
Someone PLEASE show me the difference.

There is one big difference, though I don't think in the end it should matter much.

The big difference is that a liquid stock market serves a social function, in allocating capital investment for businesses. It builds national wealth.

Whereas gambling has no real social function beyond whatever enjoyment people derive from it.

Now the reason why I don't think it should matter much is because if we were going to draw that distinction, we would need to much more strictly regulate the gambling aspects of the stock market. We'd want a transaction tax to deter speculative trades, strict regulations on day trading, strict regulations on any sort of advantage trading such as high-frequency trading, arbitrage, or insider IPO access, etc.

To me, the best argument for legalized gambling is that in practice, we allow the stock market to run like a casino. We don't have to do this, but we do. And once you allow all sorts of activities in the stock market that are strictly gambling and not necessary to allocate capital financing for businesses, there's no reason not to allow other forms of gambling.

[dilanesp]

My response is rather simplistic but I believe to be plausible.
Taxes on gambling winnings and the activity itself are politically palatable.
That politicians proposing these taxes and sponsoring bills for same are safe from voter backlash.
Because of religious and morality considerations, these taxes are a politically easy money grab
JMHO

I suspect they actually would collect more money if they just taxed pools. Even in jurisdictions where losses are deductible, many people don't report, and in jurisdictions where they are not, I bet almost nobody reports except lottery winners.

This sort of thing is not about money-- it's about moral condemnation of gambling and trying to make it de facto illegal.

[biggestal99]

The big difference is that a liquid stock market serves a social function, in allocating capital investment for businesses. It builds national wealth.


.

once the IPO is done, it is exactly the same thing as betting horses, the capital is in the companies hands.

you as a gambler (stock investor) look for the overlays (undervalued stocks)
and avoid the underlays

ya got touts and you pay the takeout (brokers fees)

don't see any difference.

Allan

[dilanesp]

once the IPO is done, it is exactly the same thing as betting horses, the capital is in the companies hands.

you as a gambler (stock investor) look for the overlays (undervalued stocks)
and avoid the underlays

ya got touts and you pay the takeout (brokers fees)

don't see any difference.

Allan

The secondary market and the funding of IPO's are connected. You need to be able to sell what you buy.

[dilanesp]

I think this stands little chance of making out of committee.
Same as the Unlawful Internet Gambling Enforcement Act of 2006 which made it much more difficult to wager offshore.
The Bill passed the House but not in the Senate.
The UIGEA was stuffed into the Port Security Act of 2006 by Anti gambling crusader Ted Stevens of Alaska.
On its own, the bill stood little chance of Senate passage. So Stevens sneaked it in the Ports Bill.
In fact lots of unpopular and wasteful legislation gets passed this way...
It's garbage.

This is a story told by poker players but it isn't true. They had the votes for UIGEA. A standalone version of it that was much worse (containing a flat ban on internet poker rather than a ban on bank transactions dependent on state laws) had already passed the House.

A lot of legislation is inserted into other bills. That doesn't mean it was slipped through or congressional staffs don't know it is in there and can't force its removal if it is controversial.

The UIGEA- which was somewhat superfluous, as IGBA already provided the tools to go after unregulated offshore poker sites- passed because most people in Congress opposed online poker, at least in its 2006 form.

[FocusWiz]

once the IPO is done, it is exactly the same thing as betting horses, the capital is in the companies hands.

you as a gambler (stock investor) look for the overlays (undervalued stocks)
and avoid the underlays

ya got touts and you pay the takeout (brokers fees)

don't see any difference.

AllanThe stock price also dictates a firm's ability to raise funds by issuing stock to raise additional capital or pay off debts. A very low capital value may make it difficult to get credit or attract investors or could make the firm an easier target for a takeover.

[Robert Goren]

I think this stands little chance of making out of committee.
Same as the Unlawful Internet Gambling Enforcement Act of 2006 which made it much more difficult to wager offshore.
The Bill passed the House but not in the Senate.
The UIGEA was stuffed into the Port Security Act of 2006 by Anti gambling crusader Ted Stevens of Alaska.
On its own, the bill stood little chance of Senate passage. So Stevens sneaked it in the Ports Bill.
In fact lots of unpopular and wasteful legislation gets passed this way...
It's garbage.Actually it was former Sen. Jon Kyl (R-AZ)(GOP Whip) who stuck it during conference. Most Senator and Congressmen probably did not know it was there. GWB admitted he did not know it was there when he signed the bill, although he said he would signed it even if he knew. Kyl openly bragged about what he did on several occasions. I do not believe UIGEA is unpopular with anybody but former online poker players like me. The UIGEA would probably passed the congress on its own in 2006 on straight up or down vote. It did not get or would it have gotten a one because it was stuck behind a long list of others bills to be considered first. It is going to be long time before it is repealed, I am afraid. I have polled every current and former congressman and senator from Nebraska since it was enacted and none would vote for repeal.