For many gamblers in California who aren’t United States citizens, winning was a thrill — until it came time to pay taxes on those winnings. The IRS would get a portion every time, that is, until recently. A recent court case changed the way the IRS collects taxes on gambling winnings from non-resident aliens.
Many in California will remember that until 2008, every gambler — citizen or not — had to account for every bet. In that year, it was determined that gamblers could count their winnings per-session instead of by each wager made. At the end of a gambling session, the total gain is all that is taxed — that is, unless you aren’t a United States citizen.
Non-resident aliens are still required to count their winnings and losses per wager. Further, they were not able to deduct the losses, and had to pay on all of the wins. Recently, a non-resident alien challenged this ruling stating that non-resident aliens should be given the same treatment as United States citizens when it comes to gambling winnings. The U.S. Tax Court disagreed.
So, the non-resident alien appealed to the D.C. Circuit Court of Appeals. That court agreed with the non-resident, determining that if the IRS is willing to accept a per-session tax determination for citizens, the same rule should apply to those who are not United States citizens. The court noted that, by allowing citizens to deal with their taxes on gambling winnings in a certain way, the IRS left itself wide open for a determination to be made that non-United States citizens should receive the same treatment.
Source: Forbes, “Appeals Court Rules IRS Can’t Tax Some Gambling Winnings,” Robert W. Wood, July 14, 2013