July 9 (Bloomberg) -- A South Korean businessman who lost thousands of dollars in a California casino shouldn’t be taxed for each winning pull of a slot-machine lever, a U.S. appeals court found.
Sang J. Park, who visited the casino while on vacation, can calculate taxes based on the outcome of sessions of gambling rather than on individual bets, the U.S. Court of Appeals in Washington said today, ruling against the U.S. Internal Revenue Service and reversing a Tax Court decision.
The IRS lets U.S. citizens calculate their taxes based on net winnings over the course of a gambling session. The appeals court said the same reasoning could apply to nonresident foreign gamblers.
“After a night of gambling, it’s no fun to walk out of the casino a loser,” the court said in its opinion. “But it’s even worse when the IRS, on your way out, tries to tax you on each individual bet that you happened to win over the course of your losing night.”
Park, an executive at a chemical company, visited the Pechanga Resort & Casino near San Diego in 2006 and 2007, his lawyer said in a brief filed in October 2012.
While Park made $431,658 in 2006 and $103,874 in 2007 in winning slot-machine jackpots, over the full course of his excursions he was a net loser of $4,663 in one year and $45,130 in the other, according to the filing.
Foreign gamblers in the U.S. are subject to a 30 percent tax on slot-machine winnings of $1,200 or more, according to court filings. The IRS argued that the tax code doesn’t allow foreign gamblers to deduct losses from winnings.
The appeals court called that argument “a non sequitur.”
“The fact that non-resident aliens may not deduct gambling losses from gambling winnings does not tell us how to measure those losses and winnings in the first place,” the court said.
Denis McDevitt, a lawyer for Park, said the ruling may put foreign gamblers in the U.S. “on a more even basis” with citizens.
Typically, U.S. casinos withhold 30 percent of slot jackpots from foreign nationals and won’t let them attempt to recover that money if they wind up net losers, McDevitt said. The casino Park attended failed to withhold from him, sparking a tax bill from the IRS, he said.
“We were actually afforded an opportunity to challenge the law, which usually doesn’t come up,” McDevitt said. “Now, the foreigners will be allowed to file amended tax returns and claim refunds of the tax they’ve already paid.”
Grant Williams, a spokesman for the IRS, declined to comment on the decision.
The case is Park v. Commissioner of IRS, 12-1058, U.S. Court of Appeals for the District of Columbia Circuit (Washington).
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