George Krikorian Drops Bombshell at CHRB Meeting

[ReplayRandall]

Originally Posted by dilanesp

I mean, the historical reason was an attempted distinction between lottery-style windfalls and ordinary bettors cashing bets,

When the exotic wager that routinely paid 300 to 1 and which could be profitably played was invented, that distinction broke down.

Agree, in today's game, "the historical reason"= Antiquated and obsolete, and should be rectified immediately.

[AndyC]

Originally Posted by dilanesp

I mean, the historical reason was an attempted distinction between lottery-style windfalls and ordinary bettors cashing bets,

When the exotic wager that routinely paid 300 to 1 and which could be profitably played was invented, that distinction broke down.

The regs regarding the issuance of W2-Gs and 1099s were written to help with tax compliance. The distinction between lottery-style wins and ordinary wins was an effort to identify which type of win would more likely result in taxable income. In fact, they are both equally taxable.

[dilanesp]

Originally Posted by AndyC

The regs regarding the issuance of W2-Gs and 1099s were written to help with tax compliance. The distinction between lottery-style wins and ordinary wins was an effort to identify which type of win would more likely result in taxable income. In fact, they are both equally taxable.

There's slightly more to it than that.

Let's go back to Randall's distinction.

You have a win bettor who bets $1000 to win on a 10 to 1 shot and wins $10,000.

And then you have a guy who buys a lottery ticket for $1 and wins $10,000.

Why the different tax treatment? Well, person 1 is more likely to be a serious gambler who keeps records of her winnings and who will have a bankroll around either next April 15 or when the quarterly estimates are due to pay the IRS.

Person 2 is more likely to be someone who took a flyer, got lucky, and might spend the winnings immediately and not have any records or any money to pay the tax come tax time.

So, the withholding tax hits person 2 but not person 1.

What broke down the distinction is the proliferation of big payoff exotics, which can be played in a rational, non-lottery ticket strategy resulting in numerous cashes, which means suddenly the IRS is imposing reporting requirements and withholding taxes on a ton of wagers that are being made by professionals and which were presumably going to be tracked, reported, and taxed anyway.

[AndyC]

Originally Posted by dilanesp

There's slightly more to it than that.

Let's go back to Randall's distinction.

You have a win bettor who bets $1000 to win on a 10 to 1 shot and wins $10,000.

And then you have a guy who buys a lottery ticket for $1 and wins $10,000.

Why the different tax treatment? Well, person 1 is more likely to be a serious gambler who keeps records of her winnings and who will have a bankroll around either next April 15 or when the quarterly estimates are due to pay the IRS.

Person 2 is more likely to be someone who took a flyer, got lucky, and might spend the winnings immediately and not have any records or any money to pay the tax come tax time.

So, the withholding tax hits person 2 but not person 1.

What broke down the distinction is the proliferation of big payoff exotics, which can be played in a rational, non-lottery ticket strategy resulting in numerous cashes, which means suddenly the IRS is imposing reporting requirements and withholding taxes on a ton of wagers that are being made by professionals and which were presumably going to be tracked, reported, and taxed anyway.

You give the IRS much more credit for trying to implement a reporting and withholding system for gamblers. The 1099 reporting requirements were instituted long ago for non-corporate recipients of income. People in professions were not excluded because they were likely to keep records and have cash to pay their taxes. Quite the contrary, it was discovered, that given the opportunity, that many people would not report income on their tax returns if there was a high expectation that the income would not be discovered. Sub-contractors in the construction business were the biggest offenders. Compliance drove the regulations for gambling and not the distinction of pro versus regular Joe. Serious gamblers are just as likely to cheat on their taxes as any other individual.

[ReplayRandall]

Originally Posted by AndyC

Serious gamblers are just as likely to cheat on their taxes as any other individual.

Serious/professional gamblers are under the highest scrutiny when filing their taxes.....I disagree with pro gamblers having the same likelihood as the average Joe to cheat.

[dilanesp]

Originally Posted by AndyC

You give the IRS much more credit for trying to implement a reporting and withholding system for gamblers. The 1099 reporting requirements were instituted long ago for non-corporate recipients of income. People in professions were not excluded because they were likely to keep records and have cash to pay their taxes. Quite the contrary, it was discovered, that given the opportunity, that many people would not report income on their tax returns if there was a high expectation that the income would not be discovered. Sub-contractors in the construction business were the biggest offenders. Compliance drove the regulations for gambling and not the distinction of pro versus regular Joe. Serious gamblers are just as likely to cheat on their taxes as any other individual.

The 300 to 1 reporting limit, and the withholding limits, are unique to particular forms of gambling. While they are part of the larger broad category of 1099 reporting, they are special rules that apply only to those forms of gambling.

And the reasoning behind those special rules, and why they became outdated, is what I stated.

[AndyC]

Originally Posted by dilanesp

The 300 to 1 reporting limit, and the withholding limits, are unique to particular forms of gambling. While they are part of the larger broad category of 1099 reporting, they are special rules that apply only to those forms of gambling.

