Dick Adams <rdadams[at]panix.com> wrote:

- quote -

I quote a response to this question posted about 5 years ago
in response to the OP (me) who wondered if little old ladies
who went to the Indian casino regularly, won big once, but
could not deduct losses because they can't itemize could be
considered professional gamblers I see a few of these every
year when I do Tax Counseling for the Elderly

--- Begin quote ---
"Kaye Thomas" <kathomas[at]fairmark.com> wrote:
Re: Professional Gambler
Sun, 20 Jan 2002 07:43:38 -0000

- quote -

That's sort of in the ballpark. Here's the story.

The U.S. Supreme Court decided a case called Deputy v.
duPont in 1940, finding that certain transactions in stock
(in unique circumstances I won't get into) were not related
to a trade or business. Concurring with that decision,
Justice Frankfurter said they could have made the decision
earlier by adopting a simple rule, that you don't have a
trade or business unless you hold yourself out to others as
engaged in the selling of goods or services. Although this
was merely a concurring decision, the IRS decided to run
with this idea. In one case they argued on this basis that
a stock trader did not have a trade or business, but lost
(Fuld v. Commissioner, 2d Cir 1943). Then they began to
make this argument against people who claimed gambling was
a trade or business. These were tough cases because under
the law at the time you couldn't deduct gambling losses
against gambling winnings unless you established a trade or
business, so the IRS would hit you with a tax on *gross*
winnings even if you had a net loss. Anyway, they won in
some circuits and lost in others, so the Supreme Court
decided to resolve the issue in Groetzinger v. Commissioner,
480 US 23 (1987). The Court explicitly rejected
Frankfurter's notion and found that gambling can be a trade
or business. Key language from the opinion:

"We accept the fact that to be engaged in a trade or
business, the taxpayer must be involved in the activity with
continuity and regularity and that the taxpayer's primary
purpose for engaging in the activity must be for income or
profit. A sporadic activity, a hobby, or an amusement
diversion does not qualify."

That isn't exactly a precise formula for determining whether
you're a professional gambler, but it gives some idea what
they're getting at. I have an emphatic opinion that you
don't have to be a full-time gambler (or a full-time stock
trader) to have a trade or business. There are a number of
cases where people who had other jobs established that their
"moonlighting" activity was a trade or business. The key, in
my view, is you have to do it in a manner that indicates it
was a business, not a hobby or an amusement.

I discuss all this as it relates to stock traders in my book
on capital gains. Also, for those who might be considering
trading for a living, I'll mention that so far I've had four
clients who managed to lose more than $1 million at this
business.

Kaye Thomas
http://www.fairmark.com
--- End quote --

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"Dick Adams" <rdadams[at]panix.com> wrote:

- quote -

I'm not aware of any special rules focused on gambling. I
assume it would be the same analysis used in any situation
to determine whether something is miscellaneous income or
income from self-employment.

--
Phil Marti
Clarksburg, MD

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With the advent of Poker Tournaments on television and
Internet Poker sites, there has been an outbreak of Texas
Hold'em Tournaments around the country. The winner often
gets a choice between $10,000 in cash or a buy-in at the
World Series of Poker. Either way the $10,000 is taxable.
But does the winner become a "Professional Gambler" for tax
purposes?

Logically (which has nothing to do with taxation) the winner
should be treated the same as someone who is a sucessful at
handicapping horses or greyhounds (or camels in Australia),
i.e., Line 21 income with losses on Schedule A.

Dick

<< ------------------------------------------------------- > << The above is intended for educational purposes only. > << It does NOT constitute legal OR professional advice. > << It cannot be used by any taxpayer, for the purpose of > << the purpose of avoiding penalties that may be imposed > << upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >