Vince Nardone: Tax and Controversy

REMINDER: Use Tax and General Tax Amnesty Programs

Hello everyone.  As the tax attorneys at Nardone Law Group, LLC have previously communicated in our September 26, 2011 blog entry Ohio Use Tax Amnesty and Other Voluntary Disclosure Options, the Ohio Department of Taxation issued an Information Release providing guidance on the Consumer's Use Tax Amnesty Program that runs from October 1, 2011 through May 1, 2013. The Tax Commissioner will waive all unassessed Use Tax liability due for any periods prior to January 1, 2009, and Consumer's Use Tax paid under the Amnesty is not subject to interest, or civil or criminal penalties. But, taxpayers who are registered for Ohio Use Tax as of June 1, 2011, are required to pay interest on any under-reported or unreported Consumer's Use Tax.

The Ohio Department of Taxation also issued an Information Release on the General Tax Amnesty. The General Tax Amnesty covers taxes due and payable as of May 1, 2011, which were unreported, underreported, and remain unpaid.  The General Tax Amnesty program is open from May 1, 2012 to June 15, 2012.  The General Tax Amnesty requires taxpayers to fully pay all delinquent taxes due for all periods prior to May 1, 2011. The benefits are:

• The taxpayer need only pay one half of the interest that would otherwise be due on such prior delinquent taxes—the other one half of the interest is abated.
• Any penalties on delinquent taxes paid under this program are fully abated.
• Participants cannot be criminally prosecuted.
• No assessments may be issued by ODT with respect to any tax paid under the General Tax Amnesty Program.

To complicate things for Ohio taxpayers, ODT also has the Voluntary Disclosure Program, which is an ongoing program, and is available for various tax years for which a taxpayer may have a liability. Although the benefits and terms may vary depending on the type of tax, the general benefits and terms include:

• The taxpayer must file the relevant tax returns for the current year and each of the three previous years (four years in total) and pay the tax due plus interest.
• The Tax Commissioner is precluded from assessing the taxpayer, or from requiring the taxpayer to file returns for taxable years prior to the years covered by the agreement if the taxpayer has not been previously contacted by ODT.
• The Tax Commissioner will waive all penalties associated with the years covered by the agreement.

Prior to availing yourself of either: (i) the Use Tax Amnesty, (ii) the General Tax Amnesty, or (iii) the Voluntary Disclosure Program, you must consider the benefits of each, and also determined the potential unattended consequences of making the disclosure.  For more information, please also visit our recent article on the Ohio Tax Amnesty Programs. Also consider reviewing the Ohio Department of Taxation's discussion on each of these options.

The tax attorneys at Nardone Law Group represent businesses and individuals in state and federal tax issues, including federal tax collection alternative resolutions.  If you are dealing with a local, federal or state tax issue, you should contact an experienced tax attorney today.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the Ohio Department of Taxation and the IRS. We will thoroughly review your case to determine what options and alternatives are available, including the programs discussed in this article. Contact us today for a consultation.

IRS Watchdog Reports on Offer in Compromise - Results Not Surprising

On April 12, 2012, the Treasury Inspector General for Tax Administration (TIGTA) reported serious deficiencies in the IRS's offer in compromise ("OIC") program.  As tax attorneys and tax professionals, we at Nardone Law Group are frequently asked by our clients if an OIC is an option for them when analyzing their tax collection alternatives.  And for some, it most certainly is.  However, what we have found, and what has been further confirmed by the TIGTA Audit Report, is that an OIC can be an arduous process.  

As described by TIGTA, an OIC is an agreement between a taxpayer and the federal government that settles a tax liability for payment of less than the full amount owed. The goal of the audit was to assess the effectiveness of the OIC Program to: (i) timely process requests, (ii) consistently apply OIC guidelines, (iii) accurately measure program results, and (iv) effectively promote the program.  According to the audit report, auditors found that the IRS did not always contact taxpayers when promised, and inventory backlog caused processing delays.

According to the audit report, the number of requested offers increased by 28% between fiscal year 2007 and fiscal year 2011. But, the resources available to work the offers have decreased. A statistically valid sample of 99 offers identified 73 cases—or 74%—in which the IRS failed to contact the taxpayer by the promised date. TIGTA estimated that some 9,500 taxpayers who submitted offers between July 1 and December 31, 2010, may not have been contacted when promised. In addition, as of October 25, 2011, there were almost 7,500 unassigned offers in holding queues awaiting assignment to IRS staff.

As tax attorneys who work OICs, we recognize there are many problems with the OIC process.  We certainly agree that: (i) we do not receive timely responses, (ii) guidelines are not applied properly, and (iii) IRS staff lack practical work experience or thought process when it comes to understanding taxpayer's positions and assets.  Thus, the TIGTA report is not a surprise. We encourage everyone to review the audit report, which can be accessed by visiting Nardone Law Group’s website.  

Nardone Law Group represents businesses and individuals in state and federal tax issues, including federal tax collection alternative resolutions.  If you are struggling with tax liabilities, you should contact an experienced tax attorney today.  Nardone Law Group, LLC’s tax lawyers and professionals have vast experience representing clients before the IRS.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the offer in compromise. Contact us today for a consultation to discuss your case.

Injured or Innocent Spouse Tax Relief

Well, it’s tax filing season again.  And, as tax attorneys and tax lawyers in Columbus, Ohio, one of the issues that frequently comes up for married couples is whether to file a joint Form 1040 federal income tax return, or to file the Form 1040 as married filing separately.  As you might imagine, there are a number of planning ideas that address that question.  In this blog entry we would like to focus on, and address, one of those planning issues specifically.  That being, whether or not filing a joint return would cause both spouses to be jointly and severally liable for a tax liability of one of the spouses, which will remain unpaid at the time of filing the return.  The answer to this is yes. By filing a joint return, both spouses will be jointly and severally liable for the unpaid liability on that return.  If there is a tax liability for which one of the spouses is solely responsible, then the married couple should absolutely file their Form 1040s as married filing separately.  If however, the married couple files jointly, the spouse who is not responsible for the unpaid tax liability, may be able to show that an exception exists to the joint and several liability of the unpaid tax, which would include being an Injured Spouse.

As an injured spouse, it is possible that you can avail yourself to the innocent spouse relief provisions under the Internal Revenue Code.  Click here to read our full article on the topic of injured and innocent spouse relief.  

The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS in order to obtain the best result available, based on each clients' specific facts and circumstances. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available. Contact us today for a consultation to discuss your case. 

