Section 165(d) of the Internal Revenue Code provides that losses from wagering transactions are allowed only to the extent of the gains from such transactions.
Focusing on the term “transaction”, the Courts and the IRS refuse to let gamblers report their gambling activity in total.
On the other hand, the Courts and the IRS also recognized that it is impractical and onerous to record every roll of the dice, spin of the wheel, draw of a card or pull of a handle.
Consequently, the concept of a gambling session has evolved.
A gambling session requires a gambler to organize and report his or her gambling transactions by time, place and activity. For example, if a gambler plays the slot machines at two separate casinos in the same day, the gambler has two gambling sessions. If a gambler plays the slot machines in the morning, blackjack in the afternoon and poker in the evening all at the same casino, the gambler has three gambling sessions. But on the other hand, if a gambler plays in a three-day poker tournament, the tournament counts as one gambling session. And by the way, every individual horse or dog race counts as a separate gambling session.
In 2008, the IRS published Chief Counsel Advice Memorandum 2008-011: Reporting of Wagering Gains and Losses. In this document, the IRS summarizes the case law relating to gambling sessions and provides ten examples of how to calculate the amount of wins and losses for gambling session.
In essence, the IRS is not concerned with the fluctuating wins and losses. There is no accession to wealth until the gambling session is concluded and the wagering gain or loss can be definitively calculated.
REMEMBER: The more detailed and specific you can describe each of your gambling sessions the more likely you are to prevail against the IRS! For more information, please consult with a qualified tax professional.