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Old 10-16-2007, 06:18 PM   #1
LiveInPeace
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Are comps taxable

My guess would be yes, casino comps are taxable, but I wondered what others thought. They can mount up over the year if received on a regular basis.

Last edited by Rapini; 03-15-2010 at 09:11 AM. Reason: Moved from B&M to Poker Legislation.
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Old 10-16-2007, 06:21 PM   #2
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Re: Are comps taxable

They are not classified as income. They're more of a "rebate" than anything.
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Old 10-16-2007, 07:01 PM   #3
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Re: Are comps taxable

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They are not classified as income. They're more of a "rebate" than anything.
I have read that the IRS has ruled casino comps as taxable. Its the same thing as when you spend points for travel rewards. I was also told this was the reason why the Borgata stopped giving out small promotional gifts like hats and jackets at the poker room. This makes sense because consumer rebates are taxable as income. I suggest you contact your tax preparer for more information, he or she will be better qualified to advise.
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Old 10-16-2007, 07:08 PM   #4
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Re: Are comps taxable

I can't see how "comps" can be treated as income when in reality it's a rebate on theoretical losses in a casino. If you lose 100k and are comped 10k worth of items, how could that possibly be taxeable? You really only lost 90k and that money was taxed when it was originally earned by the bettor. (in normal circumstances) I hate the IRS lately.
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Old 10-16-2007, 07:28 PM   #5
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Re: Are comps taxable

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I can't see how "comps" can be treated as income when in reality it's a rebate on theoretical losses in a casino. If you lose 100k and are comped 10k worth of items, how could that possibly be taxeable? You really only lost 90k and that money was taxed when it was originally earned by the bettor. (in normal circumstances) I hate the IRS lately.
although in theory I agree with you, the IRS doesn't agree with us
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Old 10-16-2007, 07:40 PM   #6
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Re: Are comps taxable

Comps could be treated as income by the IRS (like gambling wins), but if so, they can probably be offset by gambling losses.
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Old 10-17-2007, 09:06 AM   #7
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Re: Are comps taxable

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Comps could be treated as income by the IRS (like gambling wins), but if so, they can probably be offset by gambling losses.
This is true, IMO.

Comps would be part of the gross winnings. If gross losses are greater, then there is no taxable gambling income.

For gambling professionals, business expenses would also offset gross winnings. And the comps could have no tax impact depending on what they were used for (e.g., if they were used for a room during a trip, it is a net wash, if they were used for meals then 50% would be considered winnings).
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Old 10-17-2007, 10:30 AM   #8
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Re: Are comps taxable

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Quote:
Comps could be treated as income by the IRS (like gambling wins), but if so, they can probably be offset by gambling losses.
This is true, IMO.

Comps would be part of the gross winnings. If gross losses are greater, then there is no taxable gambling income.

For gambling professionals, business expenses would also offset gross winnings. And the comps could have no tax impact depending on what they were used for (e.g., if they were used for a room during a trip, it is a net wash, if they were used for meals then 50% would be considered winnings).
guys "IMO" - which stands for In My Opinion" statements when it comes to tax issues are false and invalid. The only thing that matters is fact, the IRS doesn't care about our opinions.

I'm pretty sure you cannot combine comps into your gross winnings, which are then offset by gross losses. I think read a sample case in Walter Lewis's Gamblers Guide to Taxes. I searched for the book in my home but I cannot find it to verify (but i did find How to Turn Your Poker Playing into a Business by Ann-Margaret Johnston - another great tax book but unfortunately it doesn't cover comps).

I suggest anyone interested in this subject get both books, and contact a qualified CPS such as 2+2's own Russ Fox (send him a PM), Ann-Margaret Johnston or Walter Lewis.
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Old 10-17-2007, 11:00 AM   #9
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Re: Are comps taxable

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guys "IMO" - which stands for In My Opinion" statements when it comes to tax issues are false and invalid. The only thing that matters is fact, the IRS doesn't care about our opinions...
and contact a qualified CPA such as 2+2's own Russ Fox (send him a PM), Ann-Margaret Johnston or Walter Lewis.
Be careful with CPAs depending on how old they are they may not have been required to understand tax laws when they took their test. But any competent CPA wont give out advice they are not completely sure about anyways (hence the reason I didnt answer the first question)

Also there are some good tax forums (just like this form but for tax questions).

