For a client who received a CP2000 proposing tax on unreported W-2Gs. This is the cheapest point at which to resolve a gambling case; answer within the deadline or ask for more time.
Step 1 Agree with the W-2Gs as facts
The W-2Gs are usually accurate as far as they go. Do not dispute that the jackpots happened; dispute that they were income.
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 2 Show the session result
Provide a session worksheet tied to the W-2Gs, win/loss statements and bank records, and cite CCA 2008-011, Shollenberger and 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 3 Losing sessions
If the client itemizes, include losing-session losses on a corrected Schedule A, limited to gains (and to 90 percent for 2026 and later).
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 4 Burden of proof
The IRS determination is presumed correct, and the taxpayer must prove the session results. Credible records can shift the burden on factual issues.
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.
- Lutz v. Commissioner of Internal Revenue (2002) cited by 19
- LaPlante v. Commissioner of Internal Revenue (2009) cited by 16
- Doffin v. Commissioner of Internal Revenue (1991) cited by 15
Step 5 Penalty
If the notice proposes an accuracy-related penalty, raise reasonable cause and check for written supervisory approval.
Leading cases
- Mack v. Commissioner of Internal Revenue (1970) cited by 29The court also ruled that failing to keep records of his betting was negligence, however innocent.
- Mack v. Commissioner of Internal Revenue (1969) cited by 21
- Norgaard v. Commissioner of Internal Revenue (1991) cited by 20
- Lutz v. Commissioner of Internal Revenue (2002) cited by 19
All 106 authorities on Accuracy-related penalty (section 6662) →
In the treatise: Chapter 17 · Chapter 22 · Chapter 29 · Chapter 31