Question

Jenna has been a professional poker player since she graduated from college ten years ago with a degree in statistics and math. Due to her education background she has been very successful and loves her work. Jenna keeps meticulous records of her earnings and some losses but she believes the income is tax free and has not reported any earnings over the last ten years. Is Jenna correct in her belief that the income is tax free? What options are available to Jenna?

You will need to follow the five-step tax research model

Answer 1

Using the five step tax research model,

Step 1: investigating the facts and identifying the issues, the facts of the case is that Jenna has income which is earned from playing poker games and the taxpayer is of the opinion that such income is tax free,

Step 2: collection of Appropriate authority, Appropriate authority dealing with the taxability of such income is IRS.

Step 3: analysing the research, On research it is found that the income as defined in step 1 is gambling income and subject to withholding of tax and it is also found that the gambling income should be reported in other income in form 1040 and is very much taxable.

Step 4: development of reasoning and conclusion, on observing step 3 we can conclude that the belief of Jenna is misleading and she is liable to pay tax on the gambling income even if there is no tax withheld on such income.

Steo 5: communication of results, so the final conclusion is the income is taxable there are no options available to Jenna to escape from such tax because it is a gambling income.