The Importance, and Convenience, of Making State and Federal Estimated Tax Payments

Guest Author: Tawnya Underwood, Columbus, Ohio

By making frequent and timely estimated tax payments, professionals can avoid penalties and interest, and be in a better financial position when tax season arrives.  Many professionals, however, fail to make the necessary estimated tax payments throughout the year for a variety of reasons; the most common reasons we see at Nardone Law Group involve professionals simply being too busy.  We see that, in most cases, although professionals have the funds to make their estimated tax payments, they fall behind because the process seems too time consuming.  But, there is good news for those professionals!  Both the Ohio Department of Taxation and the Internal Revenue Service offer online payment options, which allow taxpayers to make one-time or repeating estimated tax payments. 

Professionals wanting to utilize ODT’s or IRS’s online payment option, must first register with the respective systems.  The instructions for getting started are listed below.

Internal Revenue Service

The most convenient way to make monthly estimated federal tax payments is to register for EFTPS, the Electronic Federal Tax Payment System.  It is a free payment service provided by the United States Treasury.  To enroll taxpayers will need the following information available:

1. Taxpayer Identification Number (your Social Security Number).

2. Banking account number and routing number.

3. Address and name as they appear on your IRS tax documents.

You can enroll online at www.EFTPS.gov Go to "Enrollment" select "Individual" and complete the requested information.  In 5 to 7 business days, you will receive a PIN in the mail.  Once you receive the PIN, you will have to go back to the EFTPS website to create your account.  At this point, you will be able to make estimated tax payments.  You can schedule estimated tax payments up to 365 days in advance.  With each payment you will receive a payment confirmation for your records. 

Ohio Department of Taxation

The State of Ohio offers the Ohio EPayment system. If using electronic check, the service is free.  If making payments by credit card there is a processing fee.  In order to use this free payment system, you will need to register with Ohio I-File by going ODT's Online Services Registration System.  

With the State’s electronic payment system, you can schedule future dated payments for your 2012 estimated tax payments.  After each payment is made, you will receive a payment confirmation page, which you will need to print or save electronically for your records. 

Also, with both the IRS and Ohio’s online payment options, you can cancel a future dated payment if needed.  If a post-dated payment needs to be canceled, you will need to log into the account at least 4 business days in advance of the scheduled payment date.

If you are a taxpayer who is required to make estimated tax payments, the tax attorneys at Nardone Law Group strongly recommend considering these online payment options.  The process is free, saves time, and at the start of tax season will provide peace of mind.  The tax attorneys at Nardone Law Group are here to assist if you need additional guidance on this topic.

Internal Revenue Service and Offer-in-Compromise

 With the economy continuing to struggle, many businesses and individuals also continue to struggle financially. As part of those struggles, many have fallen behind on their federal tax filing and tax payment obligations. There are a number of collection alternatives, however, available to taxpayers. As tax attorneys and tax lawyers serving Ohio, including Cincinnati, Cleveland, Columbus, Dayton and surrounding areas, we strive to ensure taxpayers are informed of these collective alternatives.

One of the collection alternatives includes an Offer-in-Compromise. There are a number of variations of the Offer-in-Compromise, including the streamlined Offer-in-Compromise program that was implemented on July 28, 2010 and centralized in the Brookhaven and Memphis Campuses. The streamlined program is available to qualifying taxpayers whose:

1. total annual household income is $100,000 or less, and

 

2. total tax liability is less than $50,000, including all accruals.

 

Qualifying taxpayers include the unemployed, wage earners, and self-employed, provided they have no employees and their annual gross receipts are under $500,000. Taxpayers that are struggling with their federal tax liabilities must avail themselves of all collection alternatives, including the streamlined Offer-in-Compromise. To learn more about Offer-in-Compromises, and other collection alternatives, please click on: Offer-in-Compromise.

Contact Nardone Law Group, LLC

If you or your business is struggling with federal tax liabilities, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS in order to obtain the best result and collection alternative available, based on your specific facts and circumstances. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offer-in-Compromise. Contact us today for a consultation to discuss your case, by clicking: Contact NLG.

 

Filing False Returns: A Deportable Offense Under Immigration Laws

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

If you are lawful permanent resident holding a green card, or if you are in the United States on a temporary visa, and you have filed a fraudulent or false tax return, the Supreme Court recently held that you are subject to deportation or removal from the U.S. as an aggravated felon.

In a 6-3 decision, the United States Supreme Court issued its opinion for Kawashima v. Holder, affirming a Ninth Circuit Court of Appeals decision that filing false returns is a deportable offense. This article provides guidance as it relates to permanent residents or temporary visa holders who have filed a false or fraudulent return.

In Kawashima, the issue before the Court was whether the filing of a false or fraudulent return is a deportable offense for lawful permanent residents and green card holders. In 1997, Mr. Kawashima plead guilty to a violation of IRC §7206(1), for willfully filing a fraudulent or false return. After his conviction, Mr. Kawashima was subject to deportation proceedings pursuant to the Immigration and Naturalization Act. His wife, Mrs. Kawashima, was also subject to the deportation proceedings for her guilty plea and related conviction for violating of IRC §7206(2), willfully assisting in the preparation of a fraudulent or false return.

For fully naturalized residents of the United States, a conviction of either §7206(1) or §7206(2) can result in a maximum penalty of $100,000, 3 years in prison, or both.  In addition, for lawful permanent residents and green card holders, deportation proceedings can be initiated, in addition to fines and jail time related to the offense.

The Immigration and Naturalization Act (“INA”) provides that any alien convicted of an aggravated felony is a deportable offense. See 8 U.S.C.A. 1227(a)(2)(A). Further, the Act provides that aggravated felonies under this provision include offenses under Internal Revenue Code §7201, where the revenue loss to the government exceeds $10,000.  See 8 U.S.C.A. 1101(a)(43)(M).

The Court rejected the Kawashima’s argument that “fraud” and “deceit” were necessary elements of the deportation provision under the INA.  Rather, the Court held that the INA broadly refers to offenses with elements necessarily entailing fraudulent or deceitful conduct. Thus, once the Kawashima’s plead guilty to filing a false or fraudulent return, and assisting in the filing of a false return—an offense fraudulent or deceitful in nature—they became deportable, and subject to removal from the United States under the provisions of the INA.

Cases such as this present a multitude of issues for potential defendants since there are two formal proceedings: one for the violation of the Internal Revenue Code, and one for the deportation proceedings.  Thus, for any lawful permanent resident, or visa holder, it is important to fully understand the unintended consequences of any action, including entering into a plea agreement.  If you are a lawful permanent resident residing within the United States, and are the subject of an IRS examination, please contact the Nardone Law Group for assistance.  The professionals at Nardone Law Group have experience dealing with immigration and tax litigation and can assist you in the resolution of these matters, including the impact on your immigration status. 

Internal Revenue Service Announces Relief for Unemployed Taxpayers

Guest Author: Patrick Moro, Columbus, Ohio

With the unemployment rate lingering around 8.3%, it is not uncommon for taxpayers in Ohio to find themselves in a position of being unable to pay their tax liabilities because they are unemployed. To remedy this problem, the Internal Revenue Service(“ IRS ”) has just announced an extension of the 2008 “Fresh Start” initiative, a program geared towards helping taxpayers that have either: (i) been unemployed for at least 30 days, or (ii) if self-employed, experienced at least a 25% decrease in business income for 2011.

