Is FreePlay Taxable Income?

I read in another thread that the IRS considers gambling items that are GIFTS or WON to be taxable, ex you win a brand new car

However gambling items that are used as an INCENTIVE are not, e.g. free hotel rooms to entice you into the casino.

So what about free-play? This clearly falls under incentive however, once its played it turns into cash. But that cash is a direct result of the free-play.

Lets say you get a thousand dollars in free play and after taking one thousand spins at a dollar a spin you have eight hundred dollars left in the machine and you cash out. Do you have eight hundred taxable dollars or eight hundred dollars that as a result of the incentive are not taxable.

To say they are taxable is to then claim the incentive is taxable since the free-play is directly tied into the cashable money.

To put it another way, the free-play has no cash value but turns into cash value as a direct result of its use.

Lets consider free hotel rooms. They DO have a cash value but are not taxable and they DONT necessarily turn into money won (you could stay all day in your room and not play or go to another casino) so they are not directly tied into winnings.

But free-play is. And you would have to end the "Value" of the free-play with the last free-play spin. You couldn't argue the free-play left over has to be grinded down to nothing because that would be playing with your own money now and not the value of the free-play.

Anyone have any sure knowledge of this because I get a lot of free-play and I cash out when I am finished (without w2-G) and wasn't sure if I should be reporting free-play results.

Thanks

I'm not a tax attorney, but I would say that the freeplay itself is not taxable but the money that you turn the freeplay into is taxable.

So if you have $100 in freeplay and you play it off at a slot machine and lose it all, there is no taxable income. But if you turn the $100 freeplay into $200 real money, you have $200 of gambling winnings to report. (Note that, in comparison, if you put $100 of real money into the slot machine and cashed out $200, you would only have $100 of gambling winnings to report). Since the freeplay is non-transferable, there is a good legal argument for this.

However, interpreting any law is a grey area so until a court has come out and ruled one way or the other, there is no "right" answer.

I agree with Axiom. But I'm not a tax attorney either. Nor am I an accountant...

Another vote here for Axiom, but as an aside, I'm not sure it's clear at all that free hotel rooms are non-taxable. The general spirit of the tax code is that everything is a potential target. Personally I've never declared a room, but I'm not totally confident that I'd survive an audit if an IRS agent had a vendetta against me.

i agree with AoC..

i would imagine you can find out what the casino reported to the IRS regarding you if you ask.

Wouldn't a casino win/loss statement be considered an expert source concerning what you should claim as gambling income, especially in the case of slot-related revenue? I'm no expert either, just sayin'.

Quote: BleedingChipsSlowly

Wouldn't a casino win/loss statement be considered an expert source concerning what you should claim as gambling income, especially in the case of slot-related revenue? I'm no expert either, just sayin'.

Casino win/loss statements should NOT be used for tax purposes. In a pinch you might be able to get away with it if you have no other documentation, but your first and primary source should be your own gambling diary.

For machine play, the win/loss report should be pretty accurate (as opposed to table games where it can be wildly inaccurate). But that's still assuming you played with your card all the time.

Quote: BleedingChipsSlowly

Wouldn't a casino win/loss statement be considered an expert source concerning what you should claim as gambling income, especially in the case of slot-related revenue? I'm no expert either, just sayin'.

When you view your win/loss statement, it'll say something along the lines that the statement is an estimate of your win/loss and should not be used for tax purposes.

Quote: BleedingChipsSlowly

Wouldn't a casino win/loss statement be considered an expert source concerning what you should claim as gambling income, especially in the case of slot-related revenue? I'm no expert either, just sayin'.

I did not mean to imply a casino win/loss statement should be the sole basis for reporting gambling income, but I can see how that would be inferred from my statement. What I meant so suggest was, given you have your own records, you could use the casino win/loss statement to determine whether or not the casino considers free-slot-play as taxable. Perhaps the casino shouldn't be considered experts in the matter?

Quote: BleedingChipsSlowly

What I meant so suggest was, given you have your own records, you could use the casino win/loss statement to determine whether or not the casino considers free-slot-play as taxable. Perhaps the casino shouldn't be considered experts in the matter?

I think I understand what you're saying. The casino win/loss statement could potentially be used against you, so it's probably something to be aware of.

But of course the casinos are not tax experts. For example, they've been known to advertise $1,199 slot jackpots as "tax-free."

Well, I should point out that the casino I am in, the free-slot play is printed out from a kiosk as a voucher no different than a cash-out voucher.

