AICPA seeks guidance on measuring gambling gains, losses

Uncertainty over how to measure gambling gains and losses could cause some taxpayers to report taxable income that exceeds their actual economic gain, the AICPA told Treasury and the IRS in a comment letter on proposed wagering regulations.

In comments submitted Tuesday, the AICPA urged the agencies to provide guidance on the “session method” for measuring, substantiating, and reporting wagering gains and losses. The need for guidance has grown as gambling increasingly occurs through online platforms, mobile apps, and account-based systems, while existing guidance provides limited direction on how taxpayers should measure gains and losses in those environments.

“As wagering activity continues to evolve, taxpayers, preparers, gaming operators, and the IRS would benefit from a clearer framework for measuring and substantiating wagering gains and losses,” the letter said.

Treasury and the IRS should define a gambling session and establish a corresponding safe harbor, identify records that adequately substantiate wagering gains and losses, and apply the session method across multiple types of wagering, including table games, horse racing, and electronic gaming, the AICPA said. The AICPA also asked the agencies to confirm that account histories, win-loss statements, player activity summaries, and similar records provided by gaming operators may be used for substantiation.

The letter comes as taxpayers and practitioners prepare for changes enacted in H.R. 1, P.L. 119-21, commonly referred to as OBBBA, that limit wagering-loss deductions to 90% of losses. Clear rules on measuring gains and losses are increasingly important because differences in reporting methods can affect taxable income and tax liability, the AICPA said.

The many OBBBA changes “have made clear, practical rules for reporting gambling gains and losses more important than ever,” Scott Klein, CPA, senior manager–Tax Policy & Advocacy for the AICPA, said in a news release.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.