Geronimo, the famous Chiricahua Apache warrior, was one of the most feared and respected enemy combatants the United States has ever known. So much so, that he remained a prisoner-of-war until his death on February 17, 1909 in Ft. Sill Oklahoma.
While reading a biographical account by one of the U.S. Army officers involved in his capture, I came across an interesting passage. He explained how the U.S. Army was finally able to subdue the Apaches-instead of becoming “Indian Fighters,” they became “Indian Thinkers”
This transformation proved to be so effective, that Lt. Gatewood was able to literally walk into Geronimo’s heavily-defended mountain-top hideout and convince him to surrender without being killed himself or firing a single shot.
Such a strategy makes absolutely perfect sense-and you probably do it already without realizing it. As a regular subscriber or reader to Strictly Slots magazine, you read the reviews about the different slot machine. You keep abreast of the different casinos and their programs. You study the monthly slot pay-out tables as reported by the various gaming commissions. And before you know it, you have prepared yourself to win because you have become a “Slot Machine Thinker.”
But alas, this is only half the battle. Now, you need to understand how to keep it! Simply put, if you can’t prove it, you lose it So, you need to become a “GAMBLING TAX THINKER”!
Don’t get me wrong, I am not suggesting that every gambler needs to immediately enroll in accounting classes. What I am suggesting is that you THINK about and become aware of what it takes to make your gambling transactions “tax-efficent”so you can keep more of what you win. First of all, you need to THINK about the basic IRS reporting requirements. In 1977, the IRS told gamblers that they should keep gambling diary or log. Do you? Why not? Did you even know that the IRS made such a suggestion? Whenever I was in school and a teacher or professor told me something was going to be on the test, I made sure I studied that topic really well and understood it fully. How is this any different?
It is sad to say that over the past thirty-five years, the Courts are full of cases where the first thing the judge writes is,”the tax payer docs not have a gambling diary” In other cases, the judges bemoan the fact that the taxpayer had receipts at one time, but for one reason or another threw them away. These judges then proceed to hold against the taxpayer and in favor of the IRS. Clearly, the reason the taxpayers lost was because these gamblers did not THINK about how to prove their gambling transactions to the IRS.
Next, spend some time organizing your information. Allow me to explain. Every five-star chef on the Las Vegas strip will tell you that you “eat with your eyes first.” So when you prepare your tax return or organize your information for an audit, THINK about “the presentation.” It doesn’t require that much extra effort to organize your information. Plus, it can pay huge tangible and intangible dividends.
Put yourself in the shoes of an IRS auditor. If a taxpayer walked into your office with a grocery sack full of receipts and dumped them out on your desk, what would you THINK? (If you are not careful, such an IRS auditor may organize the documentation in a way that is more favorable to the government.) On the other hand,if a taxpayer walked into your office with a three ring binder that summarized a box full of labeled and indexed file folders, what would you THINK? Obviously,this is an extreme example, but it proves the point. Regardless of how many gambling transactions you may have, you can still organize your paperwork into a pleasing “presentation.”
In most instances, after you organize it, you will never touch it again. That’s okay. Like the Boy Scouts of America that are always prepared, you will have it in case you need it. I would much rather spend a few hours each year organizing the information instead of spending weeks and months in the future trying to find or recreate the necessary information.
Finally, THINK about the potential IRS auditor. If you walk into his or her office combative, disrespectful and full of scorn, you are going to have problems. But if you are respectful, organized and attentive to their questions, you will be much better off. I am by no means suggesting that you ask them to be your BFF or best man at your wedding. But, a professional demeanor will serve you well-and you can still disagree. As Will Rogers once stated, “A difference of opinion is what makes horse racing and missionaries.”
With just a little bit of THINK-ing, you too will be able to prove your gambling transactions and keep more of what you win. And if you should get audited, you can have the same degree of confidence as Lt. Gatewood when he stood face-to-face with Geronimo and asked for his surrender. Then you will know without a doubt that you have become a GAMBLING TAX THINKER.
Until next time, good luck!
Reece B. Morrel, Jr. is a tax attorney and CPA. He is a partner with Morrel & Morrel, PC, a law firm in Tulsa, Oklahoma. He has personally been involved with several multi·million dollar audits involving gambling issues and has consulted with taxpayers and tax professionals from not only Oklahoma, but also Nevada, Indiana, Missouri, New Mexico, Ohio and Texas. He is the author of the Lady Luck Gambling Diary: Slot Machine Edition.
This article was previously published in the July 2012 edition of Strictly Slots magazine.