The players card knows you printed out the voucher but if you don't insert your card into the slots, then the casino does not track what you won from the voucher unless you go over a win necessary for a w2-G.

I have inserted my free play slot voucher in machines where other players have left their card(usually because they want to collect points for their own account) and this is no problem. Additionally, people sell the free-play tickets because basically it is easily transferable once printed out.

When I am finished playing if I have had no jackpot wins, I just cash out the money and go to a redemption machine.

So, no ID shown, no record I won it. The only record account-wise is that the comp was printed out.

But I'm not asking if I can get away with not reporting it but whether I am supposed to.

Thanks, guys.

Quote: darkoz

Lets say you get a thousand dollars in free play and after taking one thousand spins at a dollar a spin you have eight hundred dollars left in the machine and you cash out. Do you have eight hundred taxable dollars or eight hundred dollars that as a result of the incentive are not taxable.

That's $800 more cash than you had when you started; I would say "taxable income." Unused Free Play, on the other hand, would not be taxable as technically it's worthless.

Quote: darkoz

But I'm not asking if I can get away with not reporting it but whether I am supposed to.

Yes, you are supposed to report it, just like any other gambling win.

The problem here is if free-play falls under an incentive which we know it does, and as everyone here agrees has no value until after its played, then how can the results be not intrinsically tied to the free-play.

Just to be clear--$100 dollars in free-play is incentive and therefore not taxable BUT whatever we should win MUST be played and whittled down till it is zero?

In which case there is no incentive as the intent of free-play is to give the player a chance to win without cost to his pocket book!

I cannot see how an incentive is only tax-free if all of it is wasted and all of its received value is handed back.

Also note that free-play is a win in many situation only because it is not a loss. For ex., If you spun a five dollar bet and won four dollars. Would you report that as a win to the IRS? Not if it was your own money. But with free-play that situation is not a loss of a dollar but a win of four dollars.

And who would sit after every pull and say, "won four dollars, next pull won sixty cents, next pull, won two twenty-five, etc"

This is out of my area, but free play does not generate a tax form, like a $1200+ jackpot would. However, it is my understanding that all comps are supposed to be declared and taxed. Even a free beer.

Quote: Wizard

This is out of my area, but free play does not generate a tax form, like a $1200+ jackpot would. However, it is my understanding that all comps are supposed to be declared and taxed. Even a free beer.

That presents a real problem. Hotel rooms that are comped have a street price that varies by hundreds of dollars over time in response to demand. The VIP lounge has no prices on the food and liquor. The comped show tickets have a $0 price stamp.

Quote: darkoz

Just to be clear--$100 dollars in free-play is incentive and therefore not taxable BUT whatever we should win MUST be played and whittled down till it is zero?

No, you can keep what you win, minus the taxes on what's left of your winnings.

Quote: BleedingChipsSlowly

That presents a real problem. Hotel rooms that are comped have a street price that varies by hundreds of dollars over time in response to demand. The VIP lounge has no prices on the food and liquor. The comped show tickets have a $0 price stamp.

Somehow I don't think the casinos get bothered a lot with questions on the value of a free room or beer. However, I think the standard is to declare the "fair market value" for gifts.

Quote: Wizard

Somehow I don't think the casinos get bothered a lot with questions on the value of a free room or beer. However, I think the standard is to declare the "fair market value" for gifts.

Wiz is correct. Interestingly, you can declare the fair market value of $1000 in free play at a 1% house edge game as a fair market value of $990. My guess is in the real world, unless some form is generated, the number of people who declare their free play is less than 10.
A real issue, similar to this, is the frequent flier miles business travelers are allowed to keep as a perk from their company. Paco can find the link, but I've heard the IRS has gone after this.

Quote: Wizard

This is out of my area, but free play does not generate a tax form, like a $1200+ jackpot would. However, it is my understanding that all comps are supposed to be declared and taxed. Even a free beer.

I think free beer cannot count as income. What's the difference of getting a free beer while gambling versus a free water while eating at a restaurant?

Quote: IRS Pub 17

Prizes and awards. If you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income. For example, if you win a $50 prize in a photography contest, you must report this income on Form 1040, line 21. If you refuse to accept a prize, do not include its value in your income.

Prizes and awards in goods or services must be included in your income at their fair market value.

If you receive free-play but don't play it, it isn't income. In this case, since income is on a cash basis, of course, the cash you leave with after free-play is income.

