With the increasing popularity of poker and other gambling, the IRS wants in on the action. When they see a chance to go after a casino, or a gambler, they do it..

Folks working for the IRS are rewarded for funds gathered --- regardless of whether any common sense is applied. The IRS responds that the law requires them to take inappropriate actions, but in reality they take such actions through a stretch of interpretation of poorly written laws. In fact, they do not specify or explain their interpretation. They just specify how you should fill out your check if you want to avoid tax court --- a court which you attend at your own cost and they attend with taxpayer funding of their salaries and expenses. In reality, as a taxpayer, you are paying the expenses of both sides of a case in tax court.

I have no sympathy for the hustlers that the casinos allow to work on their premises and I would never tip them. However, I pay a whole lot of tax on my income and if I choose to tip heavily to a hard-working individual, I sincerely hope this individual does not give any portion this money to the IRS. I know it is law that they do it, but I feel the taxes have already been paid.

If you think someone is a scumbag for not reporting tips to the IRS, maybe you also think your grandparents are scumbags. Maybe your grandparents sit in the park all day betting each other (for real money) on which pigeon will be flying off first. Suppose your grandparents make twenty $100 bets a day for 300 days of the year. They take a break after each bet, so each bet is a gambling session. At the end of the year, they are each exactly even with no profit and no loss. The IRS considers it unlawful for these gambling sessions not to be reported. If they are reported, the IRS may scrutinize the details of the losing sessions. For example, the records should contain names of other folks in park, etc. If the IRS finds any petty fault with the records, then the IRS is required by law to collect taxes on the winning sessions, and ignore the poorly documented, offsetting losing sessions. Each grandparent will owe taxes on $300,000 of gambling income (despite having no net gambling income). Now suppose this gambling activity is reported and the records are absolutely immaculate. You would hope that since there was no profit for the year, the IRS would agree that there is no additional tax resulting from the gambling. They may agree, but they are still in on the action. Because the combined adjusted gross income of the grandparents is now $600,000 higher than it otherwise would have been, there will be no tax deductions for personal exemptions and there will be no Schedule A tax deductions for mortgage interest or for dividend income. In reality, the IRS rake for the gambling activity could easily be over $10,000.