Under the Fresh Start program, taxpayers can request a 6-month grace period on failure to pay penalties—ranging from .5% to 25% of the amount due—on the condition that the tax, interest, and other penalties are paid in full by October 15, 2012. This option can potentially save struggling taxpayers thousands of dollars, but it should be noted that while the failure to pay penalty is suspended, taxpayers must still pay the statutory interest of 3% on back taxes.

In addition to the statutory interest rate, participation in this program is subject to the following conditions:

• Income must not exceed $200,000 when married, filing jointly; or
• Income must not exceed $100,000 when filing single, or as head of household; and
• The taxpayer’s calendar year balance of tax liabilities must not exceed $50,000.

The program also encompasses a streamlined procedure for entering into installment agreements with the IRS. This is great news for taxpayers with back taxes because taxpayers can now enter into in an installment agreement with much less hassle.  Typically, taxpayers with $25,000 or more in back taxes are required to provide financial statements to the IRS when entering into installment agreement negotiations.  This amount has been increased to $50,000 and agreements can now last for a term of 72 months, rather than the current 60 month maximum.

 If you are having difficulty paying your tax liabilities and have been unemployed for 30 or more days in 2011 or 2012, or experienced at least a 25% drop in business income related to your business, contact the experienced tax lawyers at Nardone Law Group, LLC for assistance.  Nardone Law Group, LLC represents individuals and business taxpayers in Akron, Canton, Cincinnati, Columbus, Cleveland, Dayton, and all surrounding areas.

 

Recent Tax Court Ruling a Victory for Professional Gamblers

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

Professional Gambler's Business Expenses No Longer Subject to Loss Limitation

In a recent announcement, the Internal Revenue Service (" IRS ")issued an action on decision ("AOD") indicating that it will follow the Tax Court's decision in Mayo, (2011) 136 TC 81, which held that business expenses of professional gamblers are not subject to the loss limitation rules of Internal Revenue Code §165(d).  This ruling and AOD is a victory for professional gamblers. The IRS now takes the position that a professional gambler may fully deduct those business expenses incurred in pursuing gambling professionally.  As a result, if you are professional gambler, you can now deduct all your business expenses in pursuit of your gambling activities on Schedule C.

As a quick background, an AOD is a formal memorandum prepared by the IRS’s Office of Chief Counsel that announces the future litigation position that the IRS will take with regard to a particular court decision.  They are issued to enhance consistency with respect to future litigation or dispute resolution.  The IRS has now set forth its position with respect to business expenses of professional gamblers in this recent AOD, such that taxpayers now have some assurance of the position that the IRS may take with respect to possible future litigation or other dispute resolution on this issue. 

IRS Action on Decision Only Applies to "Professional Gamblers"

Before you can take advantage of this gambling deduction, however, you must be a classified as a professional gambler; this AOD does not affect those who gamble as a hobby.  Case law defines a professional gambler as someone engaged in the trade or business of gambling. Nardone Law Group, LLC's article "Tax Deductions for Professional Gamblers in Ohio," provides guidance to determine whether or not you are a professional gambler.  Generally, the IRS looks to all the facts and circumstances around your gambling activities to determine whether you are a professional gambler.  If you are a professional gambler, you may deduct gambling losses to the extent of your gains from wagering transactions. Prior to the IRS's AOD, deductible gambling losses included both gambling losses andthose business expenses incurred in pursuit of your gambling activities.  The Tax Court made it clear, and IRS now agrees, that a professional gambler's expenses incurred to engage in the trade or business of gambling are not subject to limitation, but are fully deductible as ordinary and necessary business expenses under Internal Revenue Code §162.

Case Study―The Mayo Case

The Mayo case involved a professional gambler from California.  In 2001, Mr. Mayo wagered $131,760 on horse racing but he only won $120,463.  As a result, Mr. Mayo lost $11,297.  He also incurred $10,968 in business expenses, which included automobile expenses for travel to the racetracks and fees for race handicapping information and other research purposes.  The IRS initially disallowed all $22,265 of expenses because they exceeded Mr. Mayo's gross receipts from winnings.  The IRS argued that both the $131,760 in wagers and $10,968 in expenses were subject to the loss limitations.  The Tax Court disagreed and allowed Mr. Mayo to deduct the business expenses of $10,968 in full.  The Tax Court ruled those expenses were not a wagering loss, but ordinary and necessary business expenses incurred in pursuit of his gambling activities.  The remaining $11,297 excess wagering losses were disallowed under the normal rules of the Internal Revenue Code §165(d). 

The Result for Professional Gamblers

The IRS's AOD will provide professional gamblers with greater deductions for expenses incurred in pursuit of their gambling activities.  It will also allow professional gamblers to amend their last three years of returns where business expenses were not claimed because those years had reported gambling losses. If you are a professional gambler, you should consult the experienced tax attorneys at the Nardone Law Group, LLC to analyze whether you can take advantage of the new IRS policy.  Our tax lawyers understand what it takes for a gambling activity to raise to the level of a trade or business.  There are limitations on the expenses that qualify under the new IRS policy.  For example, deductible gambling expenses are not only required to be ordinary and necessary to conduct your gambling profession, they must also be reasonable. 

Contact Nardone Law Group, LLC

If you consider yourself a professional gambler and you incurred business expenses in pursuit of your gambling activities, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS in order to obtain tax deductions for professional gamblers. Our experienced tax lawyers will thoroughly review your case to determine whether you are a professional gambler such that you can deduct your gambling losses above your gambling winnings.  Contact us today for a consultation to discuss your case.

Offshore Voluntary Disclosure Program

Well, tax attorneys and tax lawyers in Columbus, Ohio should remain busy in 2012.  On January 9, 2012, the Internal Revenue Service announced that it reopened the offshore voluntary disclosure program ("OVDP") to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

Background

The first OVDP was announced by the IRS in 2009 and applied to those taxpayers that voluntarily and timely disclosed unreported offshore income for 2003 - 2008. In February 2011, the IRS unveiled a second OVDP to give taxpayers with undisclosed income from hidden offshore accounts for the 2003 - 2010 tax periods the chance to get current with their taxes. The 2011 OVDP was originally available through August 31, 2011 but was extended through September 9, 2011. It carried higher penalties than the original disclosure program but the penalties could be mitigated under certain circumstances.

New program

The IRS says the new program is similar to last year's program in many ways. However, the IRS stresses that there are a few key differences. Unlike last year, there is no set deadline under the new program to apply. The IRS cautions, however, that it could change the terms of the program at any time. For example, it could increase penalties for all or some taxpayers or defined classes of taxpayers. In addition, the IRS may end the program entirely at any point.

