Today, I received an inquiry from a citizen of New Zealand (he is not a US citizen or permanent resident). He had done well in a poker tournament here in the United States–well enough to have had 30% of his net winnings withheld. Non-US citizens who are not from a country with a Tax Treaty with the US where gambling income is exempted are subject to 30% withholding on gambling winnings. The gentleman had gambling losses in the US that exceeded his win. He wanted to know if I could file a Form 1040NR for him so he could get his withheld funds returned to him.
The problem is that except for Canadians and residents from tax treaty countries, there is no way to get that withholding back. Canadians are allowed to file a Form 1040NR and claim gambling losses up to the amount of wins, and get a refund. New Zealanders are not.
But he produced an email he had sent to another accounting firm along with their response. He asked the same question he asked me, with the same facts, and was told by that firm he could get a refund. He also referred me to an Internet article where someone said it was possible.
Well, the IRS was wrongly giving refunds a few years ago but they figured out there was a problem. The IRS redesigned Form 1040NR a couple of years ago; line 11 of Schedule NEC now states,
Gambling Winnings—Residents of countries other than Canada. Note: Losses not allowed.
I know the law in this area, and my correspondent is out of luck. He cannot legally get back his withheld funds. (If he is a professional gambler and has to pay tax to New Zealand on his winnings, he likely can get a tax credit on his New Zealand tax return to prevent double taxation.)
What bothers me isn’t the incorrect information on the Internet (I’ve come to expect that) but that my correspondent communicated with a supposedly respected accounting firm that should have known the right answer but either didn’t know or didn’t care to find out. I don’t know tax law well with respect to, say, the banking industry. Of course, if a bank were to approach me about doing their tax returns I’d decline the engagement and refer them to someone who does know that industry. My mother taught me that if you don’t know the answer to a question, saying “I don’t know but I’ll find out” is a great answer, and it’s one I use today. I hope that firm tries that answer out in the future. Their Errors & Omissions insurance carrier will appreciate it.