Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Mar 20

    The enormous growth of participation in online fantasy sports leagues in the past decade has participants asking how they should report income and expenses. Last year, approximately 42 million people in the United States and Canada participated in the leagues, which include fantasy football, baseball, hockey, and basketball. Participants create teams using real players, and the games are played using those players actual performance in games.

    Fantasy sports leagues operate under the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006. This law sets the criteria that must be met for an online game to not be illegal gambling or game of chance, but instead to be considered a game of skill. These criteria are:

    1. All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest. The value of prizes or awards is not determined by the number of participants or the amount of any fees those participants paid;
    2. All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real world sporting or other events; and
    3. No winning outcome may be based (a) on the score, point spread, or any performance or performances of any single real world team or any combination of such teams; or (b) solely on any single performance of an individual athlete in any single real world sporting or other event.

    To be consistent with the games’ being defined as not gambling, the fantasy sports league operators based in the United States report participants’ prize money as income using Form 1099-MISC, Miscellaneous Income, typically in box 3-Other Income. They do not report using Form W2-G, Certain Gambling Winnings.

    The participant’s net winnings should be reported as “Other Income.” The amount reported on the Form 1040 will most likely have to be reconciled with the information reported on the Form 1099-MISC. Losses that the fantasy sports leagues reported to the player would be reported on Schedule A, Itemized Deductions, as miscellaneous deductions, subject to the 2% of adjusted gross income floor.

  • Mar 6

    There’s a difference of $2.3 billion between alimony income reported by taxpayers and alimony deductions claimed according to a Treasury Inspector General for Tax Administration’s report last year.

    Taxpayers who pay alimony to a former spouse under a divorce decree are allowed to deduct the amount paid from their income. However, the flip side of the coin is, the alimony recipient must report the amount received as income.

    Treasury inspectors found that in 2010, 567,887 taxpayers claimed deductions for alimony paid totaling more than $10 billion and 47% of those returns had no alimony income reported on a corresponding recipient’s return. This created an excess of more than $2.3 billion in deductions over income.

    The report says that, aside from examining the returns, the IRS has no procedures to fix this tax gap. In fact, they found that the IRS’s filters exclude returns from examination that may actually represent a high risk of alimony deduction or income noncompliance.

    The report recommended that the IRS revised its procedures to verify that all tax returns claiming an alimony deduction include a valid Social Security number for the recipient. The IRS disagreed with this recommendation, saying it does not have the authority to deny alimony deduction outside of its normal procedures.