Archive for February, 2012

Recent Tax Court Ruling a Victory for Professional Gamblers: Professional Gambler’s Business Expenses No Longer Subject to Loss Limitation

Tuesday, February 21st, 2012

In a recent announcement, the Internal Revenue Service (" IRS ") issued an action on decision ("AOD") indicating that it will follow the Tax Court's decision in Mayo, (2011) 136 TC 81, which held that business expenses of professional gamblers are not subject to the loss limitation rules of Internal Revenue Code §165(d).  This ruling and AOD is a victory for professional gamblers. The IRS now takes the position that a professional gambler may fully deduct those business expenses incurred in pursuing gambling professionally.  As a result, if you are professional gambler, you can now deduct all your business expenses in pursuit of your gambling activities on Schedule C.

As a quick background, an AOD is a formal memorandum prepared by the IRS’s Office of Chief Counsel that announces the future litigation position that the IRS will take with regard to a particular court decision.  They are issued to enhance consistency with respect to future litigation or dispute resolution.  The IRS has now set forth its position with respect to business expenses of professional gamblers in this recent AOD, such that taxpayers now have some assurance of the position that the IRS may take with respect to possible future litigation or other dispute resolution on this issue. 

 

IRS Action on Decision Only Applies to "Professional Gamblers"

  

Before you can take advantage of this gambling deduction, however, you must be a classified as a professional gambler; this AOD does not affect those who gamble as a hobby.  Case law defines a professional gambler as someone engaged in the trade or business of gambling. Nardone Law Group, LLC's article "Tax Deductions for Professional Gamblers in Ohio,"  provides guidance to determine whether or not you are a professional gambler.  Generally, the IRS looks to all the facts and circumstances around your gambling activities to determine whether you are a professional gambler.  If you are a professional gambler, you may deduct gambling losses to the extent of your gains from wagering transactions. Prior to the IRS's AOD, deductible gambling losses included both gambling losses and those business expenses incurred in pursuit of your gambling activities.  The Tax Court made it clear, and IRS now agrees, that a professional gambler's expenses incurred to engage in the trade or business of gambling are not subject to limitation, but are fully deductible as ordinary and necessary business expenses under Internal Revenue Code §162.

  

Case Study―The Mayo Case

 

The Mayo case involved a professional gambler from California.  In 2001, Mr. Mayo wagered $131,760 on horse racing but he only won $120,463.  As a result, Mr. Mayo lost $11,297.  He also incurred $10,968 in business expenses, which included automobile expenses for travel to the racetracks and fees for race handicapping information and other research purposes.  The IRS initially disallowed all $22,265 of expenses because they exceeded Mr. Mayo's gross receipts from winnings.  The IRS argued that both the $131,760 in wagers and $10,968 in expenses were subject to the loss limitations.  The Tax Court disagreed and allowed Mr. Mayo to deduct the business expenses of $10,968 in full.  The Tax Court ruled those expenses were not a wagering loss, but ordinary and necessary business expenses incurred in pursuit of his gambling activities.  The remaining $11,297 excess wagering losses were disallowed under the normal rules of the Internal Revenue Code §165(d). 

 

The Result for Professional Gamblers

 

The IRS's AOD will provide professional gamblers with greater deductions for expenses incurred in pursuit of their gambling activities.  It will also allow professional gamblers to amend their last three years of returns where business expenses were not claimed because those years had reported gambling losses. If you are a professional gambler, you should consult the experienced tax attorneys at the Nardone Law Group, LLC to analyze whether you can take advantage of the new IRS policy.  Our tax lawyers understand what it takes for a gambling activity to raise to the level of a trade or business.  There are limitations on the expenses that qualify under the new IRS policy.  For example, deductible gambling expenses are not only required to be ordinary and necessary to conduct your gambling profession, they must also be reasonable. 

Contact Nardone Law Group, LLC

 

If you consider yourself a professional gambler and you incurred business expenses in pursuit of your gambling activities, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS in order to obtain tax deductions for professional gamblers. Our experienced tax lawyers will thoroughly review your case to determine whether you are a professional gambler such that you can deduct your gambling losses above your gambling winnings.  Contact us today to discuss your case.

 

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IRS Reopens the Offshore Voluntary Disclosure Program

Wednesday, February 15th, 2012

Well, tax attorneys and tax lawyers in Columbus, Ohio should remain busy in 2012. On January 9, 2012, the Internal Revenue Service announced that it reopened the offshore voluntary disclosure program ("OVDP") to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.
 
Background
 
The first OVDP was announced by the IRS in 2009 and applied to those taxpayers that voluntarily and timely disclosed unreported offshore income for 2003 - 2008. In February 2011, the IRS unveiled a second OVDP to give taxpayers with undisclosed income from hidden offshore accounts for the 2003 - 2010 tax periods the chance to get current with their taxes. The 2011 OVDP was originally available through August 31, 2011 but was extended through September 9, 2011. It carried higher penalties than the original disclosure program but the penalties could be mitigated under certain circumstances.
 
New program
 
The IRS says the new program is similar to last year's program in many ways. However, the IRS stresses that there are a few key differences. Unlike last year, there is no set deadline under the new program to apply. The IRS cautions, however, that it could change the terms of the program at any time. For example, it could increase penalties for all or some taxpayers or defined classes of taxpayers. In addition, the IRS may end the program entirely at any point. 
 
Penalty Structure
 
The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category. Under the new program, individuals must pay a penalty of 27.5% of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years before the disclosure (up from 25%). As under the 2011 program, some taxpayers will be eligible for 5% or 12.5% penalties under the new program.
 
Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. Participants face a 27.5% penalty;however, taxpayers in limited situations may qualify for a 5% penalty. Smaller offshore accounts face a 12.5% penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP qualify for this lower rate. Taxpayers who feel that the penalty is disproportionate may opt to be examinedinstead.
           
See the list below regarding frequently asked questions regarding the offshore voluntary disclosure program. It is important to note that these questions are likely not up to date. So, also please see the IRS News Release on the offshore voluntary disclosure program.

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