AC553 Week 4 Tax Memorandum 1

AC553 Week 4 Tax Memorandum 1 - TAX MEMORANDUM To: From:...

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TAX MEMORANDUM To: Dr. Green From: Date: November 24, 2010 RE: Tax Memo #1/Gambling Activities : 1. 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 purposes and whether or not you think his gambling activities qualify for trade or business status. 2. If Dr. Green's gambling activities do not qualify as a trade or business; can he deduct his gambling-related travel and lodging expenses against his gambling winnings? 3. Assume Dr. Green's 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 a 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? Under IRS, topic 419, gambling winnings are fully taxable and must be reported on your tax return. You must file Form 1040 and include all of your winnings (IRS, 2009). All gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos, as well as, cash winnings and the fair market value of prizes such as cars and trips (IRS, 2009). If the taxpayer obtain winnings that are subject to federal income tax withholding, he/she must
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complete the Form W-2G. You can claim your losses as a miscellaneous deduction that is not subject to the 2% limit on Form 1040, Schedule A, but the amount of losses you deduct may not be more than the amount of gambling income reported on you return (IRS, 2009). I do not think Dr. Green’s gambling activities qualify for trade or business status. In the case Commissioner v. Groetzinger (1987), the taxpayer had no other profession and employment. The taxpayer devoted from 60 to 80 hours each week to these gambling-related activities. He never placed bets on behalf of any other person, or sold tips, or collected commissions for placing bets, or functioned as a bookmaker. He gambled solely for his own account. The Court
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This note was uploaded on 11/30/2010 for the course ACCOUNTING AC553 taught by Professor Davey during the Summer '10 term at DeVry Irvine.

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AC553 Week 4 Tax Memorandum 1 - TAX MEMORANDUM To: From:...

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