Quote: FinsRule

Quote: Wizard

This is out of my area, but free play does not generate a tax form, like a $1200+ jackpot would. However, it is my understanding that all comps are supposed to be declared and taxed. Even a free beer.

I think free beer cannot count as income. What's the difference of getting a free beer while gambling versus a free water while eating at a restaurant?

You can get free water whether you are eating or not.

So you think you could go to a restaurant and they would serve you bread and water all day long if you didn't order anything?

I said water, not bread. And yes. Where I live at least, it is required for a restaurant to give free tap water at the very least.

Quote: FinsRule

So you think you could go to a restaurant and they would serve you bread and water all day long if you didn't order anything?

Hell no! Complimentary water should be accounted for. About a penny a gallon is right :-)

Some restaurants do give complimentary bottled water. And many give complimentary bread. Apparently I should be reporting this on my taxes...

Quote: Wizard

Somehow I don't think the casinos get bothered a lot with questions on the value of a free room or beer. However, I think the standard is to declare the "fair market value" for gifts.

Actually, the standard is that the gift giver has to pay the tax. If the gift is from your employer, it counts as income. If it's a prize that you win, it counts as income.

Clearly, these don't count as gifts or prizes. I'm not sure which section of the tax code you think implies that complimentaries are taxable, though. Do you have a particular section in mind? Admittedly, I have not researched this too much.

Note that the example (given in another post) about frequent flier miles from your employer is not a good analogy. My understanding is that any benefit from your employer is taxable if its transferable.

That is a pretty good point AoC. It may be analogous to the $12,000 cash that may be gifted by anyone to anyone, tax free.

Do not know much about US taxes, I am an Accountant in my country and some principles apply the same more or less everywhere.
So here are my general thoughts.
In general, getting a comp based on a personal expense you paid is more or less equivalent to getting a discount.
You get a 1+1 offer at the supermarket. The +1 is obviously is not income, it's just a discount on the price.
The same applies to airmiles you get when pay personal expenses, it is just a discount.
But getting airmiles based on something your employer paid is different. The employer pays and you get the discount (not the employer). So it's an indirect benefit to you and is part of salary 'package'.

With RFB casino comps the position obviously get more complicated.
There is no expense per se to say this is just a discount. Your casino play is a theoreticall loss (expense) but taxes go on actual and not theoretical.
So it makes sense that any any comps you get are counted as part of your casino winnings and are taxed based on those rules (ie after the relevant rules for deducting casino losses).

The practical problem is of course calculating market value of such benefits and actually keeping records of such benefits.

Even keeping records for casino win/loss and reporting those, I am pretty sure the compliance is very low.
Professionals and serious amateurs keep records.
But how many low level casual gamblers keep records and report these. I cannot imagine that this is a top priority for a half-drunk gambler who just won $500 and he stumbles back to his hotel room to keep a record of such a win. The guys is there to have a good time, not keep records for his taxes.
I think for this reason (and others) most countries in the world gambling winnings are not taxable. Instead they tax more the casino itself, which makes a lot more sense.

The parallel I draw is with rewards from credit cards. Those can be turned into cash the same as a free bet, free slot play, etc. can be. (Well, many of them can, anyway. I used to work customer service at Discover, and people could turn $50 in cash back into $50 in their bank accounts, for example. Let's just say...glad I'm dealing instead now.)

Credit card companies offer rewards as an incentive for using the card, just as casinos offer free play as an incentive for playing. Granted, it's often done before play, not after, but the parallel exists. You play long enough, we throw free crap at you. You buy enough stuff, you get free crap. Yada, yada.

In any case, Discover set up their rewards in such a way that it was not considered taxable income. You could cash in $5,000 in bonus money and not pay one red cent to the feds. I look at this in much the same way - you can turn it into cash, yes, but it is an incentive.

I'm not sure if the Tax Court agrees with me, but if I am representing someone before the Tax Court, that's the number one argument I whip out.

Quote: hwccdealer

The parallel I draw is with rewards from credit cards. Those can be turned into cash the same as a free bet, free slot play, etc. can be. (Well, many of them can, anyway. I used to work customer service at Discover, and people could turn $50 in cash back into $50 in their bank accounts, for example. Let's just say...glad I'm dealing instead now.)

Oh ho, the New Albany Center? For some reason I always get them on the phone. Great customer service reps, very helpful. Discover is one of the best cards, but I don't use them much any more.