The Internal Revenue Service has issued a notice proposing a revenue procedure that, if finalized, would provide an optional safe harbor method for individual taxpayers to determine a wagering gain or loss from certain slot machine play.
In Notice 2015-21, the IRS noted that gains from wagering transactions are supposed to be included in gross income. However, neither the statute nor the regulations define the term “transactions.” Gross income from a slot machine wagering transaction is determined on a session basis. Section 165(d) of the Tax Code provides that losses from wagering transactions are allowed only to the extent of the gains from those transactions.
The IRS said it and the Treasury Department are aware that determining the amount of a wagering gain or loss from slot machine play is burdensome for taxpayers and sometimes creates controversy between taxpayers and the IRS. The controversy is complicated by changes in gambling technology. The increased use of electronic gambling, with the development of player’s cards and tickets, has curtailed the redemption of tokens by slot machine players.
To reduce the burden on taxpayers, the proposed revenue procedure, if finalized, would provide an optional safe harbor method for determining what constitutes a session of play for purposes of calculating wagering gains or losses from electronically tracked slot machine play. The revenue procedure describes the circumstances in which the safe harbor method can be used and provides examples of its application.
Use of the safe harbor method would not relieve taxpayers of the requirement to maintain records that substantiate any items reported on their income tax returns. The proposed revenue procedure does not address how the separate transactions determined under the safe harbor are taken into account in determining total gain or loss for a taxable year.
In particular, the revenue procedure does not permit gains or losses from separate sessions to be netted against each other to determine gain or loss for a taxable year. In addition, the safe harbor method would apply only to wagering gains and losses; it would not apply to non-wagering expenses related to gambling.
The IRS and the Treasury Department are asking for comments from the public on the proposed revenue procedure and the optional safe harbor.
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