As practicing tax attorneys and tax lawyers in Ohio, many are surprised that we may have taxpayers in Columbus, Cincinnati, Cleveland, Dayton and other parts of Ohio that have offshore investments.  Well, there is no reason to be surprised.  With the global economy that we are now experiencing, Ohio taxpayers are investing overseas and unfortunately some of those investors find the need to avail themselves of the IRS's offshore voluntary disclosure program. 

Comment from Vince Nardone, Tax Attorney/Tax Lawyer, Specializing in IRS matters:

Taxpayers that avail themselves of the IRS offshore voluntary disclosure program feel so much better when they have been accepted into the program.  Look at it as if all you owe is money, then, you do not have a problem. It is when you are potentially exposed to criminal sanctions, including incarceration that you should begin to worry, and you then certainly have a problem.  Thus, although there is no question that taxpayers who participate in the OVDP will owe money to the IRS, I would rather owe money, than have to worry about someone knocking on my door one morning to ask me questions about my offshore accounts.  The benefit of having it behind you and avoiding the risk of criminal exposure cannot be understated.

For more information on this topic, see Nardone Law Group's News page, or contact Nardone Law Group and one of our experienced tax attorneys.  Additionally, you may be interested in our Tax Controversy Services FAQs dealing with this and other federal tax issues and the IRS. 

Tax Deductions for Professional Gamblers in Ohio

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

This article addresses the question of what tax deductions are available to professional gamblers.  On November 3, 2009, the citizens of Ohio passed the casino initiative authorizing legal gambling in four of Ohio's largest cities.  The passage of the Ohio Issue 3, also known as the "Four Casinos Initiative," amends the Constitution of Ohio and authorizes gambling casinos in Cincinnati, Cleveland, Columbus, and Toledo.  These new casinos mean that more and more gamblers here in Columbus, Ohio will need to understand what tax deductions are available to professional gamblers.  The State of Ohio expects to create over 20,000 jobs and increase revenues for state and local governments.The tax lawyers at the Nardone Law Group, LLC expect more disputes between taxpayers claiming to be professional gamblers and the Internal Revenue Service (the " IRS " or the " Service ") on the amount that may be claimed as deductible gambling losses.

Professional versus Recreational Gamblers

The tax deductions available to professional gamblers for their gambling activities are vastly different from the tax deductions available to recreational gamblers.  In general, gambling income is fully taxable and gambling losses may not exceed gambling winnings—unless the taxpayer is engaged in the trade or business of gambling. This means that if you are a professional gambler, you may be able to deduct all your losses, as well as incidental business expenses that are ordinary and necessary expenses in the pursuit of your gambling activities.  Therefore, the most important question for gamblers is to determine at what point a gambling activity raises to the level of a trade or business such that you would be considered a professional gambler. When you become a professional gambler, your gambling losses may be deductible in determining your adjusted gross income, as opposed to being taken as itemized deductions subject to limitations.  Deducting your losses from adjusted gross income can result in huge tax savings, so understanding what it takes to become a professional gambler is of principal importance.

What is a Professional Gambler?

The IRS and reviewing courts will find that a gambling activity constitutes a trade or business only after examining all relevant facts and circumstances.  Whether you play poker, slot machines, or are involved in horse racing, the facts and circumstances must show that your gambling activity is pursued full time, in good faith, and with regularity.  In addition, yourgambling activity must also be your intended source of livelihood and cannot be recreational or a mere hobby.  If you have a job outside of gambling, you must show that you not only pursued your gambling activity full-time, but that your gambling activity was your main source of earning a livelihood.  It may notbe immediately clear whether your gambling activity will qualify you as a professional gambler.  Thus, the tax lawyers at the Nardone Law Group, LLC recommend taking the following steps to ensure the greatest chance of success.

Recommendation for Professional Gamblers

If you consider yourself to be a professional gambler, you can increase your chances of being determined as such by the IRS by operating your gambling activities in a business-like manner.  This involves setting up a separate bank account designated solely for your gambling activities.  You should also have a detailed business plan outlining your strategy and indicating how you intend to make a profit from gambling.  The motive to make a profit is the key ingredient.  Therefore, your business plan should clearly provide your plan to make money and should reference any and all research you have done to increase your chances of making your gambling activities profitable.  Further, you should keep a log of the time you spent gambling also keeping track ofthe money you bring with you gambling, tracking your winnings and your losses.  Never rely on a casino's player's card or a Form W-2G to track your winnings.  You must maintain your own records.  You should also limit the recreational aspects of gambling.  If you are a professional gambler, you should treat gambling like any other job.  If you gamble with friends for casino perks, then it will be much more difficult to prove to the IRS you are truly a professional gambler. Finally, you must be able to document your expertise in your gambling activity.  You must be able to show what research you have done to show that you believed you could make a profit gambling, even if you have not done so.  Your research should be referenced in your business plan and the books you have read and experts you have consulted with should be cited to and referenced accordingly.

Contact Nardone Law Group, LLC

If you consider yourself a professional gambler, and you have significant gambling losses that are greater than your gambling winnings, 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 tax deductions for professional gamblers. Our experienced tax lawyers will thoroughly review your case to determine whether you are a professional gambler such that you can deduct your gambling losses above your gambling winnings.  Contact us today for a consultation to discuss your case.

What is the Likelihood that I will be Audited by the Internal Revenue Service?

Clients and taxpayers, in general, are surprised as to the amount of information available on the Internal Revenue Service’s website regarding examination statistics.  As an example, the Internal Revenue Service recently issued statistics regarding tax returns examined in Fiscal Year 2010.  Overall there were 187,124,450 returns filed and 1,735,083 returns examined, which represents 0.9% percent of returns covered by examination.  That is less than one percent folks.  But, as always, the devil is in the details.  For example, the Internal Revenue Service examined 4.7% of returns filed where individuals reported gross receipts between $100,000 and $200,000 and filed a schedule C.  On the other hand, the Internal Revenue Service examined 98 percent of certain large corporate taxpayers.  So, it all depends.

The below chart provides a summary of the most common returns and taxpayers:

Type of Taxpayer	Returns Filed	Returns Examined	Amount of Additional Tax (thousands of dollars)
Schedule C Filer - $100,000 to $200,000 in gross receipts	893,707	42,403	$923,734
Schedule C Filer - $200,00 or more in gross receipts	705,877	23,569	$528,770
Partnership Returns	3,423,583	12,406	N/A
S Corporation Returns	4,414,662	16,327	N/A
Employment Tax Returns	30,158,258	63,937	$1,245,789
Estate Tax Returns	42,366	4,288	$1,405,415

The question you very well may be asking yourself is, so, how does the IRS select tax returns for audit?  This is a question that we get asked quite a bit at Nardone Law Group.  To answer the question of how returns are selected for an audit, follow this link. 

