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Gambling Winnings & Losses: Professional gambler versus amateur gambler?

Gambling, tax gambling rules, gambling income, gambling winnings, gambling losses, reporting gambling income
The IRS categorizes gamblers into two types: amateur gambler and professional gamblers. The category distinction is important because the two types of gamblers face different rules and reporting methods. For specific reporting rules for both amateur gamblers and professional gamblers, please follow the link below.

 Link: How to report gambling winnings and losses?

 Because of the different tax rules and reporting methods, the IRS aggressively challenges the gambling status classification of taxpayers. Further, the burden is on the taxpayer to prove his or her gambling status. This is a difficult situation because gambling classification is based on facts and circumstances, which may be argued either way. Below, I will detail the general rules to help you determine if you meet the requirements of a professional gambler or an amateur gambler.


Professional Gambler

What constitutes a professional gambler?

Groetzinger, 480 U.S. 23 (1987), a Supreme Court case, established the professional gambler status qualifications. Relating to the qualifications of a professional gambler, the Supreme Court stated: If one's gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business. Additionally, you should utilize Reg. Sec. 1.183-2 to help determine your intent to make profit. The regulation section utilizes a 9 factor test to determine if your activity meets the criteria of a business or a hobby.

Amateur Gambler

What constitutes an amateur gambler?

Applying the Groetzinger ruling and Reg. Sec. 1.183-2 should help you determine your status as a gambler. Remember that the categorization is based on facts and circumstances, and so, apply your specific facts to the stated guidance. If you do not meet the criteria, it is more likely than not that you fail to qualify as a professional gambler. Most people will qualify as amateur gamblers.

In conclusion

It is important to know the difference between a casual gambler and a professional gambler. Amateur gamblers and professional gamblers face different reporting methods and tax rules. The burden is on you to proof your status as a gambler. Follow the guidance from the stated court case and regulation section to help you determine your gambling category.

Please share with others to help them determine if they meet the requirements of a professional gambler or an amateur gambler.

Please comment any questions or concerns below.

Disclaimer
Textbook Tax does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.
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