Start the New Year Right, Start Keeping a Gambling Diary

The years seem to be getting shorter each year. It's hard to believe it is nearly 2003. It seems like only yesterday that we were celebrating the new millennium. Do you make New Year's resolutions? All gamblers should make at least one resolution, to start keeping a gambling diary, as the IRS requires. The diary should be maintained on a transaction basis, right then and there before you leave the establishment. There is no IRS requirement as to what the diary is made of, but we think a hard-bound columnar pad, available in any office supply store, works the best. You cannot lose any pages, and it looks "good" to the IRS. If you record the specifics every time you play and immediately after you finish, you are less likely to make a mistake or fail to record your session altogether. What needs to be recorded in your diary per the IRS?

In order to substantiate a deduction of your gambling losses, you must keep meticulous records of your gambling activities. Should you unexpectedly win a large amount of money, you had better have records of your other gambling activities so that you can claim losses to the extent of your total wins to reduce the tax bite that comes with such a win. The burden of proof is on you! 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. This procedure contains the guidelines for gambling activity. Below are pertinent excerpts from this regulation, which states, an accurate diary or similar record must be maintained, and the diary should contain at least the following information:

1. The date and type of your specific wager.

2. The name of the gaming establishment.

3. The address or location of the gaming establishment.

4. The names of other person(s) (if any) present with you at the gaming establishment.

5. The amount(s) you won or lost.

Different types of wagering have requirements in addition to the five listed above as to the information to be included in your diary. It is often expressed by the misinformed that a journal is all that is needed to substantiate your winnings and losses. That is a misconception. The IRS lists a number of items that should be used to back up or support the entries in your diary: "You need to have documentation such as W2-Gs, wagering tickets or receipts, canceled checks, credit records, bank withdrawals, and any receipts provided by the gambling establishment."

To be considered proof, a receipt must be dated, state the amount received, contain the names of the parties involved, and either be stamped "paid" or signed. To further elaborate upon the subject of "signed" records, an IRS spokesperson recently suggested that your log should also be signed or initialed by an employee of the gaming establishment, preferably a pit boss or floorman (what are tips for, anyway?). It is the job of these people to observe the players and therefore their testimony will carry far more weight than that of a cashier (should you need it in U.S. Tax Court). To make your journal more credible, make your entries in ink and maintained as you go. A journal that is made out years after the fact will be disallowed if discovered. Most such attempts to "paper your trail" after the trail is long cold are supposedly easy to spot. (Normally, a review or audit of your return will not occur until several years after you file it.) The IRS states that any documentation must be "highly legible," which means it would be wise to neatly print your journal.

Another reason for maintaining records is that they can be of help to you years later. The IRS and the courts have routinely recognized the validity of accurately and honestly maintained gambling records. In fact, there was a case in which a taxpayer's diary for a given year was lost when his car was stolen, but he was allowed by the court to "reconstruct" the diary because the court considered him to be honest and forthright due to the fact that he had previously filed his tax returns based upon what the court considered to be accurately maintained diaries. So, this gambler's diligence over the years paid off, because it enabled him to convince the court to allow his reconstructed data.

Record keeping may seem to be and probably is a pain, but it is part of the tax law, part of reality, and something you should start doing immediately if you are not already doing so. This is especially true if you are one of the large army of recreational players who loves to play tournaments, or you pursue the progressive jackpots on poker machines. Having one lucky day and receiving one big W2-G with no record of offsetting losses will result in your paying substantially more in taxes than is necessary.

Editor's note: As enrolled agents, in addition to tax preparation, Yolanda Roche and Roger C. Roche are licensed by the Treasury Department to represent and defend clients before the IRS nationwide. Their book, The Tax Guide for Gamblers, is the most comprehensive one on the subject. See their web site at www.rbstaxes.com for more information regarding their practice, articles, and useful tax links. They do business by appointment only as RBS Tax Services, are located in Las Vegas, Nevada, and can be reached at (800) 829-7271. They also maintain an office in California.