And the reasoning behind those special rules, and why they became outdated, is what I stated.

The reasoning would be illogical given the reason for the implementation of the 1099 rules in general. Do you have the committee reports that would back up your understanding?

[AndyC]

Originally Posted by ReplayRandall

Serious/professional gamblers are under the highest scrutiny when filing their taxes.....I disagree with pro gamblers having the same likelihood as the average Joe to cheat.

Seeing how gambling is primarily a cash business with no inventory, it is probably the easiest type of business to cheat on taxes. If a person is doing account betting leaving an audit trail then the likelihood goes down considerably. Scrutiny is high when a professional gambler reports losses, not so much when there are profits.

[ReplayRandall]

Originally Posted by AndyC

Seeing how gambling is primarily a cash business with no inventory, it is probably the easiest type of business to cheat on taxes. If a person is doing account betting leaving an audit trail then the likelihood goes down considerably. Scrutiny is high when a professional gambler reports losses, not so much when there are profits.

Trust me, the scrutiny is high ALL the time, win or lose....What used to be acceptable when being audited, changes every other year. The IRS intentionally moves the goal posts when they see too much of the same legal write-offs......Enough said on this subject, I plead the 5th from now on.

[dilanesp]

Originally Posted by AndyC

The reasoning would be illogical given the reason for the implementation of the 1099 rules in general. Do you have the committee reports that would back up your understanding?

How is it illogical?

1099's in general, are about ensuring various forms of non-wage income are reported to the IRS.

So the question you have to ask yourself is why, specifically, would there be a 300 to 1 cutoff for reporting and a dollar cutoff for withholding?

I gave you the logical answer.

[AndyC]

Originally Posted by dilanesp

How is it illogical?

1099's in general, are about ensuring various forms of non-wage income are reported to the IRS.

So the question you have to ask yourself is why, specifically, would there be a 300 to 1 cutoff for reporting and a dollar cutoff for withholding?

I gave you the logical answer.

300-1 on a $2 bet is $602 or winnings of $600. $600 happens to coincide with the threshold for sending 1099s to independent contractors. You can't hide from a 300-1 payoff but you can make 10 $50 bets on a 10-1 horse and never get to the magic $600 mark for reporting. The amounts for both the reporting and withholding were made so as not to overly burden the payor but at the same time squeeze some money out of successful bettors.

What is illogical is the belief that the IRS wrote the rules with the confidence that successful/serious bettors kept good records. Keep in mind that the rules were implemented in the early 80's when bets were all done at the track in cash.

[dilanesp]

Originally Posted by AndyC

300-1 on a $2 bet is $602 or winnings of $600. $600 happens to coincide with the threshold for sending 1099s to independent contractors. You can't hide from a 300-1 payoff but you can make 10 $50 bets on a 10-1 horse and never get to the magic $600 mark for reporting. The amounts for both the reporting and withholding were made so as not to overly burden the payor but at the same time squeeze some money out of successful bettors.

What is illogical is the belief that the IRS wrote the rules with the confidence that successful/serious bettors kept good records. Keep in mind that the rules were implemented in the early 80's when bets were all done at the track in cash.

The second paragraph subtly misstates my position.

I didn't say that the IRS was confident that successful or serious bettors kept good records. Rather, I said that a person cashing a larger wager at smaller odds is more likely to be a serious bettor who keeps records and has a bankroll available to pay a tax at a later time. Whereas, a person cashing a small wager at larger odds was, back in the day, assumed to be more likely a non-serious gambler who would not have the records and the bankroll when the tax would be due.

And what I guess I didn't say and should have is that what they were trying to avoid was a reporting requirement that was so burdensome that vast numbers of tickets would be subject to it (which is what would have happened if it had just been a dollar threshold).

[AndyC]

Originally Posted by dilanesp

.....And what I guess I didn't say and should have is that what they were trying to avoid was a reporting requirement that was so burdensome that vast numbers of tickets would be subject to it (which is what would have happened if it had just been a dollar threshold).

My solution for this mess is to allow people who bet through accounts to get a W2-G based on their net results for the year. Money in the accounts would be restricted for withholding when winnings exceed $5,000 (or some other amount). Restrictions could increase or be reduced based on further winnings or losses and withholding could be done on a yearly basis or quarterly basis.

Bettors not willing to use account betting would be subject to the old rules.

[KidCruz]

The first two races on today's card are pathetic for what should be a highlight Saturday card. The Graded Stakes, outside of Lady Eli, all look way worse than you would expect. Rick Hammerle has sounded increasingly erratic and rambling on his weekly Steve Byk spots so much so that he actually apologized last week and blamed it on a sinus thing. What more needs to be seen to recognize that this isn't a small puncture in the boat. This thing is sinking.

[whodoyoulike]

Originally Posted by AndyC

Trying to make money to cover your costs is not the definition of a business.

My post was referring to horse ownership in horse racing. I don't see how it could be considered a hobby as long as one enters their horses in legit races.

Why is it so difficult to deduct these costs as a business venture?