REMINDER: Use Tax and General Tax Amnesty Programs

Hello everyone.  As the tax attorneys at Nardone Law Group, LLC have previously communicated in our September 26, 2011 blog entry Ohio Use Tax Amnesty and Other Voluntary Disclosure Options, the Ohio Department of Taxation issued an Information Release providing guidance on the Consumer's Use Tax Amnesty Program that runs from October 1, 2011 through May 1, 2013. The Tax Commissioner will waive all unassessed Use Tax liability due for any periods prior to January 1, 2009, and Consumer's Use Tax paid under the Amnesty is not subject to interest, or civil or criminal penalties. But, taxpayers who are registered for Ohio Use Tax as of June 1, 2011, are required to pay interest on any under-reported or unreported Consumer's Use Tax.

The Ohio Department of Taxation also issued an Information Release on the General Tax Amnesty. The General Tax Amnesty covers taxes due and payable as of May 1, 2011, which were unreported, underreported, and remain unpaid.  The General Tax Amnesty program is open from May 1, 2012 to June 15, 2012.  The General Tax Amnesty requires taxpayers to fully pay all delinquent taxes due for all periods prior to May 1, 2011. The benefits are:

• The taxpayer need only pay one half of the interest that would otherwise be due on such prior delinquent taxes—the other one half of the interest is abated.
• Any penalties on delinquent taxes paid under this program are fully abated.
• Participants cannot be criminally prosecuted.
• No assessments may be issued by ODT with respect to any tax paid under the General Tax Amnesty Program.

To complicate things for Ohio taxpayers, ODT also has the Voluntary Disclosure Program, which is an ongoing program, and is available for various tax years for which a taxpayer may have a liability. Although the benefits and terms may vary depending on the type of tax, the general benefits and terms include:

• The taxpayer must file the relevant tax returns for the current year and each of the three previous years (four years in total) and pay the tax due plus interest.
• The Tax Commissioner is precluded from assessing the taxpayer, or from requiring the taxpayer to file returns for taxable years prior to the years covered by the agreement if the taxpayer has not been previously contacted by ODT.
• The Tax Commissioner will waive all penalties associated with the years covered by the agreement.

Prior to availing yourself of either: (i) the Use Tax Amnesty, (ii) the General Tax Amnesty, or (iii) the Voluntary Disclosure Program, you must consider the benefits of each, and also determined the potential unattended consequences of making the disclosure.  For more information, please also visit our recent article on the Ohio Tax Amnesty Programs. Also consider reviewing the Ohio Department of Taxation's discussion on each of these options.

The tax attorneys at Nardone Law Group represent businesses and individuals in state and federal tax issues, including federal tax collection alternative resolutions.  If you are dealing with a local, federal or state tax issue, you should contact an experienced tax attorney today.  Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the Ohio Department of Taxation and the IRS. We will thoroughly review your case to determine what options and alternatives are available, including the programs discussed in this article. Contact us today for a consultation.

IRS Watchdog Reports on Offer in Compromise - Results Not Surprising

On April 12, 2012, the Treasury Inspector General for Tax Administration (TIGTA) reported serious deficiencies in the IRS's offer in compromise ("OIC") program.  As tax attorneys and tax professionals, we at Nardone Law Group are frequently asked by our clients if an OIC is an option for them when analyzing their tax collection alternatives.  And for some, it most certainly is.  However, what we have found, and what has been further confirmed by the TIGTA Audit Report, is that an OIC can be an arduous process.  

As described by TIGTA, an OIC is an agreement between a taxpayer and the federal government that settles a tax liability for payment of less than the full amount owed. The goal of the audit was to assess the effectiveness of the OIC Program to: (i) timely process requests, (ii) consistently apply OIC guidelines, (iii) accurately measure program results, and (iv) effectively promote the program.  According to the audit report, auditors found that the IRS did not always contact taxpayers when promised, and inventory backlog caused processing delays.

According to the audit report, the number of requested offers increased by 28% between fiscal year 2007 and fiscal year 2011. But, the resources available to work the offers have decreased. A statistically valid sample of 99 offers identified 73 cases—or 74%—in which the IRS failed to contact the taxpayer by the promised date. TIGTA estimated that some 9,500 taxpayers who submitted offers between July 1 and December 31, 2010, may not have been contacted when promised. In addition, as of October 25, 2011, there were almost 7,500 unassigned offers in holding queues awaiting assignment to IRS staff.

As tax attorneys who work OICs, we recognize there are many problems with the OIC process.  We certainly agree that: (i) we do not receive timely responses, (ii) guidelines are not applied properly, and (iii) IRS staff lack practical work experience or thought process when it comes to understanding taxpayer's positions and assets.  Thus, the TIGTA report is not a surprise. We encourage everyone to review the audit report, which can be accessed by visiting Nardone Law Group’s website.  

Nardone Law Group represents businesses and individuals in state and federal tax issues, including federal tax collection alternative resolutions.  If you are struggling with tax liabilities, you should contact an experienced tax attorney today.  Nardone Law Group, LLC’s tax lawyers and professionals have vast experience representing clients before the IRS.  Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the offer in compromise. Contact us today for a consultation to discuss your case.

Injured or Innocent Spouse Tax Relief

Well, it’s tax filing season again.  And, as tax attorneys and tax lawyers in Columbus, Ohio, one of the issues that frequently comes up for married couples is whether to file a joint Form 1040 federal income tax return, or to file the Form 1040 as married filing separately.  As you might imagine, there are a number of planning ideas that address that question.  In this blog entry we would like to focus on, and address, one of those planning issues specifically.  That being, whether or not filing a joint return would cause both spouses to be jointly and severally liable for a tax liability of one of the spouses, which will remain unpaid at the time of filing the return.  The answer to this is yes. By filing a joint return, both spouses will be jointly and severally liable for the unpaid liability on that return.  If there is a tax liability for which one of the spouses is solely responsible, then the married couple should absolutely file their Form 1040s as married filing separately.  If however, the married couple files jointly, the spouse who is not responsible for the unpaid tax liability, may be able to show that an exception exists to the joint and several liability of the unpaid tax, which would include being an Injured Spouse.

As an injured spouse, it is possible that you can avail yourself to the innocent spouse relief provisions under the Internal Revenue Code.  Click here to read our full article on the topic of injured and innocent spouse relief.  

The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS in order to obtain the best result available, based on each clients' specific facts and circumstances. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available. Contact us today for a consultation to discuss your case. 

The Importance, and Convenience, of Making State and Federal Estimated Tax Payments

Guest Author: Tawnya Underwood, Columbus, Ohio

By making frequent and timely estimated tax payments, professionals can avoid penalties and interest, and be in a better financial position when tax season arrives.  Many professionals, however, fail to make the necessary estimated tax payments throughout the year for a variety of reasons; the most common reasons we see at Nardone Law Group involve professionals simply being too busy.  We see that, in most cases, although professionals have the funds to make their estimated tax payments, they fall behind because the process seems too time consuming.  But, there is good news for those professionals!  Both the Ohio Department of Taxation and the Internal Revenue Service offer online payment options, which allow taxpayers to make one-time or repeating estimated tax payments. 

