The mainstream tax press hasn’t caught up yet, but practitioners who handle problem tax cases are seeing it clearly: gambling has become a significant and growing complicating factor in tax compliance, tax resolution, and even family law matters. In my South Jersey practice, located near Atlantic City and Philadelphia casinos, cases with a material gambling dimension are no longer unusual. They’re becoming routine.
Here’s what I’m seeing on the ground and why it matters even if you do not think of yourself as a “gambler.”
The Young Male Gambler Problem
Online gambling platforms like DraftKings, FanDuel, BetMGM, and their competitors have done something the tax code wasn’t built for: they’ve become the primary financial hub for a segment of young men. Deposits flow in, withdrawals flow out, wins and losses cycle through, and the platform generates a W-2G paper trail that can dwarf whatever the client earned at his day job. In my practice, it is not unusual to see a young man’s tax profile where reported gambling activity runs three to five times his W-2 or 1099 income. That alone creates compliance problems. The IRS is not wrong to ask questions when the numbers look like that. But the secondary complications are where it gets serious. Family court doesn’t see what the tax code sees. A client with $80,000 in gross gambling winnings and $82,000 in losses has a net tax loss but a family court judge or opposing counsel in a child support or spousal support proceeding will look at that $80,000 gross figure and start asking questions about lifestyle, cash flow, and discretionary spending capacity. The tax result and the family law result are not the same calculation. Clients need to understand that before they’re sitting across a conference table from an attorney. There’s also a growing reporting complexity that most clients don’t anticipate. Some platforms are now issuing both W-2Gs and 1099-Ks when withdrawal patterns cross certain thresholds, creating apparent duplicate income that clients can’t reconcile and can’t explain without help. Getting ahead of that before the return is filed is far easier than cleaning it up afterward.
The Casino Cash-Washing Scenario
A different pattern shows up in my tax resolution work: a client with modest reported income who shows $100,000 or more in gambling winnings and an even larger amount in gambling losses on their return. The intent is obvious. Run undeclared cash through a casino, generate a 1099-G, and give the money a legitimate-looking source. The losses, they reason, keep everything tax-neutral. What these clients don’t appreciate is how completely this strategy fails. The math doesn’t hold up statistically. Casino win/loss statements follow predictable patterns based on game type, session frequency, and volume of play. IRS agents trained in this area know what high-volume legitimate play looks like and they know how to subpoena the player’s card history to verify it. The W-2G is the starting point of the inquiry, not the end of it. The source of funds question is never answered, only deferred. The IRS can and does ask how a person with $30,000 in reported income funded $150,000 in casino activity. “I saved it up” is not a sufficient answer under examination. The gambling is the symptom that points toward unreported income, not the solution to it. Federal banking law adds another layer. Casinos are required to file Currency Transaction Reports for cash transactions over $10,000 and Suspicious Activity Reports for patterns that suggest structuring or avoidance. A client who tries to keep transactions under the CTR threshold isn’t being clever. They are committing a separate federal crime. When I take on a tax resolution engagement in this territory, the scope-of-engagement conversation has to happen carefully and explicitly before I touch anything.
A Third Pattern: The Fake Professional Gambler
There is a third scenario that practitioners should watch for, less common but increasingly visible. Clients with substantial gambling activity sometimes claim professional gambler status filing Schedule C, deducting “business expenses,” and treating their losses as ordinary business losses. I expect to see more of this in 2026 after Congress limited the gambling loss deduction. This year under the tax law known as OBBB, regular gambling will generate taxable income, even when you lost more than you won. To make matters worse, the ‘phantom’ income created under the new law is larger for frequent gamblers, even when they lost money over the whole year.
The Tax Court, later confirmed by the Supreme Court, set a high bar for this in Commissioner v. Groetzinger decades ago: consistent profit motive, businesslike record-keeping, time and effort consistent with a trade or business. Most recreational gamblers who claim professional status meet none of these criteria.*
What makes this worse is the layer of fabricated business expenses that sometimes accompanies it: a Schedule C built on a foundation that won’t survive any serious scrutiny. The professional gambler misclassification is worth watching for specifically because it tends to compound an already complicated situation.
What This Means for Your Tax Situation
If gambling activity appears on your tax return in any significant amount whether you’re a recreational player, a frequent casino visitor, or someone who has been using gambling platforms as a primary financial tool, the time to address it is before the IRS initiates contact, not after.
These cases are resolvable. But resolution almost always requires an honest accounting of what actually happened, and that conversation is far more productive before a notice arrives than after one does.
In my practice, I treat material gambling activity the way I treat other cash-intensive situations: I want to see the platform transaction history or the casino records, not just the tax documents, before I form any opinion about what the return should look like or what options are available.
If you’re looking at a tax situation that involves gambling, or if you’re a practitioner whose client just handed you a return that doesn’t quite add up, I’m happy to talk through it.
Tony Novak, CPA, MT, MBA is a tax practitioner based in Cumberland County, NJ, serving small businesses and individuals throughout the South Jersey region. His practice focuses on proactive tax strategy and tax problem resolution. Contact: SouthJersey.CPA