Try MSN's tax corner (google it, it should be the first link)
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Old 10-17-2007, 11:06 AM   #10
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Re: Are comps taxable

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Be careful with CPAs depending on how old they are they may not have been required to understand tax laws when they took their test.
The CPAs listed in my last post are all respected and trusted within the gambling community. Countless 2+2'ers and pro players have had their taxes prepared by them. I know Russ Fox personally, he does the taxes for a lot of the ARG'ers.
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Old 10-17-2007, 11:12 AM   #11
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Re: Are comps taxable

I never said he want respected TT. Actually I have read many of Russ Fox's tax responses and agree he knows his stuff. But if the guy just opend his yellowpages and went to CPA or Accountant some may not know much about taxes. My teacher for advanced financial accounting was a CPA with a Dr. in accounting yet he never took a tax class.
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Old 10-17-2007, 11:20 AM   #12
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Re: Are comps taxable

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I'm pretty sure you cannot combine comps into your gross winnings, which are then offset by gross losses.
It would appear here that Russ agrees with the position that casino comps are promotional expenses to the casino. Now I'm not 100% sure that extrapolates to comps not being considered gambling income to the pro gambler or not. I am very sure that any income determined to be gambling income can be offset by gambling losses though. Ergo if the IRS did determine your comps to be gambling income there is no provision for them to then disallow offsetting them with gambling losses. Now your State of residence is an entirely different matter.

The IRS link that applies to the above e-mail on Russ's website.
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Old 10-17-2007, 12:18 PM   #13
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Re: Are comps taxable

Here is a little background and may either clear things up or cloud the issues. Remember when car companies started "rebates?" Rebates, which used to be bad, illegal things, became good things. Well, the IRS has always taken the position that rebates are taxable income, but price discounts are not.

So the nature of your comp. may impact whether it is classified as a rebate or a discount. Example, when I check in at the MGM and am told: "The casino has comped your room, sir." Because I am not getting a check back, that is considered to be a discount.

Look at the specific nature of your comp. If what you are getting can't be classified as a discount, you are in the zone where you may want pro advice and the comp may be taxable as either a rebate or taxable promotion, just like jackpot winnings.

This make not help you make sense of everything, but is should give you a sense of the history of dispute.
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Old 10-17-2007, 12:55 PM   #14
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Re: Are comps taxable

I asked Russ Fox to join this thread, hopefully he will respond soon.
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Old 10-17-2007, 01:39 PM   #15
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Re: Are comps taxable

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Quote:
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Comps could be treated as income by the IRS (like gambling wins), but if so, they can probably be offset by gambling losses.
This is true, IMO.

Comps would be part of the gross winnings. If gross losses are greater, then there is no taxable gambling income.

For gambling professionals, business expenses would also offset gross winnings. And the comps could have no tax impact depending on what they were used for (e.g., if they were used for a room during a trip, it is a net wash, if they were used for meals then 50% would be considered winnings).
guys "IMO" - which stands for In My Opinion" statements when it comes to tax issues are false and invalid. The only thing that matters is fact, the IRS doesn't care about our opinions.

I'm pretty sure you cannot combine comps into your gross winnings, which are then offset by gross losses. I think read a sample case in Walter Lewis's Gamblers Guide to Taxes. I searched for the book in my home but I cannot find it to verify (but i did find How to Turn Your Poker Playing into a Business by Ann-Margaret Johnston - another great tax book but unfortunately it doesn't cover comps).

I suggest anyone interested in this subject get both books, and contact a qualified CPS such as 2+2's own Russ Fox (send him a PM), Ann-Margaret Johnston or Walter Lewis.
Walter Lewis "Gamblers Guide to Taxes" p.15-18 discusses comps and notes that though the IRS tried to consider comps as income apart from gambling, the courts ruled against the IRS, that comps were in fact deductable when combined with all other gambling winnings, offset by total gambling losses.

I put IMO in my post as TT explains above to make sure that everyone does their own verification (especially with their accountants). My accountant agreed with what I said above as far as comps are concerned - but - because an accountant is liable for penalties when he/she is a signed preparer, it is important to make sure they are in agreement...

Edit: If you are a net winner, comps may have a zero impact depending on what you spend them on and how you are filing. If you file as a business (Schedule C) and use a comp on a casino trip for a room, then it is a wash because you are allowed to deduct the cost of a room. Similarly, you would be able to deduct 50% of comps used for meals. Again this is all "my opinion" based on what I have read, deduced, discussed with my accountant.
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Old 10-17-2007, 04:41 PM   #16
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Re: Are comps taxable

The article that a poster in this thread linked to ( this blog post ) has nothing to do with casino comps. It has to do with casino employees and the tips (gratuities) they receive.

