For about the past week, I’ve been playing low-limit poker online (partypoker.com, specifically). I’m up $600 and, judging by the general quality of the competition at these games, should be a consistent winner.
Should I put my winnings down on a tax return? If the IRS expects me too, would they realistically find out about the winnings if I fail to report? (As I understand it, you receive the winnings by cashing out, at which point the company sends a check.)
The risk of being audited is probably low, but as pointed out you are required to report it as income. I believe you can also claim your losses, but only to the extent that they offset your winnings. The casino is required to report payouts to the IRS, so they will have a record of your winnings. It’s just a matter of your comfort level, really.
I knew lots of folks who never claimed money they banked on per diem payments and who were never audited. It’s just normally not worth the IRS’ time to pursue small offenders.
Sounds to me like they intend to report your winnings. Comparison of your return to reported income isn’t the same as an audit, and I believe it’s automatic. They may just consider it an error, and politely demand the extra payment plus penalty.
Not true, TaxGuy. Failure to file is not as frequently prosecuted as attempts to hide income by various means – that is, filing but deliberately undereporting income.
In the OP’s case, criminal prosecution is unlikely, although certainly possible, if he deliberately fails to include income.