Everyone who is good at math knows that if you play the slots a lot, you will lose. Sure, you will occasionally get a payoff, but over time the house wins. That’s why they let you play.
Yet the IRS didn’t let that get in the way of taxing non-resident gamblers. It says that non-residents have to pay a 30% tax on every winning play, regardliess of the losers. The Tax Court upheld that position in the case of a Korean gambler, but now the D.C. Circuit Court of Appeals has ruled in the gambler’s favor, allowing him to compute the tax on a “per session” basis, rather than per bet, so that the day’s losses and winnings can be offset. The court threw the logic of a IRS 2008 technical memo back at the agency:
The IRS has persuasively interpreted the term “gains” in Section 165(d) to allow U.S. citizens to measure gains on a per-session basis. The IRS stated that “gain or loss may be calculated over a series of separate plays or wagers.” Memorandum AM2008-11, Office of Chief Counsel, Internal Revenue Service 4 (2008) (emphasis added). In the IRS’s words: “We think that the fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate” her net gains. Id. Because gain or loss may be calculated over a series of wagers, a “taxpayer who plays the slot machines recognizes a wagering gain or loss at the time she redeems her tokens.” Id. Therefore, U.S. citizens do not “treat every play or wager as a taxable event.” Id. The result is that U.S. citizens can measure their gambling winnings and losses on a per-session basis…
Nothing in the IRS’s Section 165(d) ruling on “gains” turned on the fact that the gamblers were U.S. citizens.
TaxDood has more in Nonresident Gamblers Take a Step Closer to Equality
Cite: Park v. Commissioner, No. 12-1058 (D.C. Ct. App. 2013).
Update: The TaxProf has a roundup.
Russ Fox, A Gambler Gambles to Tax Court…and Loses
Trish McIntire, Gambling Rumor. No, they aren’t disalllowing gambling losses.
Lots of tax crime news today. From New Jersey, we learn that skimming business receipts is not sexy. A Justice Department press release reports:
A Middlesex County, N.J., man who co-owns and operates a wholesale merchandise business in New York selling adult paraphernalia was sentenced today to 19 months in prison for concealing more than $1.2 million in income in various domestic and foreign bank accounts, New Jersey U.S. Attorney Paul J. Fishman and Assistant Attorney General Kathryn Keneally of the Justice Department’s Tax Division announced.
From 2006 through 2009, Gupta diverted $822,916 of the business’ receipts into 17 different personal bank accounts held in the names of various individuals, including himself and family members. He directed more than $250,000 of those diverted funds into six different accounts held offshore at a branch of HSBC in India. From 2007 through 2009, Gupta caused 22 J.S. Marketers corporate checks to be made payable to
himself and family members in amounts identical to invoices from the
business’ suppliers. Gupta endorsed those checks, which totaled $375,138, and deposited them into bank accounts that he controlled.
17 accounts? That’s a lot of work that didn’t work out well.
Meanwhile in Oregon, things go badly for a tax protester: Former Gladstone business owner jailed 97 months for tax evasion, reports the Portland Tribune:
Chester Evans Davis, a 56-year-old Oregon City corporate tax defier, got sentenced to more than eight years in federal prison starting Monday for not filing a corporate tax return five times for his Gladstone business and then trying to obstruct Internal Revenue Service laws.
Davis transferred money from his company to various shell corporations and a warehouse bank, and then used the money to purchase more than $5 million in gold bars and coins. IRS special agents seized over $1 million of that gold, as well as approximately $115,000 in cash, while executing search warrants at Davis’ residence and business.
Again, a lot more effort than filing and paying taxes, and a lot worse result.
Meanwhile in Illinois, the Rockford Register Star reports Tax evading Rockford chiropractor sentenced to prison:
Todd R. Cevene, 42, of Caledonia, was sentenced Tuesday to 10 months in prison by U.S. District Judge Frederick J. Kapala for federal income tax evasion.
Cevene admitted in his plea agreement that during a four-year period between 2004 and 2007, he intentionally evaded payment of his federal income taxes by transferring substantial amounts of Cevene Care Clinic’s income to Cevene Management Group, Todd Cevene Alaska Preservation Trust, and Cevene Enterprises.
There is no magical formula using trusts that makes your taxes go away.
The reeducation of Lauryn Hill. The singer reported to a federal prison this week to begin serving a three-month sentence on tax charges.
Health care taxes: what’s delayed, what isn’t. My new post at IowaBiz.com, the Des Moines Business Record group blog for entrepreneurs.
Susan Freed, Play or Pay Rules Delayed (Davis Brown Health Care Reform Blog)
Joseph Thorndike, House Republicans Would Rather Pander than Fix the IRS (Tax Analsysts Blog):
At the end of the day, they would rather score a few cheap political points than do something to actually fix the IRS.
Yes, the IRS should be adequaately funded. Yet when the agency proves itself your electoral enemy, you aren’t exactly motivated to fund it.
TaxProf, The IRS Scandal, Day 62
William Perez, Researcher Finds Social Securty Numbers Posted on IRS Public Database
TaxGrrrl, As Second IRS Official Pleads The Fifth, Congress Pushes For ‘Lerner Rule’
Jeremy Scott, Summers Pushes for Tax Break on Foreign Profits (Tax Analysts Blog)
Kay Bell, Hurricane season costs tax collectors as well as homeowners
Jason Dinesen, The Oddities of State Taxes — Wisconsin Student Loan Deduction and Nonresident Tax Returns
David Brunori, Taxing Teen Texts and Other Terrible Tax Things (Tax Analysts Blog):
In addition to fat kids, skinny kids, and kids that climb on rocks, rich kids and poor kids use wireless devices. If everyone is using them, a flat tax is regressive. It is strange that liberal New York and Washington, states purportedly looking out for the little guy, are so enamored with a regressive tax.
Of course they aren’t looking out for the little guy. That’s just for the rubes.
Andrew Lundeen, Links: Lap Dance Taxes and Tax Reform Options (Tax Policy Blog). Lap Dances, marijuana taxes and Warren Buffet, all in one place!
Howard Gleckman, Not All Curbs on Tax Preferences Are Created Equal (TaxVox)
Robert D. Flach, MY CORRESPONDENCE WITH THE WHITE HOUSE ON TAX REFORM
Brian Maharry, Cell Captive Insurance – Legit Insurance Tool or Abusive Tax Shelter:
The scam promotions typically offer to shelter a large sum of money by calling it an insurance premium. The premium is usually the same dollar amount as the deduction you seek. The promoter offers “insurance” on a highly improbable risk. Hurricane insurance in Nebraska, anyone? Magically, you get a big deduction and in a few years you are promised the ability to get back your money in the form of a “premium refund” or dividend.
It gets windy in Nebraska, especially during football season, but not like that.
Oh Noes! Horror Stories From the CPA Exam: The Prometric Nose Bleed (Going Concern)