Gambling addicts may have a unique opportunity to remove IRS tax penalties.
Income from gambling commonly results in unexpected (and often substantial) tax debt. To make matters worse, compounded penalties can put the payment of the tax debt out of reach for many Taxpayers.
But if those penalties were reduced or eliminated, it gives many taxpayers the chance to repay these tax debts.
To argue for removal of an IRS penalty, we have to start by asking three basic questions:
- “Was It Your Fault?”
- “Have you gotten control of the situation?”
- “Can you effectively prove it?”
Proving total lack of fault is too technical for a short article like this. However, we can examine if there was any lack of fault at the time due to the person suffering from gambling addiction.
There is a very fine line between a person who suffers from a disease that deserves compassion and a person simply at fault because he makes reckless decisions. The team at Business Tax Settlement can help explain this to you further.
Why Does This Matter?
In virtually all cases, IRS tax penalties result from something we did, a specific action we took. This is called “conduct.”
To remove penalties, the IRS considers whether you exercised ordinary business care and prudence in your conduct. If you did and you still incurred tax penalties, it could be defined as being due to circumstances beyond your control.
This is how the IRS determines whether you had a reasonable excuse for incurring the tax penalties and whether the penalties should be removed.
There is a difference between someone who suffers from a disease and someone that simply makes reckless decisions. Obviously, the person that just made bad decisions likely did not incur penalties due to circumstances beyond his control.
Is Gambling Addiction a Circumstance Beyond Your Control?
The question is this: what was the purpose of that person’s gambling?
It’s not always profit-motivated. We acknowledge their gambling results in related bank deposits and withdrawals. However, Taxpayers’ gambling is not a profitable venture. They win, sometimes, but they spend more than they win—the ongoing net loss created by the addiction results in negative cash flow. Sometimes a person cannot pay their bills, and they cannot help themselves.
Think drug addiction; it’s the same effect here. This “addiction” creates a circumstance beyond that person’s control.
Has There Been a Formal Diagnosis?
It matters to have a formal diagnosis for addiction. Gambling addiction does not provide the more traditional, physical evidence of addiction. A medical diagnosis provides that missing credible, independent substantiation of a physiological addiction.
This is a serious, genuine psychiatric disorder; according to Addiction Center, “Gambling addiction is the uncontrollable urge to continue gambling despite the toll it takes on one’s life. Gambling is addictive because it stimulates the brain’s reward system, much like drugs or alcohol can. In fact, gambling addiction is the most common impulse control disorder worldwide.”
Again, this condition is not purely by choice but is a genuine psychiatric disorder. People have failed trying to stop or gain control of their gambling.
A person chooses to gamble, at least at first. However, no one chooses to become addicted. And this demonstrates an affliction, not simply a bad choice.
What Other Steps has the Addict Taken?
The government will analyze anyone’s circumstances on a case-by-case basis. Mitigation is a critical factor. Therefore, regarding matters of impulse control, the government will consider the addict’s behavior towards controlling that impulse.
Obviously, joining Gamblers Anonymous is the usual recommended step. But, because the government considers the likelihood for further additional tax losses, we further recommend a combination of GA plus a self-exclusion program.
In Illinois, a person can apply for placement on the Illinois Gaming Board Self-Exclusion List. Having been issued a Self-Excluded Person Number (or “SEP Number”) is an indicator of that mitigating step to control gambling. In the letter that issues the SEP Number, the Illinois Gaming Board acknowledges:
“[T]he Board does not present the voluntary Self-Exclusion Program as an effective way to cope with a gambling problem unless it is combined with appropriate treatment by qualified mental health professionals. The counseling can be from a certified counselor, GA, your church or faith group, or some other means. The available research clearly demonstrates that problem gamblers need support and assistance from others in handling their problem.”
By this statement, Illinois implies that the Board will present the voluntary Self-Exclusion Program as an effective way to cope with a gambling problem when it is combined with appropriate treatment like GA. This statement from Illinois (also similar in other states) actually provides the formula of mitigation steps by which a state will acknowledge someone’s gambling problem as an addiction.
This effort shows strong evidence that there is a problem, and they have taken measures to treat or control the problem. Logically speaking, this independent, third-party acknowledgment from a state government is the type of solid evidence most helpful in proving a gambler’s mitigation to receive relief from the IRS.
Contact Business Tax Settlement to speak with an expert about your unique situation.