IRS question

Factual Questions
1

Lets say that after a drunken night in Vegas and a lucky streak, you end up winning a lot money but have no idea how much since you spent some buying drinks and hookers while still smashed. You know its around a million, but you can’t be sure.

When you do your taxes, you put on your form that for the year you earned $1000000.

Will the IRS look at that figure and think “Exactly one million dollars? That must be wrong! Audit!” or will they think “Probably close enough. No reason to look into this further”

2

The casino has to issue a form (maybe a W-2 or something) to the IRS stating your winnings (there may be a minimum reporting threshold). Don’t worry, the IRS has been thinking about this a lot longer than you have :slight_smile:

3

  1. Why declare it at all? Unless it was a slot machine payout of over $1100, the IRS has zero way of tracking your winnings.

  2. If you are overwhelmed by honesty, then declare what you have left in your wallet when you sober up.

  3. Although #1 has to be amended to account for the paperwork the casino has to file on any transaction over $10,000, just like a bank does. So go with the second option.

4

I could be wrong, never having won that much in Vegas, but I think every piece of documentation that the IRS gets, you also get. 1099s and what have you.

I do know that at racetracks, if you win more than a certain amount, and it used to be $600, you have to collect your winnings at a different window and they take the taxes out right there. When you file you can deduct the amount that you lost gambling against your winnings, and possibly get a tax refund on it, but they take it out before you even see it. Just like in your paycheck!

5

Sure, they might scream audit. But if you include the 1099 you got from the casino, and it matches up with the 1099 the IRS received from the casino, then they’d have reason to believe no audit is necessary.

Of course, everything is done these days by computers, and the algorithm they use to determine who gets an audit is about as secret as Fair Isaac’s FICO scoring model.

6

If you don’t have documentation to support 1,000,000 in “gambling winnings” you’re going to get audited. It won’t change if you’ve got a cutely irregular number like 1,023,361.22

if it doesn’t have paperwork it can be anything: money laundering, illegal drug smuggling, etc.

7

Well, that’s not strictly accurate. The IRS doesn’t know whether you have documentation or not until they audit you. Round numbers aren’t an automatic red flag - some people given themselves $1,000 (or whatever) to spend; they spend that much and no more.

But… if someone is audited and they don’t have the records required to back up the deduction, the auditor will have to make a decision about what to do. The decisions vary - some auditors are more lenient and sometimes there are rules that are more or less permissive of estimates or loose documentation. Without documentation, the auditor would be within his rights to deny 100% of the expenses, but my experience is that auditors are people too, and they can be swayed by reason. What they don’t put up are bad estimates. For example, there’s a classic court case on deducting expenses in which the courts denied a deduction for all the business mileage claimed by the defendant because it was shown that at least 2 of the 104 trips claimed would not actually have been made (you don’t go to work on Christmas and Thanksgiving), thus throwing the accuracy of the other 102 into doubt.

Someone else mentioned an algorithm for audits. There are algorithms, but there are also a certain number of random audits. Quite a few random audits were done a few years ago as part of a TIGTA study on tax compliance.

8

Casinos do not report the wins or losses of players with the exception of reporting slot machine wins of $1200 or more for a single game; i.e., you put some coins in (doesn’t matter how much) and win $1200 on one game, not when you sit and play for a while and win $1200 total over the course of several games. (Oh … They also report Keno wins but I’m unsure of the minimum required.)

They do report Cash Transactions of $10,000 or more; these are cumulative for a 24 hour period … e.g., you buy in for $2000, make one $5 bet, and cash out after one hand … do this 5 or more times within the 24 hour period and the casino has to file a CTR (Cash Transaction Report) even though you may have won or lost only a tiny amount of money or even actually broke even.

Casinos are also required to file a SAR (Suspicious Activity Report) if a person makes numerous cash transactions that appear to be an effort to evade the $10,000 CTR.

Just wanted to clear up these points. You are on your own when it comes to dealing with the IRS.

9

I inarticulately worded what I was trying to say:

posting 1 mil in gambling winnings (again, assuming no gambling 1099 (i think that’s the form) in their computer system to sync up with your SSN) will invite an automatic looksey from a human IRS employee. if you don’t put some documentation in with your 1040 that better elaborates upon the 1,000,000 in gambling winnings, you will then get audited.

(this isn’t from experience or anything, but I can’t imagine this not being the case. the point being, that making it a round number or not won’t change how they’ll look at a tax return showing significant gambling winnings unaccompanied by the requisite tax forms)

10

You are incorrect. Casinos can, will and do issue 1099s to large winners of games beyond slots and keno. It also includes table games, bingo, poker, and pretty much every other game in the house. They can also with hold income tax on winnings over $5000

ETA: Winnings can be documented on a W-2G as well

11

Ok, I forgot about poker tournaments … but if you are telling me your local poker room knows how much you won or lost last year on non-tournament ring games, I would surely like to know how they do that.

As for Blackjack and Craps and the other table games, yes, they make a estimate of the win/loss of regular players and will provide that info to the player on request … but no Vegas casino I ever worked in in 25 years ever automatically sent such information to anyone.

