Voluntary Disclosures and Deduction of Online Gambling Losses


In general, losses from gambling are limited to gains from gambling for non-professional gamblers. In order to take the losses the gambler/player must be able to substantiate (that is have records which show how much was invested and how much was won or lost). With online gambling, including online poker, record keeping should be rather straight forward. The gambler taxpayer should be able to obtain records of all transfers to the gaming site and records of all sums paid out and the balance on deposit as of December 31 of each year. However, for some taxpayer/gamblers who did not report net gambling income they may now find themselves in a predicament with some sites not currently returning player deposits. The focus of this note is not on whether funds will or will not be returned, time will tell, but if they are not, then some of the players may have to think about how to report the losses. This is where the player may wish to consider the following options:

1) participating in the Offshore Voluntary Disclosure Initiative offered by the IRS and similar state programs, like that offered by California.

2) filing an Report of Foreign Bank Account (FBAR) with a disclosure stating the facts and circumstances of reporting. It is not clear whether an FBAR is due for funds in which the player is a general unsecured creditor (meaning the player has no control over the investment of the funds or signatory authority over the account).

3) do nothing and suffer the loss.

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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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