MEMO

Tax Project

Tax Project

Introduction

This is a response paper where it is assumed that my client is a professional gambler. He has come to me requesting to formulate a complete memo and conduct an analysis. For this purpose the memo shall consider current IRS thinking and case law. Further, there are other significant elements that need consideration to prepare the memo. Those elements are; how losses are to be treated, Trade or business consideration, losses that would be reflected on the tax return, proper income tax return presentation and the final element shall be to make distinction if such individual's day job was that of an accountant and he/she was only a part time gambler.

Discussion

Issue:

Client is a professional Gambler so what Tax considerations he needs to focus upon?

Authorities:

IRC section 501 (c) (6)

James v. United States, 366 U.S. 213 (1961)

McClanahan v. United States, 1961

Barrish v. Commissioner, 1984

Groetzinger v. Commissioner, 1987

Conclusion

It can be concluded that professional gambling may result in profitable situations since the government has laid down some rules that presents that the winning amount is tax deductible. Secondly, the gamblers who spent more time than normal on gambling or in other words whose major source of income is from gambling are also given relief. Further, either an individual is part time gambler or full time, in both cases he shall be considered as professional gambler as declared by Tax Court.

Analysis:

Professional Gamblers

Over last few decades, only some of the courts have attempted to laid down a definition of a professional gambler. The basic rule that signifies the gambling as a profession is to devote quite a lot of time in gambling activity regularly (Groetzinger v. Commissioner, 1987). Further, the person must depend on gambling for his regular source of income. The professionals may take it as a business and keep a strict track record by maintaining the record of losses and wins by evaluating and developing new and innovative strategies (smartmoney.com).

Moreover, if the person can easily gain the status of professional gambler, then he is supposed to record his winning amount as income on Line 1 of Schedule C of Form 1040 and wheather it is legal or illeagal, it is taxable (James v. United States, 1961). Further, he is suppose to record his loss amount and the allowable out of pocket expenses, which are actually termed as his business expense on schedule c. It must be noted here that the allowable out of pocket expense of the professional gambler may get deduct in complete on Schedule C without considering any significance of the winning amount. In short, it can be said that the professional gambler is not suppose to combine the out of pocket expenses with the loss occurred from gambling (smartmoney.com).

Further, in Line 21 of form 1040, in the section “other income” is where the gambling income is claimed and in “other expenses” section gambling losses are claimed. An individual who chose not to itemize the dedcuation and follow standard deduction on schedule A, may not subtract the ...