A win for American professional gamblers

The US Tax Court handed down a ruling recently that should have US pro gamblers celebrating.

In January a full bench (16 judges) of the court held that professional gamblers are able to deduct business expenses just as any other professional.

Previous limitations on deductions

The notion that US pro gamblers can deduct expenses is not new.  Back in 1987 the US Supreme Court held that professional gambling can be considered a trade or business.

“If a taxpayer devotes his full-time activity to gambling and it is his intended livelihood source, it would seem that basic concepts of fairness (if there is much of that in the income tax law) demand that his activity be regarded as a trade or business just as any other readily accepted activity”  [Groetzinger v. Comr]

It followed from this that gambling-related expenses could be deducted.  The catch however, was that until now expenses could only be deducted to the extent that (combined with losses), they do not exceed winnings. In other words, if your net position at the blackjack table (for example) was break even, any other expenses you incurred (travel, accommodation etc) could no longer be claimed.

Tax court ruling

In the present case, Californian professional punter Robert Mayo claimed expenses of $10,968 related to travel to the racetracks and fees for race handicapping information, despite incurring a wagering loss ($131,760 staked, $120,463 collected) on his wagers.  The IRS challenged the validity of the expenses claim.  The Tax court upheld it as legitimate.

The implications of the decision are pointed out by ISU law professor Roger McEowen…

“It also is important because it allows professional gamblers to utilize negative operating losses arising from their gambling business.”

Expenses like airfares, hotel rooms, research material etc can all now be deducted regardless of net gambling position and applied to a net operating loss that is able to be carried forward.

The message for pro-gamblers

List all expenses related to your gambling activities.  Of course normal reasonableness tests will apply (airfares OK…buying a Learjet the IRS may question) but where normal deductibility tests are satisfied then these expenses should be claimed.

Of course for live online casino games, this would include your:

• computer complete with large flat-screen terminal;
• super high speed Internet connection;
• super comfy gaming chair;
• surround sound speakers;
• etc, etc