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A Gambler’s ‘Diary’ Helps to Keep an IRS Audit Away

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Feb 6th 2018
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An understanding IRS wants to lessen record-keeping disputes with gamblers singled out for audit. To help them with their bookkeeping, the IRS provides guidelines that spell out what sort of records and other substantiation are acceptable.

The IRS recommends that bettors record their winnings and losses in "an accurate diary or similar record" — the identical method that the agency encourages businesspeople to use to keep tabs on their travel-and-entertainment expenditures. But keeping diaries can turn out to be a waste of time and effort for gamblers when their entries fail to show the information called for by the guidelines.

To be on the safe side, bettors should make certain that their diaries contain at least the following:

  • Dates and types of specific wagers or wagering activities;
  • Names and addresses or locations of the gambling establishments;
  • Names of other persons, if any, present with the bettors at the gambling places; and
  • Amounts won or lost.

The best way to keep diaries: Gamblers should develop the habit of recording bets when they’re made. It's tough to try to compile a diary at filing time. And one that's not prepared until just before a taxpayer shows up for an audit is bound to be unacceptable.

‘Verifiable Documentation’

The IRS also warns gamblers to keep what the agency dubs "verifiable documentation," a term that includes betting tickets, canceled checks and credit records. Whenever possible, the IRS would prefer the diary and backup documentation to be supported by other proof of a person's wagering activities or visits to gambling sites.

The guidelines specify such items as hotel bills, airline tickets, gasoline credit card slips, bank deposits and withdrawals, and affidavits or testimony from "responsible gambling officials," a term that the IRS conveniently opted to leave unexplained.

An example: The advice for lotto players is to record ticket purchases, dates, winnings and losses, and to keep unredeemed tickets, payment slips and winnings statements.

As for frequenters of horse and dog races, the tax collectors ask them to list the races, entries, amounts of wagers and what was won on the winners and lost on the losers, and to keep unredeemed tickets and any payment records from the racetrack.

The IRS discreetly describes its guidelines as "suggestions." It says that most bettors will satisfy the record-keeping requirements if they follow them.

Nevertheless, it cautions that its guidelines aren’t intended to cover all possible situations and that whether a bettor will get nicked for extra taxes depends on the facts and circumstances in a particular situation. This implies that gamblers who comply generally will avoid a dispute with the IRS, while a failure to comply isn’t necessarily fatal.

Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 225 and counting). 

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