As to the subject of this thread, let's examine the IRS' directive on casino comps. Here are the relevant paragraphs:

Quote:
Comps are items casinos give to their customers. Generally, they are awarded based on a casinoís expected win calculated from a gamblerís prior activity. Casinos use tracking systems to determine the amount and result of a patronís gambling, and determine the appropriate level of comps to provide to a patron. Most regular patrons participate in casinosí favored customer programs, often called slot clubs...

The systems casinos use to market their comps programs and award the comps have generally allowed the casinos to treat comps as promotional expenses, excepted from the limitations of IRC Sec. 274 by IRC Sec. 274(e)(7).

Therefore, unless the manner in which a casino awards comps to its patrons differs markedly from the method described above, agents are directed not to challenge whether the comps qualify for treatment as promotional expenses under IRC Sec. 274(e)(7)....
Thus, for the casino, comps are generally a legitimate business expense. This is settled tax law.

For the patron, there are differences. Most comps are ignored by the casual gambler. A patron gambles, and the pit boss gives the gambler a comp for the coffee shop. Technically, it's income for the gambler but I've never seen the IRS go after such low-value comps.

On the other hand, I know of a couple of cases where a casino comped luxury items to a gambler, and the gambler declared them as income.

Adding to the complexity, the treatment might be different depending on whether the gambler was an amateur or a professional. Saying all that, the IRS still holds that comps are taxable to the gambler.

Ok, that's the IRS' position. However, as Mr Rick pointed out, the IRS has lost most (but not all) of those battles in the courts regarding taxing of comps. Discounts are not generally taxable, and the casino offers a comp (discount) to get someone to gamble.

So, what should you do? If this situation impacts you, you need to discuss your situation with your tax professional. What Mr Rick did (discuss his situation with his accountant) is absolutely the right thing to do. For me to offer a blanket statement ("gamblers can [or can't] ignore comps") would be wrong.

Hope this helps,

-- Russ Fox
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Old 10-17-2007, 05:20 PM   #17
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Re: Are comps taxable

Russ - what about airline frequent flier miles, when they are redeemed aren't they considered income, when in fact they are a rebate against existing flights previously taken?

PS: Didnt realize Mr Rick was a CPA.
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Old 10-17-2007, 07:47 PM   #18
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Re: Are comps taxable

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Comps would be part of the gross winnings. If gross losses are greater, then there is no taxable gambling income.
Only a professional gambler can offset losses against winnings and only declare the net. The rest of us are legally required to declare 100% of the winnings, and can then take losses as a Schedule A deduction.

No clue where comps fall. But honest and straightarrow as I am about taxes, I completely ignore comps. I've seen many things saying they ARE taxable. It's good to hear the IRS is losing challenges to that. Now I feel better about ignoring 'em.
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Old 10-17-2007, 09:21 PM   #19
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Re: Are comps taxable

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what about airline frequent flier miles, when they are redeemed aren't they considered income, when in fact they are a rebate against existing flights previously taken?

Sure, they're income, but the IRS won't be requiring anyone to declare them--in general. We need to look at some history here.

Back in 1985, the Deficit Reduction Act of 1984 was passed. It directed the IRS to go after taxing employee fringe benefits. The IRS looked at a wide variety of these benefits, including frequent flyer miles. Most airlines did nothing, but American Airlines, which originated frequent flyer miles, protested vigorously. They claimed that such miles were a "rebate."

In 1988 the IRS dropped the issue.

This website speculates that the IRS dropped it because it would "cost too much."

Fast forward to 1995. The IRS issued a Technical Advice Memorandum stating that frequent flyer miles were taxable. I remember that well, as I was a frequent flyer during that time. America's middle class--businessmen & women--yelled at their Congressional representatives. The IRS heard that taxing frequent flyer miles was like hitting a third rail of taxation. The IRS subsequently announced that there were no plans to tax the miles.

Having said that, it's clear that under Section 61 of the I.R.C., frequent flyer miles are taxable. Indeed, when the issue has gone to court, that's been the ruling. See, for example, Charley v. Commissioner 91 F.3d 72 (9th Cir. 1996), where an executive must pay tax on his miles.

So, what does this mean if you have frequent flyer miles? Should you voluntarily declare them (the value you use for them) on your tax return? You certainly can, but given the IRS' position, you're in almost no danger if you don't. If the IRS starts up again on this issue, the yells from the airline industry and middle America would be deafening.