Professionals wanting to utilize ODT’s or IRS’s online payment option, must first register with the respective systems.  The instructions for getting started are listed below.

Internal Revenue Service

The most convenient way to make monthly estimated federal tax payments is to register for EFTPS, the Electronic Federal Tax Payment System.  It is a free payment service provided by the United States Treasury.  To enroll taxpayers will need the following information available:

1. Taxpayer Identification Number (your Social Security Number).

2. Banking account number and routing number.

3. Address and name as they appear on your IRS tax documents.

You can enroll online at www.EFTPS.gov Go to "Enrollment" select "Individual" and complete the requested information.  In 5 to 7 business days, you will receive a PIN in the mail.  Once you receive the PIN, you will have to go back to the EFTPS website to create your account.  At this point, you will be able to make estimated tax payments.  You can schedule estimated tax payments up to 365 days in advance.  With each payment you will receive a payment confirmation for your records. 

Ohio Department of Taxation

The State of Ohio offers the Ohio EPayment system. If using electronic check, the service is free.  If making payments by credit card there is a processing fee.  In order to use this free payment system, you will need to register with Ohio I-File by going ODT's Online Services Registration System.  

With the State’s electronic payment system, you can schedule future dated payments for your 2012 estimated tax payments.  After each payment is made, you will receive a payment confirmation page, which you will need to print or save electronically for your records. 

Also, with both the IRS and Ohio’s online payment options, you can cancel a future dated payment if needed.  If a post-dated payment needs to be canceled, you will need to log into the account at least 4 business days in advance of the scheduled payment date.

If you are a taxpayer who is required to make estimated tax payments, the tax attorneys at Nardone Law Group strongly recommend considering these online payment options.  The process is free, saves time, and at the start of tax season will provide peace of mind.  The tax attorneys at Nardone Law Group are here to assist if you need additional guidance on this topic.

Internal Revenue Service and Offer-in-Compromise

 With the economy continuing to struggle, many businesses and individuals also continue to struggle financially. As part of those struggles, many have fallen behind on their federal tax filing and tax payment obligations. There are a number of collection alternatives, however, available to taxpayers. As tax attorneys and tax lawyers serving Ohio, including Cincinnati, Cleveland, Columbus, Dayton and surrounding areas, we strive to ensure taxpayers are informed of these collective alternatives.

One of the collection alternatives includes an Offer-in-Compromise. There are a number of variations of the Offer-in-Compromise, including the streamlined Offer-in-Compromise program that was implemented on July 28, 2010 and centralized in the Brookhaven and Memphis Campuses. The streamlined program is available to qualifying taxpayers whose:

1. total annual household income is $100,000 or less, and

 

2. total tax liability is less than $50,000, including all accruals.

 

Qualifying taxpayers include the unemployed, wage earners, and self-employed, provided they have no employees and their annual gross receipts are under $500,000. Taxpayers that are struggling with their federal tax liabilities must avail themselves of all collection alternatives, including the streamlined Offer-in-Compromise. To learn more about Offer-in-Compromises, and other collection alternatives, please click on: Offer-in-Compromise.

Contact Nardone Law Group, LLC

If you or your business is struggling with federal tax liabilities, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS in order to obtain the best result and collection alternative available, based on your specific facts and circumstances. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offer-in-Compromise. Contact us today for a consultation to discuss your case, by clicking: Contact NLG.

 

Filing False Returns: A Deportable Offense Under Immigration Laws

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

If you are lawful permanent resident holding a green card, or if you are in the United States on a temporary visa, and you have filed a fraudulent or false tax return, the Supreme Court recently held that you are subject to deportation or removal from the U.S. as an aggravated felon.

In a 6-3 decision, the United States Supreme Court issued its opinion for Kawashima v. Holder, affirming a Ninth Circuit Court of Appeals decision that filing false returns is a deportable offense. This article provides guidance as it relates to permanent residents or temporary visa holders who have filed a false or fraudulent return.

In Kawashima, the issue before the Court was whether the filing of a false or fraudulent return is a deportable offense for lawful permanent residents and green card holders. In 1997, Mr. Kawashima plead guilty to a violation of IRC §7206(1), for willfully filing a fraudulent or false return. After his conviction, Mr. Kawashima was subject to deportation proceedings pursuant to the Immigration and Naturalization Act. His wife, Mrs. Kawashima, was also subject to the deportation proceedings for her guilty plea and related conviction for violating of IRC §7206(2), willfully assisting in the preparation of a fraudulent or false return.

For fully naturalized residents of the United States, a conviction of either §7206(1) or §7206(2) can result in a maximum penalty of $100,000, 3 years in prison, or both.  In addition, for lawful permanent residents and green card holders, deportation proceedings can be initiated, in addition to fines and jail time related to the offense.

The Immigration and Naturalization Act (“INA”) provides that any alien convicted of an aggravated felony is a deportable offense. See 8 U.S.C.A. 1227(a)(2)(A). Further, the Act provides that aggravated felonies under this provision include offenses under Internal Revenue Code §7201, where the revenue loss to the government exceeds $10,000.  See 8 U.S.C.A. 1101(a)(43)(M).

The Court rejected the Kawashima’s argument that “fraud” and “deceit” were necessary elements of the deportation provision under the INA.  Rather, the Court held that the INA broadly refers to offenses with elements necessarily entailing fraudulent or deceitful conduct. Thus, once the Kawashima’s plead guilty to filing a false or fraudulent return, and assisting in the filing of a false return—an offense fraudulent or deceitful in nature—they became deportable, and subject to removal from the United States under the provisions of the INA.

Cases such as this present a multitude of issues for potential defendants since there are two formal proceedings: one for the violation of the Internal Revenue Code, and one for the deportation proceedings.  Thus, for any lawful permanent resident, or visa holder, it is important to fully understand the unintended consequences of any action, including entering into a plea agreement.  If you are a lawful permanent resident residing within the United States, and are the subject of an IRS examination, please contact the Nardone Law Group for assistance.  The professionals at Nardone Law Group have experience dealing with immigration and tax litigation and can assist you in the resolution of these matters, including the impact on your immigration status. 

Internal Revenue Service Announces Relief for Unemployed Taxpayers

Guest Author: Patrick Moro, Columbus, Ohio

With the unemployment rate lingering around 8.3%, it is not uncommon for taxpayers in Ohio to find themselves in a position of being unable to pay their tax liabilities because they are unemployed. To remedy this problem, the Internal Revenue Service(“ IRS ”) has just announced an extension of the 2008 “Fresh Start” initiative, a program geared towards helping taxpayers that have either: (i) been unemployed for at least 30 days, or (ii) if self-employed, experienced at least a 25% decrease in business income for 2011.

