Quote:
Originally Posted by StellarWind
Question: Is this really a gambling loss?
Question: Are pros and recreational gamblers treated differently in this situation?
Question: If he enters into a firm agreement to sell an $80K account balance for $50K, does that make the timing of his $30K loss immediate? Is this a legitimate way of moving his loss for tax purposes from <whenever the liquidator is done> to 2008?
Question 1 -
Great question. That's where the problem lies and I personally would be reluctant to do it. To demonstrate, suppose I deposited $1 initially and ran it up to $20,000. Since it's been in my account the entire time I probably never paid taxes on it. Therefore, if I receive $10,000 through liquidation the IRS would argue there has been no loss, but rather a $9,999 gain above the initial $1 deposit that I would be taxed on if I decided to withdraw.
I think the important distinction though is that the loss would probably not be recognized as a "gambling loss" and instead would be labeled as a "loss through liquidation" if they let you claim it as a loss at all. That's normally why you need multiple forms of gambling for the deduction to work. I know several attorneys that have classified this type of loss as something different to still receive the deduction. Creative lawyering will be needed, but I personally don't believe the loss was due to gambling.
Question 2 -
By legal standards no, in reality - yes. Recreational gamblers hardly ever report income received in their tax returns. With pros, the amount normally is auto taxed by the regulating authority when the amount exceeds a single threshold. Also, the IRS has the burden of proof to prove tax evasion - which is easy to do when you see someone win a significant amount of money on TV and have the DVD to prove it.
Question 3 -
I would say the answer is the same as in Question 1 above. In this case, I don't believe there is any loss at all. The IRS will measure a gain by subtracting the initial deposit for the 50K and classifying that as the taxable gain.