For a client who accepts wagers rather than places them: a sportsbook, a bookmaker or a gambling operator.
Step 1 Measuring the business's income
A bookmaker’s gross income is receipts less payouts to winners and refunds, as the Board held in McKenna in 1925.
Leading cases
- Estate of Todisco v. Commissioner of Internal Revenue (1985) cited by 7
- Delsanter v. Commissioner of Internal Revenue (1957) cited by 6
- Gordon v. Commissioner of Internal Revenue (1974) cited by 6
- Mesi v. Commissioner of Internal Revenue (1955) cited by 4
Step 2 Illegal operations
Income from illegal gambling is taxable like any other.
Leading cases
- Green v. Commissioner of Internal Revenue (1976) cited by 27
- Offutt v. Commissioner of Internal Revenue (1951) cited by 26
- Winkler v. United States (1956) cited by 26
- Skeeles v. United States (1951) cited by 20The Court of Claims ruled for the government: the specific rule that gambling losses can only offset gambling winnings (section 23(h)) controls even for a professional gambler.
Step 3 Excise and occupational taxes
The excise tax is 0.25 percent of wagers authorized under state law and 2 percent of others; the occupational tax is $50 or $500 a year, with registration on Form 11-C.
Leading cases
- Estate of Todisco v. Commissioner of Internal Revenue (1985) cited by 7
- Gordon v. Commissioner of Internal Revenue (1974) cited by 6
- Bennett v. Commissioner of Internal Revenue (1968) cited by 3The Tax Court ruled that a betting business that size must have paid out at least 25 percent of the money bet, and it allowed half his New Orleans apartment costs and a robbery loss.
- Garner v. United States (1972) cited by 2
All 25 authorities on Wagering excise and occupational taxes →
Step 4 Fraud and criminal exposure
Unreported receipts in a gambling business are a common source of fraud penalties and criminal cases.
Leading cases
- Green v. Commissioner of Internal Revenue (1976) cited by 27
- Norgaard v. Commissioner of Internal Revenue (1991) cited by 20
- Norgaard v. Commissioner of Internal Revenue (1989) cited by 12
- Gano v. Commissioner of Internal Revenue (1930) cited by 9It also taxed him on dividends on stock held in his wife's name and upheld fraud penalties for 1920 and 1921, though he won a few small deductions and defeated the government's fraud claim for 1922 and 1923.
In the treatise: Chapter 41