Under the Fresh Start program, taxpayers can request a 6-month grace period on failure to pay penalties—ranging from .5% to 25% of the amount due—on the condition that the tax, interest, and other penalties are paid in full by October 15, 2012. This option can potentially save struggling taxpayers thousands of dollars, but it should be noted that while the failure to pay penalty is suspended, taxpayers must still pay the statutory interest of 3% on back taxes.

In addition to the statutory interest rate, participation in this program is subject to the following conditions:

• Income must not exceed $200,000 when married, filing jointly; or
• Income must not exceed $100,000 when filing single, or as head of household; and
• The taxpayer’s calendar year balance of tax liabilities must not exceed $50,000.

The program also encompasses a streamlined procedure for entering into installment agreements with the IRS. This is great news for taxpayers with back taxes because taxpayers can now enter into in an installment agreement with much less hassle.  Typically, taxpayers with $25,000 or more in back taxes are required to provide financial statements to the IRS when entering into installment agreement negotiations.  This amount has been increased to $50,000 and agreements can now last for a term of 72 months, rather than the current 60 month maximum.

 If you are having difficulty paying your tax liabilities and have been unemployed for 30 or more days in 2011 or 2012, or experienced at least a 25% drop in business income related to your business, contact the experienced tax lawyers at Nardone Law Group, LLC for assistance.  Nardone Law Group, LLC represents individuals and business taxpayers in Akron, Canton, Cincinnati, Columbus, Cleveland, Dayton, and all surrounding areas.

 

Recent Tax Court Ruling a Victory for Professional Gamblers

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

Professional Gambler's Business Expenses No Longer Subject to Loss Limitation

In a recent announcement, the Internal Revenue Service (" IRS ")issued an action on decision ("AOD") indicating that it will follow the Tax Court's decision in Mayo, (2011) 136 TC 81, which held that business expenses of professional gamblers are not subject to the loss limitation rules of Internal Revenue Code §165(d).  This ruling and AOD is a victory for professional gamblers. The IRS now takes the position that a professional gambler may fully deduct those business expenses incurred in pursuing gambling professionally.  As a result, if you are professional gambler, you can now deduct all your business expenses in pursuit of your gambling activities on Schedule C.

As a quick background, an AOD is a formal memorandum prepared by the IRS’s Office of Chief Counsel that announces the future litigation position that the IRS will take with regard to a particular court decision.  They are issued to enhance consistency with respect to future litigation or dispute resolution.  The IRS has now set forth its position with respect to business expenses of professional gamblers in this recent AOD, such that taxpayers now have some assurance of the position that the IRS may take with respect to possible future litigation or other dispute resolution on this issue. 

IRS Action on Decision Only Applies to "Professional Gamblers"

Before you can take advantage of this gambling deduction, however, you must be a classified as a professional gambler; this AOD does not affect those who gamble as a hobby.  Case law defines a professional gambler as someone engaged in the trade or business of gambling. Nardone Law Group, LLC's article "Tax Deductions for Professional Gamblers in Ohio," provides guidance to determine whether or not you are a professional gambler.  Generally, the IRS looks to all the facts and circumstances around your gambling activities to determine whether you are a professional gambler.  If you are a professional gambler, you may deduct gambling losses to the extent of your gains from wagering transactions. Prior to the IRS's AOD, deductible gambling losses included both gambling losses andthose business expenses incurred in pursuit of your gambling activities.  The Tax Court made it clear, and IRS now agrees, that a professional gambler's expenses incurred to engage in the trade or business of gambling are not subject to limitation, but are fully deductible as ordinary and necessary business expenses under Internal Revenue Code §162.

Case Study―The Mayo Case

The Mayo case involved a professional gambler from California.  In 2001, Mr. Mayo wagered $131,760 on horse racing but he only won $120,463.  As a result, Mr. Mayo lost $11,297.  He also incurred $10,968 in business expenses, which included automobile expenses for travel to the racetracks and fees for race handicapping information and other research purposes.  The IRS initially disallowed all $22,265 of expenses because they exceeded Mr. Mayo's gross receipts from winnings.  The IRS argued that both the $131,760 in wagers and $10,968 in expenses were subject to the loss limitations.  The Tax Court disagreed and allowed Mr. Mayo to deduct the business expenses of $10,968 in full.  The Tax Court ruled those expenses were not a wagering loss, but ordinary and necessary business expenses incurred in pursuit of his gambling activities.  The remaining $11,297 excess wagering losses were disallowed under the normal rules of the Internal Revenue Code §165(d). 

The Result for Professional Gamblers

The IRS's AOD will provide professional gamblers with greater deductions for expenses incurred in pursuit of their gambling activities.  It will also allow professional gamblers to amend their last three years of returns where business expenses were not claimed because those years had reported gambling losses. If you are a professional gambler, you should consult the experienced tax attorneys at the Nardone Law Group, LLC to analyze whether you can take advantage of the new IRS policy.  Our tax lawyers understand what it takes for a gambling activity to raise to the level of a trade or business.  There are limitations on the expenses that qualify under the new IRS policy.  For example, deductible gambling expenses are not only required to be ordinary and necessary to conduct your gambling profession, they must also be reasonable. 

Contact Nardone Law Group, LLC

If you consider yourself a professional gambler and you incurred business expenses in pursuit of your gambling activities, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS in order to obtain tax deductions for professional gamblers. Our experienced tax lawyers will thoroughly review your case to determine whether you are a professional gambler such that you can deduct your gambling losses above your gambling winnings.  Contact us today for a consultation to discuss your case.

Offshore Voluntary Disclosure Program

Well, tax attorneys and tax lawyers in Columbus, Ohio should remain busy in 2012.  On January 9, 2012, the Internal Revenue Service announced that it reopened the offshore voluntary disclosure program ("OVDP") to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

Background

The first OVDP was announced by the IRS in 2009 and applied to those taxpayers that voluntarily and timely disclosed unreported offshore income for 2003 - 2008. In February 2011, the IRS unveiled a second OVDP to give taxpayers with undisclosed income from hidden offshore accounts for the 2003 - 2010 tax periods the chance to get current with their taxes. The 2011 OVDP was originally available through August 31, 2011 but was extended through September 9, 2011. It carried higher penalties than the original disclosure program but the penalties could be mitigated under certain circumstances.

New program

The IRS says the new program is similar to last year's program in many ways. However, the IRS stresses that there are a few key differences. Unlike last year, there is no set deadline under the new program to apply. The IRS cautions, however, that it could change the terms of the program at any time. For example, it could increase penalties for all or some taxpayers or defined classes of taxpayers. In addition, the IRS may end the program entirely at any point.

