Gamblers Need to Keep Records for Tax Purposes (Log it or lose it)

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The legalization of internet poker by Washington D.C. this week raises many issues, but among them is the role that record keeping of gambling deposits, wins, and losses will play for income tax purposes. The U.S. Tax Court case of Jones v. Commissioner reported April 4, 2011 is ample warning to recreational gamblers who try to take gambling losses to offset gambling winnings without documentary evidence to support their deductions. Jone’s claimed deductions were denied.

Jones was a recreational gambler who claimed losses about equal to his wins, but he had no records other than his bank statements. He tried to use his bank statements to prove he had lost money, and nothing else. He used, what is known as the “estimate” method. He did not use his “player’s club” card very often, he did not keep a diary, he just estimated wins and losses. At the end of the year his estimate based on what he had in the bank at the beginning of the year less his ending balance established in his mind that he lost money. The IRS and the Tax Court disallowed his deductions based upon a lack of substantiation. The estimate method was held to be inadequate.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Sanford Millar
Law Offices of Sanford I. Millar

Experience and Qualifications: Over 30 years of experience in domestic and international tax... View Profile »


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