Johnny Chan Case Summary
Client's Profile
Our client Johnny Chan is a part time casino entertainment consultant at MGM Resorts International earning salaries of $98,000 annually. Mr. Chan is also a professional poker player, whose gambling activities are in the level of a trade or business. In the year of 2015, Mr. Chan generated $103,000 in poker tournament winnings and also lost $112,000 at the games. Mr. Chan kept detail records of his gambling gains, losses and expenses. In addition to the $103,000 in gambling winnings and $112,000 in wagering losses, Mr. Chan also incurred $13,000 in business expenses including travel, lodging and admission costs. These expenses were directly related to his professional poker events. The following analysis shows how the gains from gambling are reported, also to determine whether the losses and expenses are deductible.
Taxability of Gambling Gains & Losses
In reference to TGA ¶ 13260, "Income derived from wagering transactions...card playing must be included in gross income". Along with the …show more content…
Though IRC §162(a) also indicates the allowance of deduction for "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business", the §165(d) override and limits the applicability of §162(a) to the deductibility on gambling losses according to the case of Roy T. Offutt v. Commissioner, 16 TC 1214. The ruling of tax court expands that a taxpayer’s gambling losses are only able to be offset by gambling gains, excluding active wages or income from other non-gambling sources. In order words, gambling losses will never be treated as an expense nor deducting or offsetting to ordinary income. Therefore, the client's gambling losses of $112,000 are only deductible to the extent of his gambling gains of $103,000 under the limitations of IRC
Our client Johnny Chan is a part time casino entertainment consultant at MGM Resorts International earning salaries of $98,000 annually. Mr. Chan is also a professional poker player, whose gambling activities are in the level of a trade or business. In the year of 2015, Mr. Chan generated $103,000 in poker tournament winnings and also lost $112,000 at the games. Mr. Chan kept detail records of his gambling gains, losses and expenses. In addition to the $103,000 in gambling winnings and $112,000 in wagering losses, Mr. Chan also incurred $13,000 in business expenses including travel, lodging and admission costs. These expenses were directly related to his professional poker events. The following analysis shows how the gains from gambling are reported, also to determine whether the losses and expenses are deductible.
Taxability of Gambling Gains & Losses
In reference to TGA ¶ 13260, "Income derived from wagering transactions...card playing must be included in gross income". Along with the …show more content…
Though IRC §162(a) also indicates the allowance of deduction for "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business", the §165(d) override and limits the applicability of §162(a) to the deductibility on gambling losses according to the case of Roy T. Offutt v. Commissioner, 16 TC 1214. The ruling of tax court expands that a taxpayer’s gambling losses are only able to be offset by gambling gains, excluding active wages or income from other non-gambling sources. In order words, gambling losses will never be treated as an expense nor deducting or offsetting to ordinary income. Therefore, the client's gambling losses of $112,000 are only deductible to the extent of his gambling gains of $103,000 under the limitations of IRC