The IRS filed an acquiescence (AOD 2011-06) to Mayo vs Comm'r, 136 T.C.
81 (2011). The IRS agrees that a professional gambler is able to deduct his ordinary business expenses even though his gambling income has been offset by gambling losses. Now.... many of you probably thought that this was already the law. However, the IRS has been inconsistent on this issue and has continued to cite an old 1951 case (Offutt) that those expenses are only deductible to the extent there is gambling income.Just to refresh.... a professional gambler (one whose trade or business is gambling) reports income and expense on Schedule C. The IRC Sec.
165(d) precludes anyone (professional gambler and recreational gambler) from deducting gambling losses in excess of gambling winnings. The IRS has also argued (again inconsistently) that the business expenses of a professional gambler are also limited to income just like the wagering losses. In 2008, IRS General Counsel issued a memorandum saying that this was not proper, the 1951 case should not be used as precedent and a professional gambler should be allowed to deduct all the ordinary and necessary business expenses of his profession even if that generates a loss.The Mayo case is the first case to come along since that 2008 Memorandum. The Tax Court was unanimous in its decision.
As an aside for those of you who deal with professional gamblers, you should read Judge Halpern's concurring opinion in the Mayo case as it relates to another tax court decision that now becomes questionable.
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