Under the U.S. tax laws, most gamblers may deduct their wagering losses , but such deductions are limited to their winnings in the same year. However, if an an individual engages in gambling as a “professional gambler” he/she may also deduct non-wagering expenses such as transportation costs, meals and lodging. Recently, the United States Tax Court considered what a gambler must establish in order to be classified as a “professional gambler.” In Boneparte v. Commissioner, T.C. Memo 2017-193 (October 2, 2017), the Tax Court held that in order for a gambler to be considered a “professional” they must engage in gambling with an intent to make a profit. In that regard, the Boneparte court identified nine (9) factors to consider for determining if an individual had a profit seeking motive. Those factors include: (1) the manner in which the taxpayer carries on the activity; (2) the expertise of the taxpayer or his advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar activities; (6) the taxpayer’s history of income or losses with respect to the activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation. This is a non-exhaustive listed, but these are the primary factors the court looks to.
The Boneparte court ultimately concluded that the taxpayer was a casual gambler. The court found that the taxpayer did not carry on the activity in a manner that suggested he had a profit seeking motive because he kept no records of how much he gambled outside of what the casinos provided to him. The court held that to be engaged in a manner that has a profit seeking motive, one must conduct their activity in a “businesslike manner” such as keeping accurate records and books. Furthermore, the court focused in on the taxpayer’s history of losses. The court found that a history of net income strongly indicates a profit-seeking motive, whereas several years of losses showed a lack of a profit-seeking motive. The court determined that the taxpayer made no profit any time from 2009 through 2013. Based upon the above analysis, the Tax Court determined that the taxpayer was entitled to a wagering loss deduction, but only to the extent of the gains from those wagering transactions.
The attorneys at Terrence A. Grady & Associates, Co., LPA have experience in successfully representing gamblers in controversies with the IRS related to the reporting of their gambling income and losses. If you have questions about your gambling activities as they related to your income taxes, or are curious if you may qualify as a professional gambler, please call us today at 614-849-0376.