Vince Nardone: Tax and Controversy

Ohio Income Tax Deduction for Gambling Losses in 2013

Guest Author: Matthew R. Porter, Esq., Columbus, Ohio

This article provides a synopsis of the new Ohio income tax deduction, and provides guidance on how it effects the tax deductions for amateur gamblers.  At Nardone Law Group, LLC, our tax attorneys have been writing extensively to our clients in Ohio and around the world on the tax distinctions and consequences of being a professional gambler versus an amateur gambler.  In these articles, our tax lawyers have provided guidance on how to qualify as a professional gambler to obtain beneficial tax treatment.  Our tax lawyers have also discussed the Mayo decision, which was a recent Tax Court ruling that allowed professional gamblers to not only deduct gambling losses to the extent of their winnings but also deduct ordinary and necessary business expenses relating to their gambling trade or business.  Finally, our tax lawyers have highlighted the penalties for failing to qualify as a professional gambler. These articles indicated that there is a marked distinction in the federal tax consequences of filing as a professional gambler versus filing as an amateur gambler.  A bill recently signed into law in Ohio, however, creates a significant tax deduction for amateur gamblers in Ohio starting in the year 2013.  Here's how.

Amateur Gamblers and Ohio Income Tax Deduction

The Ohio legislature passed HB 519 and Governor Strickland signed the bill into law on June 10, 2010.  The new law implements the casino constitutional amendment that was signed into law in November 2009.  The law also creates a new Ohio income tax deduction for gambling losses on bets placed at casinos, horse races, bingo halls, and other forums, both in state and out of state.  The new income tax deduction will ultimately reduce a taxpayer's taxable income.  Beginning January 1, 2013, amateur gamblers in Ohio may claim a deduction for any gambling losses that are allowed as an itemized wagering loss deduction and that were deducted in computing federal taxable income, to the extent the loss was not deducted or excluded in computing federal or Ohio adjusted gross income.  The new law can be found at Ohio Rev. Code Ann. §5747.01(A)(29).

From a federal taxation standpoint, professional gamblers are allowed to deduct their gambling losses to the extent of their gambling winnings on Schedule C.  Because professional gamblers may lose more than they win, the Schedule C deductions will typically offset any increase to their federal adjusted gross income.  Amateur gamblers, however, must itemize their gambling losses meaning that their deductions are limited.  The result is that amateur gamblers are often hit with a large state income tax bill.  The new Ohio law allows amateur gamblers in Ohio to deduct gambling losses to the extent of their gambling winnings from their Ohio income tax, thus lowering their state tax bill and creating a very advantageous tax benefit that was previously not available.  This is great news.

The Ohio Legislative Service states its position with respect to the new law as follows:

"New income tax deduction: The bill creates a new deduction for wagering losses under the personal income tax.  Taxpayers may deduct to the extent not deducted or excluded in computing their federal adjusted gross income any loss from wagering transactions allowed and taken as an itemized deduction on Schedule A in their federal income tax returns.  The deduction will create a revenue loss from the personal income tax.  The amount of revenue loss is uncertain.  However, according to the Department of Taxation, the annual loss is likely to be in the tens of millions of dollars.  Under permanent law, personal income tax receipts are distributed to the General Revenue Fund (GRF, 94.1%), the Local Government Fund (LGF, 3.68%), and the Public Library Fund (PLF, 2.22%)."

Contact Nardone Law Group, LLC

If you are a professional or amateur gambler, you should contact an experienced tax lawyer today to make sure you are obtaining all of the tax deductions available to you. The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS to obtain tax deductions for gamblers. Our experienced tax lawyers will thoroughly review your case to determine the best possible tax deductions based on your gambling activities.  Contact us today for a consultation to discuss your case.

Filing Requirements for Foreign Financial Accounts and Assets

Guest Author: Tawnya Underwood, Columbus, Ohio

The tax professionals at Nardone Law Group, LLC want to remind taxpayers of the upcoming deadline—June 30, 2012— for the Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”).  The FBAR is required to be filed when (i) a US person having financial interest in, or signature authority over, a bank, securities or other financial account in a foreign country and (ii) if that account exceeds $10,000 during that year.  See 31 C.F.R. § 1010.350. 

FBAR Information and Requirements

Unlike other federal filings, the FBAR is not a tax form.  It is a law enforcement information return used by investigators to identify individuals who are using foreign accounts as a way to avoid US laws.  Another key difference is that he FBAR is not filed with a taxpayer’s federal income tax return, but rather June 30^th of the following tax year—the FBAR reporting period is the calendar year.  It is important to note that there are no extensions granted for the filing of the FBAR.  A taxpayer who requests an extension to file his/her federal income tax return must still file the FBAR by the June 30^th due date.  Further, the “mailbox” rule does not apply to FBARs as it does for tax returns.  The FBAR must reach the IRS on or before the deadline, or the taxpayer is subject to penalties. 