12

Well, let’s see. How much did you cash into chips? How many chips did you cash in at the end? There’s your winnings-- Not rocket science at all.

Here is an IRS ruling from 2007 that not only must poker winnings be reported, the tournament organizer has a legal obligation to report those winnings to the IRS: http://www.irs.gov/irs/article/0,,id=174937,00.html

Anecdotes =/= facts. 60 seconds on Google will confirm that this is a regular occurrence.

It should be noted that it’s almost impossible to get a 1099 playing $5 hands… If one only gets hit with a 1099 or W-2G, they should be lucky, the IRS has also obligated to withhold income tax at the casino under certain circumstances.

Also, as noted, the casinos do not report your net winnings, they report your gross winnings. It’s on you to report and substantiate the losses to be deducted from the winnings on your tax return (Schedule A, IIRC, though I am no tax lawyer or CPA)-- perhaps this is the source of your confusion?

13

/sigh

With the exception of cash transactions of $10k or more which require a CTR to be filed, nobody records how much poker players buy in or cash out. It just isn’t feasible; people come to the table with chips, people buy chips at the cage, people buy chips at the table from the dealer, people buy chips from other players at the table, people put cash in the pot (in Nevada they do, I don’t know about other states), people go home with their chips because they know they are coming back tomorrow … no possible way for anybody to even attempt to track how an individual did in live poker.

Yes, I’m quite aware that winnings are reported in tournaments of a certain size. The OP did not seem to be talking about winning a million dollars in a major poker tournament, he asked about getting drunk and lucky. Tournaments with that kind of prize pool take several days to play; they’re not spur of the moment binge affairs and no drunk tourist has ever come close to winning one.

I don’t feel 25 years working in the casino industry and an additional 20 years as a professional gambler amount to anecdotes; I suggest that my experience will provide better answers than 60 seconds on Google. I have filed thousands of CTRs on players as part of my job and I have filed tax returns as a professional gambler for well over 20 years, since a significant portion of my income came from playing even during the years I had a job.

We have mentioned the specific cases of slot machines, Keno, and poker tournaments; notice that these all have a specific buy in and a specific pay out. Such is not the case with live table games or card games in which money and chips come into play from various sources and change hands very quickly, making it impossible to track with the kind of accuracy that would be required to file a legally binding document stating a certain amount of win or loss.

With the aforementioned exceptions, casinos do not report your winnings to any government agency … it just isn’t possible. The main documentation that professional gamblers provide to the IRS is a personal daily diary of their results, although some, such as professional slot players, will also have stacks of papers from slot jackpots.

How a drunken tourist who happens to beat the table games and who manages to actually make it home with a large of money handles his tax situation is between him and the IRS. The casinos simply do not get involved. I’ll mention also that it is such a rare occurrence, the IRS isn’t very concerned with it either.

These are anecdotes: In all my years in casinos, I saw one guy buy in on a Blackjack game for $100 and start betting $5/hand. He started winning and gradually increasing his bets. He won $10,000 and left the casino but I don’t know if he actually made it home with the money. I saw a local woman, a regular player who routinely started betting $25/hand and usually lost a thousand or two get drunk and pull ahead $60,000; she went home broke. And I saw an unknown drunk pull ahead $267,000 on Craps; he also went home broke. While big players regularly win or lose thousands or even hundreds of thousands of dollars, those three are the only times I have seen a low level player hit a streak that got to $10k or more. Sorry if this crushes anybody’s dream, but except on very rare occasions, to win big you gotta bet big.

Hope this has cleared up any confusion.

Good luck.

14

<sob>

So much for my dreams of retiring to a life of leisure after our trip to Vegas next month. Not at the level I play at.

15

I have lived for about the last thirty years in Nevada and have no first hand accounts of winnings or losings to share. There are lawyers who specialize in large winning if you need assistance.

I do have second hand knowledge of a related problem. Some casinos have prizes for a ‘jackpot’ winner perhaps a jeep or a boat or something. A friend of my late MIL won a car. She paid the taxes but the car was never delivered. The last I heard one of the lawyers mentioned in the preceding paragraph was working on it.

16

Thanks for the info Turble. Crushed my dreams too, but oh well :frowning:

17

So is a US citizen required to pay taxes on winnings gained outside the country? I’m thinking of, for example, Canadian lotteries, which are tax free.

18

Yes, US citizens are expected to report income and pay appropriate taxes on all income, foreign or domestic. There are numerous codified exemptions, to my knowledge gambling winnings are not one of them.

19

My citation from the IRS contradicts your assertions. Although I have a hard time giving credibility to the assertion that casinos are willingly flaunting the tax code, I can’t say they aren’t. Absent any factual citations to support your claims, I think it’s best we agree to disagree.

20

Your citation http://www.irs.gov/irs/article/0,id=174937,00.html is titled “Poker Tournament Winnings Must be Reported to the IRS”. You are absolutely right and I agree 100% that Poker Tournament Winnings Must be Reported to the IRS.

You seem to be missing the distinction between tournament play and live poker (called “ring games” by players.)

In tournaments there is a set buy in and a set pay out, making it simple to precisely document a player’s results. In ring games, for reasons I previously stated, it is all but impossible for anyone other than the player to document results.