FairlySquarely said:
Looking forward to his opinion on this, da1prophet. Would be valuable info.
Just talked to him on the phone--he said he would give it some in depth thought. His short answer: unless the IRS was suspicious about you anyway, they probably wouldn't scrutinize it closely enough to matter and would be very unlikely to report it to the DoJ or other authorities. The have the *ability* to do so at a higher level, but most of the people who would be looking at your return (unless you were already under suspicion for something else) are of the "don't know, don't care" variety of low level bureaucrat. Unless they're already keeping tabs on you for some other reason, or you're engaged in some obvious law enforcement transgretion, the "higher level" parties won't even know you exist.
He also said that his understanding of the new legislation was that it didn't criminalize the act of online wagering on the players' end, so the DoJ and other relevent law enforcement groups wouldn't have any compelling desire to hear about it. He said the way things work is that the various law enforcement agencies have to tell the IRS what to look for--the IRS doesn't really have the ability to arbitrarily decide something is "suspicious" and forward it to someone to check out. The *can* flag things that they've been told to watch out for--like if you claimed most of your income from "drug sales", "weapons sales in the mideast" or the like. He said that the IRS is actually surprisingly good about financial privacy--unless there's a really compelling law enforcement reason to share information (like if you're a drug dealer or terrorist sympathizer) or another agency has a lien on your taxes (like the Department of Education grabbing your tax return if you default on your student loans) there is almost no sharing of tax information with departments outside of the IRS.
Bottom line--unless you're selling weapons to Hamas for your day job, or a law enforcement agency is keeping tabs on you already for whatever reason he's of the opinion that there is little to worry about. He was on his way out the door and said that he'd think about it some more, and try to come up with potential workarounds to minimize your exposure even more.
He did add the caveat that by reporting gambling winnings and losses (which he agrees is the best thing to do on balance) that you're at higher risk for an audit. Not so much because you're a gambler per se, but because they target people in industries with a lot of cash transactions--it doesn't matter to them whether you're a stripper, a bartender, a blackjack dealer, a construction worker, or a gambler.
Anyway, he loves thinking about stuff like this so I'll send along anything else he comes up with and particularly his "workarounds to minimize your exposure"
