For any return with Forms W-2G. The W-2G total is where the work starts, not the answer. Measure the session results first, then decide how to present them.
Step 1 Wagering gains are income
Every wagering gain is gross income, reported or not. The question is what a gain is: under Glenshaw Glass and Doyle, gross proceeds minus basis, not gross winnings.
Leading cases
- Donovan v. Commissioner of Internal Revenue (1966) cited by 30
- Internal Revenue Code Section 61(a) (1954) cited by 24
- Internal Revenue Code Section 61 (1954) cited by 21
- Appeal of Frey (1925) cited by 15
Step 2 Confirm the activity is wagering
Confirm that each activity is a wager. Prizes with no wager are Section 74 income and are not netted against wagering losses.
Leading cases
- Schooler v. Commissioner of Internal Revenue (1977) cited by 43The Tax Court ruled for the IRS because that evidence did not show his actual results for the year.
- Winkler v. United States (1956) cited by 26
- Boyd v. United States (1985) cited by 20
- LaPlante v. Commissioner of Internal Revenue (2009) cited by 16
Step 3 Measure each session
Build a session worksheet: for each session, what the client brought (basis) and what the client left with (gross proceeds). Jackpots played back within a session are not income (CCA 2008-011; Shollenberger; Park).
Leading cases
- 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.
- LaPlante v. Commissioner of Internal Revenue (2009) cited by 16
- Shollenberger v. Commissioner of Internal Revenue (2009) cited by 15
- IRS Chief Counsel Advice Memorandum 2008-011 (2008) cited by 7
All 16 authorities on Sessions, netting, and the wagering transaction →
Step 4 Tie the W-2Gs to the sessions
Assign every W-2G to its session. Report the full W-2G total on the gambling line so the matching program is satisfied, and reduce it by a labeled Gambling Session Offset to net session gains.
Leading cases
- Schooler v. Commissioner of Internal Revenue (1977) cited by 43The Tax Court ruled for the IRS because that evidence did not show his actual results for the year.
- Norgaard v. Commissioner of Internal Revenue (1991) cited by 20
- Lutz v. Commissioner of Internal Revenue (2002) cited by 19
- LaPlante v. Commissioner of Internal Revenue (2009) cited by 16
Step 5 Losing sessions
Losses from losing sessions are wagering losses: an itemized deduction for a casual gambler, limited to wagering gains. If the client takes the standard deduction, those losses are lost.
Leading cases
- Internal Revenue Code Section 165(d) (1954) cited by 84
- Commissioner of Internal Revenue v. Groetzinger (1987) cited by 50The Supreme Court ruled for him, 6 to 3: someone who gambles full time, regularly and in good faith to earn a living, not as a hobby, is in a trade or business.
- Schooler v. Commissioner of Internal Revenue (1977) cited by 43The Tax Court ruled for the IRS because that evidence did not show his actual results for the year.
- McClanahan v. United States (1961) cited by 32It ruled that a gambler must report his winnings and claim his losses as a deduction, and once he admits the winnings, it is up to him to prove the losses.
Step 6 The 90 percent limit
For 2026 and later, only 90 percent of wagering losses are deductible. Apply the limit to losing-session losses, not to the jackpots netted within sessions.
Authority
- Internal Revenue Code Section 165(d) (1954) cited by 84
Step 7 Records
Check the records that support the worksheet: a contemporaneous diary under Rev. Proc. 77-29, win/loss statements by day, and bank and ATM records.
Leading cases
- Internal Revenue Code Section 6001 (1954) cited by 38
- Norgaard v. Commissioner of Internal Revenue (1991) cited by 20
- Lutz v. Commissioner of Internal Revenue (2002) cited by 19
- Revenue Procedure 77-29, 1977-2 C.B. 538 (1977) cited by 18
Step 8 Disclose
Attach a Form 8275 disclosure stating the item, the facts, the position and the authority. Disclosure with a reasonable basis protects against the substantial understatement penalty.
Leading cases
- Lutz v. Commissioner of Internal Revenue (2002) cited by 19
- Stein v. Commissioner of Internal Revenue (1962) cited by 16The Tax Court ruled for the IRS on every issue: his notes showed no actual bets and could not be checked, so he had not proved any further losses, and it upheld negligence and estimated tax penalties.
- LaPlante v. Commissioner of Internal Revenue (2009) cited by 16
- Calvao v. Commissioner of Internal Revenue (2007) cited by 15
In the treatise: Chapter 5 · Chapter 6 · Chapter 13 · Chapter 22 · Chapter 23 · Chapter 24