Time to Empty the Mail Bag

It has been quite a while since we answered questions from readers, so here goes. As we all know, poker, as well as gambling in general, is growing tremendously, so we have included here even the most basic questions as a service to those who are not as experienced as those of you who have been following this column for years.

Question: I enjoyed your column in the recent issue of Card Player. (Take note, starting your question in this manner ensures that we will answer it … just kidding, but kudos are appreciated.) I have a question for you regarding my 1999 taxes, which my accountant is having some trouble with. I am a nonresident alien, presently in the United States on an H-1B visa. I declared $38,000 in poker winnings for 1999, as well as $38,000 in poker losses. The IRS claims that I cannot offset the losses from the wins, as I am a nonresident alien. Do you have any insight into this situation? I cannot believe that if I entered the World Series of Poker for $10,000 and ended up winning $15,000, I would have to pay taxes on the entire $15,000 instead of on just the $5,000 profit. The IRS seems to think that the entire payout is taxable.

Answer: Congress, when it wrote Section 165(d) of the Internal Revenue Code, stated: "Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions." It does not limit this right only to citizens. We have filed a 1040NR (nonresident) return for numerous Canadians, and have been allowed to deduct losses from winnings. However, this is a much more complicated issue than it appears on the surface. The United States makes tax treaties with many countries with the purpose, among others, of avoiding double taxation. These treaties often have a provision for special treatment of gambling wins and losses. Not knowing the country of which you are a citizen, we cannot answer your question with certainty. Have your accountant research the tax treaty for your country, and if deducting losses is not prohibited, ask for a supervisor at the IRS.

Q: I won $3,800 last year, and inasmuch as I am just a lower-income person with estimated income of $22,000 plus the $3,800, and have no deductions other than those allowed as standard deductions, I cannot itemize my gaming losses, can I? Or, is there any way to save on this tax; the extra means my getting back $525. A friend told me to just pick up some losing tickets, but another friend said that won't help unless I itemize my deductions. HELP!!!

A: We wish we could help, but you are caught in that never-never land that prevents you from deducting your losses. Since the amateur gambler must report gambling losses on Schedule A, Itemized Deductions, if you have no other itemizable deductions and your gambling losses are less than the standard deduction, you are better off using the standard deduction instead of itemizing deductions. On the surface, this does not seem fair, and we agree. The way the IRS implemented the law, by including gambling losses with itemized deductions, is defended by the logic that gambling losses were considered in the formula that determines the standard deduction. We would like to see gambling losses deducted on the front of the 1040 form on a special line for gambling. This would fulfill the intent of Congress when it wrote Section 165(d). This appears to be a good research project for you, to determine if there has been any legal challenge of the IRS for putting gambling losses on Schedule A.

Q: I am writing in response to your previous two columns in Card Player. While I believe these columns were well-intentioned, they are very incorrect and play right into the hands of the IRS, which uses intimidation rather than law to collect taxes. Allow me to clarify some points: THERE IS NO LAW THAT REQUIRES ANYONE TO KEEP RECORDS IN REGARD TO INCOME TAXES!! There is no section of the Internal Revenue Code that states that anyone shall keep records of any kind in regard to income taxes. One of your columns stated in part, "It is your responsibility to keep a diary or similar records of your winnings and losses as specified by the IRS in Revenue Procedure 77-29." Allow me to remind you that a so-called "statute" in the IRS revenue procedure manual is not a law. Only a statute in the Internal Revenue Code may be considered a law if it does not conflict with the Constitution. I would appreciate a response to this letter, and would absolutely love to see it reprinted and responded to in Card Player.

A: We hate to take the wind out of your sails, but it is obvious that the "law" is more than the Constitution and the laws enacted by Congress. As occurs with many laws, the department of the government that is responsible for enforcing the laws is granted the authority to make what rules and regulations are necessary to implement the laws. These rules and regulations have the force of law. There is a pecking order as to what prevails if there is a conflict between a rule made by a regulatory agency and, say, the Constitution. The Constitution would prevail, obviously! In our case, the Constitution is mute regarding gambling and record keeping; therefore, the rules and regulations made by the U.S. Treasury Department and its subordinate, the IRS, have the force of law.

How to contact us: We do business under the name of R.B.S. Tax Services. Our mailing address is: 8170 W. Cheyenne, Suite 109, Box 177, Las Vegas, NV 89129. We accept questions and comments by mail and E-mail. We are now accepting new clients; see our ad elsewhere in this issue or contact us at (800) 829-7271 or (702) 804-0439. We are licensed by the U.S. Treasury Department to practice nationwide.