-- Russ Fox

NOTE: This opinion is limited to the one or more Federal tax issues addressed in the opinion. Additional issues may exist that could affect the Federal tax treatment of the transaction or matter that is the subject of this opinion and the opinion does not consider or provide a conclusion with respect to any additional issues. With respect to any significant Federal tax issues outside the limited scope of this opinion, the article was not written, and cannot be used by the taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.
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Old 10-18-2007, 09:45 AM   #20
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Re: Are comps taxable

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PS: Didnt realize Mr Rick was a CPA.
Well, I've been called many things before but never a CPA. I am just naturally outspoken on every subject and sometimes I get lucky...

My wife, however, is an accountant in the film industry, though equally not a CPA. This does not give me any additional insight into poker accounting issues because the film/TV industry is kind of unique. In fact, CPAs typically don't do very well there...
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Old 10-18-2007, 10:05 AM   #21
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Re: Are comps taxable

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Quote:
Comps would be part of the gross winnings. If gross losses are greater, then there is no taxable gambling income.
Only a professional gambler can offset losses against winnings and only declare the net. The rest of us are legally required to declare 100% of the winnings, and can then take losses as a Schedule A deduction.

No clue where comps fall. But honest and straightarrow as I am about taxes, I completely ignore comps. I've seen many things saying they ARE taxable. It's good to hear the IRS is losing challenges to that. Now I feel better about ignoring 'em.

To be clear, I am not a CPA and what follows is what I have gleaned from Walter Lewis's book: The IRS is trying to say that comps should be declared as regular income and not offset by gambling losses. In the cases the IRS has lost, the ruling was that comps should be considered as gambling income and thus can be offset by gambling losses. If you are a winning player then technically comps should be declared and taxed...

What I think TT is getting at about airline frequent flyer miles is that the IRS would be taking a very unpopular position if they considered trying to tax them - even though the letter of the law requires it. Similarly the IRS would be taking a very unpopular position if they tried to enforce taxation on most minor casino comps that are essentially compensating players for food and board. And I would speculate that the time and energy they would spend on this would not be worth the meager return.

The specific case that Walter Lewis cites, involves a major whale who was receiving Rolls Royces and other extremely expensive luxury items.
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Old 10-18-2007, 11:18 AM   #22
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Re: Are comps taxable

Thanks for some great answers so far to what appears to be quite a complex issue.
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Old 03-15-2010, 04:11 AM   #23
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Re: Are comps taxable

I don't know if this ever happens, but what if the casino offers me 2 nights free stay in their hotel for my next visit. Presumably I have not realized any income until I make use of said comp?
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Old 03-15-2010, 05:05 AM   #24
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Re: Are comps taxable

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Originally Posted by Photoc View Post
They are not classified as income. They're more of a "rebate" than anything.
Why do people just make up answers like this when they have no actual basis for the answers they make up? At least preface it with "Hey guys I'm guessing here..."

Quote:
Originally Posted by funkyj View Post
I don't know if this ever happens, but what if the casino offers me 2 nights free stay in their hotel for my next visit. Presumably I have not realized any income until I make use of said comp?
Just guessing, but since the casino probably writes it off when they give it to you and the govt generally doesn't care when you 'use' things they just care when you get them. (Like if you make $50K online but you only withdraw $10K, the govt still wants to tax you on $50K)

Mark
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Old 03-16-2010, 10:24 PM   #25
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Re: Are comps taxable

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Originally Posted by funkyj View Post
I don't know if this ever happens, but what if the casino offers me 2 nights free stay in their hotel for my next visit. Presumably I have not realized any income until I make use of said comp?
Based on the recent comp discussion in this thread, I think comped rooms are not considered to have taxable value. IIRC the IRS statute refers to accounting for "property" won/given as a result of gambling, and rooms (and hamburgers) aren't property. Not 100% settled IMO but it's what I'm acting upon, and I haven't come across any other sources for the specific issue of comped rooms.

From that thread:
Quote:
Originally Posted by PokerXanadu View Post
I'm still leaning towards $0 for comped food (and drinks). It isn't really "property" that has a free market value. They are more of an amenity of the casino made available to anyone who spends enough time there playing the games. I'd consider it comparable to a hotel giving you access to the executive lounge or a private pool. It's a privilege extended to certain customers as a perk rather than a "noncash payment".
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