In this third installment of my multi-part series on the One Big Beautiful Bill Act (the “Act”), I discuss a provision of the Act that may not impact a large segment of the population, but which is interesting and worthy of coverage.
Section 70114 of the Act only impacts gamblers. It amends Code Section 165(d).
Background
Over the years, I authored numerous articles about the taxation of gambling. In 1987, I authored a lengthy law review article, The Evolution of the Phrase Trade or Business: Flint v. Stone Trace Company to Commissioner v. Groetzinger – An Analysis with Respect to the Full-Time Gambler and the Investor, 23 Gonzaga Law Review 513 (1987/1988). In that article, I examined, in part, whether a full-time gambler, for tax purposes, is in the trade or business of gambling. If the answer to that question is yes, two results follow (one result that is good and one result that is not so good): (1) the gambler is able to deduct under Section 162 of the Code all of the ordinary, necessary and reasonable expenses incurred in carrying on the business; and (2) the net income of the gambler, if any, is subject to self-employment tax under Section 1401 of the Code.
In 2014, on this blog, I provided a discussion about the taxation of a full-time gambler. In that article, I provided some updates and additional insights on that topic.
A brief overview of the applicable law is necessary for this discussion. Code Section 162(a) generally allows a deduction for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business”. Code Section 165(d), originally enacted as Section 23(g) of the Revenue Act of 1934, however, provides that “[l]osses from wagering transactions shall be allowed only to the extent of the gains from such transactions.”