Why You Keep a Gambling Log
The Tax Court reviewed the case of a couple that enjoyed playing the slots in Atlantic City. The IRS thought that the couple were winners; the couple alleged that they lost. What would the Tax Court say?
Terri and Austin Hartsook won $230,825 playing slot machines in 1999 and $293,750 in 2000. They claimed gambling losses (as an itemized deduction) of the same amounts. The IRS allowed at trial $76,314 of losses in 1999 and $55,750 in 2000. According to the Hartsooks, the IRS disallowed all gambling losses at Harrah's.
The Hartsooks received numerous W-2G's from Harrah's. The Hartsooks used a formula to calculate their losses:
There's a problem with this. "[The Court is] unwilling to rely on Mr. Hartsock’s self-serving and uncorroborated testimony and the self-serving and uncorroborated workpapers that petitioners prepared in order to establish that they incurred gambling losses at Harrah’s on certain dates during 1999." Additionally, they didn't have any evidence to show gambling losses in 2000.
What should they have had? A contemporaneous logbook would have been a good start. If they belonged to Harrah's slot club, they should have gotten a printout of their wins and losses. (Of course, they'd also have to claim the gambling wins that were not shown on W-2G's.) In any case, not only did they lose on the gambling losses, the Court upheld a negligence penalty.
So the next time you play the slots, we hope all you do is win (so you don't have to worry about the losses). But if you do lose, write it down correctly in a logbook and you should be protected if the IRS knocks on your door.
Case: Hartsook v. Commissioner, T.C. Memo 2006-205
Terri and Austin Hartsook won $230,825 playing slot machines in 1999 and $293,750 in 2000. They claimed gambling losses (as an itemized deduction) of the same amounts. The IRS allowed at trial $76,314 of losses in 1999 and $55,750 in 2000. According to the Hartsooks, the IRS disallowed all gambling losses at Harrah's.
The Hartsooks received numerous W-2G's from Harrah's. The Hartsooks used a formula to calculate their losses:
"As we understand the way in which petitioners calculated their claimed gambling losses at Harrah’s, petitioners multiplied the number of minutes between gambling winnings at a $100 slot machine or a $25 slot machine, as reflected on the respective Harrah’s substitute Forms W-2G with respect to Aug. 13 and 14 and Sept. 4, 1999, by the amount that they estimated they would have been able to wager within a minute in such a $100 slot machine or such a $25 slot machine if they had played two coins at one time. Mr. Hartsock testified that he would have been able to wager within a minute $1,200, “give or take $200”, in a $100 slot machine and $300 in a $25 slot machine. Mr. Hartsock testified that petitioners reduced the amount so calculated to reflect that they would not have been constantly wagering in slot machines that they were playing because they would have stopped wagering to light up cigarettes, get drinks, or talk with others."
There's a problem with this. "[The Court is] unwilling to rely on Mr. Hartsock’s self-serving and uncorroborated testimony and the self-serving and uncorroborated workpapers that petitioners prepared in order to establish that they incurred gambling losses at Harrah’s on certain dates during 1999." Additionally, they didn't have any evidence to show gambling losses in 2000.
What should they have had? A contemporaneous logbook would have been a good start. If they belonged to Harrah's slot club, they should have gotten a printout of their wins and losses. (Of course, they'd also have to claim the gambling wins that were not shown on W-2G's.) In any case, not only did they lose on the gambling losses, the Court upheld a negligence penalty.
So the next time you play the slots, we hope all you do is win (so you don't have to worry about the losses). But if you do lose, write it down correctly in a logbook and you should be protected if the IRS knocks on your door.
Case: Hartsook v. Commissioner, T.C. Memo 2006-205