The IRS encourages taxpayers to file the FBAR electronically for the 2011 calendar year, which is due by June 30, 2012; however, it is not mandatory.  Beginning for the 2012 calendar, the FBAR due on June 30, 2013 MUST be filed electronically.  The IRS reports that the average burden associated with information collection for the FBAR is 20 minutes.  Obviously this depends largely on the number of foreign accounts held by the US person, the values of those accounts, the type of accounts, and type of authority the taxpayer has over those accounts.

In addition to filing the FBAR, a US person who holds a foreign financial account must also check the appropriate box on the FBAR-related federal return, such as Schedule B of the Form 1040 U.S. Individual Income Tax Return.

To be clear the FBAR is a federal information filing focused on foreign accounts, and not foreign assets.  For those taxpayers with interest in foreign financial assets, there is a new form which must be filed for assets with an aggregate value of $50,000 for individual taxpayers, and $75,000 for married filing jointly taxpayers.  The Form 8938, Statement of Specified Foreign Financial Assets is required to be attached to your annual income tax return and must be filed by the due date of that return. The Form 8938 is specific to assets whereas the FBAR is specific to foreign financial accounts.

The Internal Revenue Service provides a detailed chart which compares the FBAR and the Form 8938.  We have made that chart available by clicking here.

Contact NLG

If you are unsure as to whether or not you are required to file the FBAR and/or the Form 8938, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS. Our experienced tax lawyers will thoroughly review your case to determine whether you are required to file the FBAR and/or the Form 8938, and also assist in determining if you will need to participate in the IRS’s Offshore Voluntary Disclosure Initiative, which allows non-compliant taxpayers to come forward and file past due FBARs.  Contact us today for a consultation to discuss your case.

Tax Penalties for Failure to Qualify as a Professional Gambler

Guest Author: Matthew Porter, Esq., Columbus, Ohio

This article addresses an important issue affecting those taxpayers who are considering classifying themselves as professional gamblers.  If you file a tax return as a professional gambler and the Internal Revenue Service disagrees, you may be subject to penalties.  The tax lawyers at Nardone Law Group, LLC have previously written about tax deductions for professional gamblers, which can be found here.  Generally, the tax deductions available to professional gamblers are more generous than the tax deductions available to those who gamble recreationally or as a hobby.  If you are considering taking the additional deductions as a professional gambler, it is important to do your due diligence and be comfortable you are a professional gambler or the Internal Revenue Service may assert penalties and interest against you.

Are you a Professional Gambler?

Whether or not you are a professional gambler is not a simple determination.  It has nothing to do with how much money you won, the size of your jackpots, or how many trips you took to the casino in a year.  The IRS uses a facts and circumstances test that looks to whether your gambling activity is pursued full-time, in good faith, with regularity, and is your intended source of livelihood.  Our tax lawyers have previously written on a recent Tax Court ruling that allows professional gamblers to fully deduct ordinary and necessary business expenses in pursuit of their gambling activities on Schedule C.  For more information on determining whether you are a professional gambler, read our recent article here.  If you are considering filing as a professional gambler, you should consult with an experienced tax attorney because the consequences of getting it wrong can lead to the IRS asserting penalties against you.

For example, the Tax Court recently upheld an accuracy-related penalty for substantial understatement against a taxpayer for a year in which the taxpayer misreported wage income and gambling expenses. See Moore v. Commissioner, TC Memo 2011-173 by visiting the Tax Court website here.  The taxpayer in Moore believed he was a professional gambler and claimed all of his gambling expenses as business expenses on Schedule C.  The taxpayer failed to show substantial authority or reasonable cause for claiming that he was professional gambler. He relied on case law that was not applicable to him and made little effort to determine proper tax treatment of his gambling activity. He also failed to explain why he did not report wages.The Tax Court held that the taxpayer was not a professional gambler and could only deduct gambling losses to the extent of his winnings as an itemized expense.  The Tax Court disallowed his excess gambling losses over his winnings, and most importantly, upheld an accuracy-related penalty for substantial understatement of income against the taxpayer.

Nardone Law Group, LLC Recommendation

The taxpayer in the above case incorrectly assumed that because he had large gambling winnings, the IRS would agree that he was a professional gambler.  He failed to do his homework and was assessed with accuracy-related penalties.  This case highlights the importance of doing your due diligence to determine whether you truly are a professional gambler.  Otherwise, the IRS may impose penalties against you.

Contact Nardone Law Group, LLC

If you consider yourself a professional gambler, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS to obtain professional status as a gambler. Our experienced tax lawyers will thoroughly review your case to determine whether you are a professional gambler such that you may be able to deduct take additional tax deductions and avoid penalties.  Contact us today for a consultation to discuss your case.