As practicing tax attorneys and tax lawyers in Ohio, many are surprised that we may have taxpayers in Columbus, Cincinnati, Cleveland, Dayton and other parts of Ohio that have offshore investments.  Well, there is no reason to be surprised.  With the global economy that we are now experiencing, Ohio taxpayers are investing overseas and unfortunately some of those investors find the need to avail themselves of the IRS's offshore voluntary disclosure program. 

Comment from Vince Nardone, Tax Attorney/Tax Lawyer, Specializing in IRS matters:

Taxpayers that avail themselves of the IRS offshore voluntary disclosure program feel so much better when they have been accepted into the program.  Look at it as if all you owe is money, then, you do not have a problem. It is when you are potentially exposed to criminal sanctions, including incarceration that you should begin to worry, and you then certainly have a problem.  Thus, although there is no question that taxpayers who participate in the OVDP will owe money to the IRS, I would rather owe money, than have to worry about someone knocking on my door one morning to ask me questions about my offshore accounts.  The benefit of having it behind you and avoiding the risk of criminal exposure cannot be understated.

For more information on this topic, see Nardone Law Group's News page, or contact Nardone Law Group and one of our experienced tax attorneys.  Additionally, you may be interested in our Tax Controversy Services FAQs dealing with this and other federal tax issues and the IRS. 

Tax Deductions for Professional Gamblers in Ohio

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

This article addresses the question of what tax deductions are available to professional gamblers.  On November 3, 2009, the citizens of Ohio passed the casino initiative authorizing legal gambling in four of Ohio's largest cities.  The passage of the Ohio Issue 3, also known as the "Four Casinos Initiative," amends the Constitution of Ohio and authorizes gambling casinos in Cincinnati, Cleveland, Columbus, and Toledo.  These new casinos mean that more and more gamblers here in Columbus, Ohio will need to understand what tax deductions are available to professional gamblers.  The State of Ohio expects to create over 20,000 jobs and increase revenues for state and local governments.The tax lawyers at the Nardone Law Group, LLC expect more disputes between taxpayers claiming to be professional gamblers and the Internal Revenue Service (the " IRS " or the " Service ") on the amount that may be claimed as deductible gambling losses.

Professional versus Recreational Gamblers

The tax deductions available to professional gamblers for their gambling activities are vastly different from the tax deductions available to recreational gamblers.  In general, gambling income is fully taxable and gambling losses may not exceed gambling winnings—unless the taxpayer is engaged in the trade or business of gambling. This means that if you are a professional gambler, you may be able to deduct all your losses, as well as incidental business expenses that are ordinary and necessary expenses in the pursuit of your gambling activities.  Therefore, the most important question for gamblers is to determine at what point a gambling activity raises to the level of a trade or business such that you would be considered a professional gambler. When you become a professional gambler, your gambling losses may be deductible in determining your adjusted gross income, as opposed to being taken as itemized deductions subject to limitations.  Deducting your losses from adjusted gross income can result in huge tax savings, so understanding what it takes to become a professional gambler is of principal importance.

What is a Professional Gambler?

The IRS and reviewing courts will find that a gambling activity constitutes a trade or business only after examining all relevant facts and circumstances.  Whether you play poker, slot machines, or are involved in horse racing, the facts and circumstances must show that your gambling activity is pursued full time, in good faith, and with regularity.  In addition, yourgambling activity must also be your intended source of livelihood and cannot be recreational or a mere hobby.  If you have a job outside of gambling, you must show that you not only pursued your gambling activity full-time, but that your gambling activity was your main source of earning a livelihood.  It may notbe immediately clear whether your gambling activity will qualify you as a professional gambler.  Thus, the tax lawyers at the Nardone Law Group, LLC recommend taking the following steps to ensure the greatest chance of success.

Recommendation for Professional Gamblers

If you consider yourself to be a professional gambler, you can increase your chances of being determined as such by the IRS by operating your gambling activities in a business-like manner.  This involves setting up a separate bank account designated solely for your gambling activities.  You should also have a detailed business plan outlining your strategy and indicating how you intend to make a profit from gambling.  The motive to make a profit is the key ingredient.  Therefore, your business plan should clearly provide your plan to make money and should reference any and all research you have done to increase your chances of making your gambling activities profitable.  Further, you should keep a log of the time you spent gambling also keeping track ofthe money you bring with you gambling, tracking your winnings and your losses.  Never rely on a casino's player's card or a Form W-2G to track your winnings.  You must maintain your own records.  You should also limit the recreational aspects of gambling.  If you are a professional gambler, you should treat gambling like any other job.  If you gamble with friends for casino perks, then it will be much more difficult to prove to the IRS you are truly a professional gambler. Finally, you must be able to document your expertise in your gambling activity.  You must be able to show what research you have done to show that you believed you could make a profit gambling, even if you have not done so.  Your research should be referenced in your business plan and the books you have read and experts you have consulted with should be cited to and referenced accordingly.

Contact Nardone Law Group, LLC

If you consider yourself a professional gambler, and you have significant gambling losses that are greater than your gambling winnings, 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 tax deductions for professional gamblers. Our experienced tax lawyers will thoroughly review your case to determine whether you are a professional gambler such that you can deduct your gambling losses above your gambling winnings.  Contact us today for a consultation to discuss your case.

What is the Likelihood that I will be Audited by the Internal Revenue Service?

Clients and taxpayers, in general, are surprised as to the amount of information available on the Internal Revenue Service’s website regarding examination statistics.  As an example, the Internal Revenue Service recently issued statistics regarding tax returns examined in Fiscal Year 2010.  Overall there were 187,124,450 returns filed and 1,735,083 returns examined, which represents 0.9% percent of returns covered by examination.  That is less than one percent folks.  But, as always, the devil is in the details.  For example, the Internal Revenue Service examined 4.7% of returns filed where individuals reported gross receipts between $100,000 and $200,000 and filed a schedule C.  On the other hand, the Internal Revenue Service examined 98 percent of certain large corporate taxpayers.  So, it all depends.

The below chart provides a summary of the most common returns and taxpayers:

Type of Taxpayer	Returns Filed	Returns Examined	Amount of Additional Tax (thousands of dollars)
Schedule C Filer - $100,000 to $200,000 in gross receipts	893,707	42,403	$923,734
Schedule C Filer - $200,00 or more in gross receipts	705,877	23,569	$528,770
Partnership Returns	3,423,583	12,406	N/A
S Corporation Returns	4,414,662	16,327	N/A
Employment Tax Returns	30,158,258	63,937	$1,245,789
Estate Tax Returns	42,366	4,288	$1,405,415

The question you very well may be asking yourself is, so, how does the IRS select tax returns for audit?  This is a question that we get asked quite a bit at Nardone Law Group.  To answer the question of how returns are selected for an audit, follow this link.