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Dear Tax Talk,
I do quite a bit of gambling and receive comps from the casino, including transportation by limo or air, meals
and lodging, spa services and show tickets, among other stuff. If I win enough, I get a W-2G for the amount of
the winnings. When I do my taxes, I include the amount I got on the W-2G and usually deduct a like amount for
losses; after all, the house always wins. Should I be including some income for the value of the comps?
--Dave
Dear Dave,
Just like roulette, no one knows where the ball stops. In comparing two tax court cases on the issue, the answer
is yes, or it doesn't matter. In the case of LiButti T.C, Memo 1996-108, the taxpayer was a high stakes gambler
playing mainly at Trump Atlantic City. His average roll at craps was $50,000. The casino issued Form 1099 for prizes
and awards (as opposed to gambling winnings on Form W-2G) for the following items:
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| One gambler's comp bonanza |
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The automobiles shown in the chart
were usually sold for cash, which was gambled
at the casino. The champagne included 178 bottles
of Cristal Rose, valued at $225 a bottle. The
tickets were to theater and sporting events, such
as the Super Bowl, the NCAA basketball tournament,
boxing events and the U.S. Open in Flushing Meadows,
N.Y. I'm going to assume the guy probably at least
got dinner and rooms for him and his friends,
which isn't included as income, but it is odd
that the champagne was in only one year.
The IRS considered these items as income to the taxpayer. The taxpayer claimed offsetting gambling
losses, but not as a professional gambler. It was the IRS position that the comps were not from wagering, and therefore
gambling losses could not be offset. The court held for the taxpayer, stating the obvious: that but for the taxpayer's
gambling, the comps would never have been awarded. The taxpayer was allowed to offset the comps with his gambling losses.
In Merkin et al. v. Commissioner, T.C. Memo 2008-146, the taxpayer argued that he was a professional
gambler and that although he sustained losses, he had profits in the form of ordinary comps. The IRS never raised
an issue of the comps being included in the taxpayer's income.
The tax court opined that had they been included in income, the taxpayer could offset his losses
against these items, but since there was no issue raised, they did not affect his bearing as a professional or
novice gambler.
Based on contrasting the two cases, you can conclude that the comps, when sufficiently unrelated to
the casino resort, should be considered income. Conversely, the free rooms, board and beverages would not be considered
income to the player. Of course, we don't have the whole story on the champagne.
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