The Tax Court looked at another gambler’s attempt to write off substantial gambling losses. She claimed a losing year, but the IRS felt otherwise. Did she really have gambling losses, or were they a mirage?
Gamblers, both professional or amateur, must keep a contemporaneous written log. If you do keep such a log, you’ll be able to substantiate your wins and losses. In today’s case, however, the gambler didn’t keep a log. She claimed $244,744 in losses, but the IRS only allowed $127,165 (after the gambler found casino ATM receipts, canceled checks made payable to casinos, carbon copies of checks made payable to casinos, and credit card statements stating that cash was advanced at the casinos). What about the remaining $117,579?
The court summarized the problem most ably:
“In order to establish entitlement to a deduction for gambling losses in this Court, the taxpayer must prove the losses sustained during the taxable year…Petitioner failed to present credible evidence of gambling losses beyond those respondent conceded. Petitioner did not maintain a diary or any other contemporaneous record reflecting either her winnings or her losses from gambling during 2002. Further, petitioner’s gambling income of $265,795 for 2002 was established only by an examination of her Forms W-2G, Certain Gambling Winnings, and petitioner appeared unaware of the specific figure until confronted by respondent. At trial, petitioner submitted no evidence to validate her claimed gambling losses, relying only on the theory that her losses must have equaled her earnings because she found herself in debt at the end of the year. We conclude that petitioner has failed to satisfy her burden of substantiating her losses.”
There are two problems. First, the Court is very suspicious of a gambler whose only winnings are those reported on the W-2Gs. It’s almost certain that the petitioner had other slot winnings which didn’t result in the issuance of a Form W-2G.
Second, and most importantly, she had no documentation to prove her losses. Telling the Court, “I’m broke, so I must have lost,” may be logical (and may indeed by factual), but it doesn’t show proof of the facts. She had no proof, and the petitioner got three lemons for her decision.
Case: Jackson v. Commissioner, T.C. Memo 2007-373