Discussion:Prize as opposed to Gambling winnings

Here is the question. A taxpayer receives several 1099 w-2G for gambling winnings. One of the same casino's also issued a 1099misc. When questioning taxpayer he advised this money was from a slot machine tournament; of which he had not money needed to invest, but was chosen to participate in the contest since I assume he was a big spender.

The question becomes whether or not he can include this contest amount with his gambling winnings and therefore be able to deduct losses against it. I say no. Others say yes. Reasoning: This contest was free to him; no investment required. Thus the reason the casino issued the 1099misc as opposed to a 1099 w-2g. I conclude this is entered seperately on a 1099 misc and there is no offset of deductions for this amount.

Other pro's I have spoken with are 50/50 on this. Some say he can offset others say he cannot. I am with the latter. Any opinions appreciated.

You might want to look at Libutti TC Memo 1996-108. The case has some similar points, though Libutti was a BIG-TIME gambler. But the bottom line is that the TC said his comps were "gambling winnings" because they were closely connected to his gambling. You NEED to find out whether he was in the tournament because he was a regular gambler or just happened to be a random person chosen to participate.

A snip from Libutti: [start]Assuming for purposes of applying section 165(d) that the comps are gross income, petitioner's comps fit within the plain meaning of the statutory text. The comps from Trump increased petitioner's wealth, and they were derived out of his betting transactions at the Casino. The fact that petitioner's receipt of the comps bore a close nexus to his gambling transactions at the Casino cannot be denied. Petitioner would not have received the comps from Trump but for the fact that he gambled extensively at the Casino. Although petitioner's receipt of the comps did not directly hinge on the success or failure of his wagers, he received the comps incident to his direct participation in wagering transactions. The relationship between petitioner's comps and his wagering is close, direct, evident, and strong. The comps are sufficiently related to his gambling losses for purposes of section 165(d). We hold that petitioner's comps are “gains from *** [wagering] transactions” under section 165(d). [end]