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To: MEM From: Date: Re: Message: Dr. Green Nikeya Elmore Week 4 Tax Memo #1/ Gambling Activities
FACT: Dr. Green is a practicing physician in Chicago who, as an avid blackjack and slot machine player, travels to Las Vegas every other weekend to gamble. He would like to know what criteria are used to determine whether his gambling activities constitute a trade or business for federal income tax purpose and whether or not you think his gambling activities qualify for trade or business status. APPLICABLE CASE LAW, CODE & REGULATIONS: The IRS deems a business or trade that is intent to make profit and entrepreneurial effort. An activity is presumed a business if it results in a profit in any three out of five year consecutive taxable years. If the business is not for profit, losses from the activity can be used to offset income. Deductions for hobbies can be deduction on Schedule A. The following must be met in order for an activity to be a business:
Does the time and effort put into activity indicate an intention to make a profit? Does the taxpayer depend on income from the activity? Does the activity make a profit in some years?
Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity? Has the taxpayer made a profit in similar activities in the past?
CONCLUSION: Dr. Green I dont feel your activity gambling would be considered a trade or business. You dont meet all the requirements as a qualified business or trade. I would say that your gambling activity is a hobby. Mr. Green you dont pursue this activity full time, and with regularity. Also the income you receive from gambling income is not your livelihood and/or bread or butter. FACT: If Dr. Greens gambling activities do not qualify as a trade or business, can he deduct his gambling-related travel and lodging expenses against his gambling winnings? APPLICABLE CASE LAW, CODE & REGULATIONS: Hobbies are deducted on schedule A. CONCLUSION: Dr. Green, you cannot deduct travel expense related to your gambling activity because it does not qualify as a trade or business. However you can deduct your loss to the extent of your winnings. FACT: Assume Dr. Greens wife, Mrs. Green, gambles to the same extent that Dr. Green gambles. Assume that the Greens file a joint tax return. If Mrs. Green has large net gambling gain for the year and Dr. Green has a large net gambling loss, can they combine their gambling transactions and use his loss to offset her winnings? APPLICABLE CASE LAW, CODE & REGULATIONS: Title 61, Part I, Subpart B Article V Chapter 101 CONCLUSION: Dr. Green, you and your wife cannot compute your tax as if each of you is single. No offset between married couples is allowed.