Question

Facts: Frank J. Wilson is a part-time CPA earning wages of $80,000 annually. Mr. Wilson is also a professional blackjack player whose gambling activities rise to the level of a trade or business. In some years he’s won a lot of money (over $1 million in winnings once), and in others he’s lost a lot of money. This year, Mr. Wilson generated $25,000 in winnings and $216,000 playing blackjack.

Mr. Wilson keeps meticulous records of his gains, losses and expenses. Besides gambling winnings and losses described above, this year Mr. Wilson also incurred $15,000 in ordinary business expenses in conducting his gambling business (mainly, compensation for a part-time secretary). The casinos picked up his meals, entertainment, and room costs of $150,000, that is, he was “comped” for these costs.

Issue 1: In 2020, to what extent are the losses and expenses related to Mr. Williams’ gambling deductible?

Issue 2: If the year were 2015, would your answer to Issue 1 change?

Please answer the following questions based on the facts and issues:

1) Give a simple, nontechnical 1 sentence answer to the question posed.  

2) What is (are) the Code section(s) at issue?  

3) Are any Treasury Regulations relevant?

4) List the case/ruling authority on which you relied to arrive at your answer (please provide the name of any case, not just a citation).

Answer 1

As per IRS rules Gambling losses can be deducted only to the amount of Gambling Income. However, no expenses can be claimed while filling form W-2G.

Issue 1 - Since Mr Williams had no losses he needs to report the entire amount as taxable. His expenses are not tax deductible.

Issue 2 - Answer would not change

1) Mr Williams need to report income of $241,000 for the year. Since he has no losses for the same year he is not eligible to any deuctions. His expenses cannot be claimed as deductions (Unless he can show that the secretary was also used in his CPA business)

2) IRS topic 419