Nonresident Alien Gamblers Get Similar Treatment as U.S. Gamblers

By Jason Borkes, Irvine, Calif.

Editor: Mark G. Cook, CPA, MBA

Foreign Income & Taxpayers

The recent case of Park, No. 12-1058 (D.C. Cir. 2013), was a big step toward nonresident alien gamblers’ being treated similar to U.S. citizen gamblers. Sang Park, a Korean businessman, regularly traveled to the United States and played slot machines at a casino in California. Even though he won hundreds of thousands of dollars over the course of a year, he lost even more, creating a net loss. Notwithstanding Park’s net loss position, he was subject to a significant tax liability on his gambling earnings, because the IRS required nonresident aliens to calculate their income from gambling using a per-bet approach instead of a per-session approach, as it allows U.S. taxpayers to do.

Park filed suit in the Tax Court, which ultimately agreed with the IRS that his winnings were properly taxed, since the Code did not allow nonresident alien gamblers to deduct their gambling losses against winnings (Park, 136 T.C. 569 (2011)). On appeal, the D.C. Circuit reversed the Tax Court’s decision, holding that nonresident aliens should measure their gambling gains and losses under the “per-session” approach, the same method that U.S. citizens follow.


In general, nonresident aliens are required to pay tax on all income generated in the United States. Regs. Sec. 1.871-1 provides that income can be divided into three categories:

  • Income connected with a U.S. trade or business;
  • Income not effectively connected with a U.S. trade or business; and
  • Income that is exempt from U.S. tax.

Deductions against income are allowed only if they are associated with the conduct of a trade or business in the United States.

Per-Bet vs. Per-Session Approach

Under the “per-bet” approach, nonresident alien gamblers were required to track winnings and losses on a per-transaction basis (e.g., each hand of poker or pull of the slot machine). In contrast, the “per-session” approach applicable to U.S. citizen gamblers allows gambling gains and losses to be calculated over a series of separate plays and wagers in a single session—not until the taxpayer redeems his or her tokens can net gains be calculated. Consider the following examples that illustrate the difference between the per-bet approach and the per-session approach:

Example 1: A U.S. citizen walks into a casino and plays a slot machine. Within the first 10 minutes the player wins $200. The player continues playing and an hour later has lost the entire $200. In this situation the U.S. citizen has $0 income to report because the gain or loss is measured over a “session” of gambling. This is the per-session approach.

Example 2: A nonresident alien walks into a casino and plays a slot machine. Within the first 10 minutes the player wins $200. The player continues playing and an hour later has lost the entire $200. In this situation the nonresident alien has $200 income to report because under the pre- Park interpretation of the Code the nonresident alien’s gains are measured on each bet. This is the per-bet approach.

Under the per-session approach, as discussed above, players measure their gambling winnings and losses over the course of their “session,” as opposed to treating every wager as a taxable event as under the per-bet method. In Chief Counsel Advice Memorandum 2008-11, the IRS ruled that the per-session approach is a more sensible and practical method of measuring gambling winnings and losses. In reversing the Tax Court, the circuit court observed that it was impractical and required too much administrative difficulty for a player to track the winnings from each bet.

Even though the IRS rejected the per-bet approach for U.S. gamblers, it is not clear about what constitutes a “session” under the per-session approach. Also under certain types of casino games such as slots, a “session” might be easier to identify than other casino games such as poker where a player might play different limits and even different types of games in one “session.” Online gambling, especially online poker, presents further complications in determining a gambling session. If an online poker player plays multiple tables at the same time, are each of the tables a separate session or is it one session? It seems there are more questions than answers when determining the definition of a “session.”

Defining “Gains” Under Secs. 871 and 165(d)

The D.C. Circuit rejected the Tax Court’s holding that a nonresident alien gambler must follow the per-bet approach and pay taxes on gains from each bet. Sec. 165(d), which applies to U.S. citizens, states that losses from wagering transactions shall be allowed only to the extent of the gains from the transactions. The IRS has interpreted this provision as allowing U.S. gamblers to deduct losses against winnings and thus measure gambling gains on a per-session basis as opposed to a per-bet basis. Sec. 871(a)(1)(A), which applies to nonresident alien individuals, holds that there will be a tax on income a nonresident alien individual received from sources within the United States as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income.

The IRS, however, interpreted gains in Sec. 871(a)(1)(A) differently from gains in Sec. 165(d). In Sec. 871(a)(1)(A), in the context of gains from gambling, the IRS interpreted gains to mean the gain from each single bet a nonresident alien gambler makes (the per-bet approach). The D.C. Circuit Court found that the IRS had no reason to treat gains differently for purposes of Sec. 165(d) than for purposes of Sec. 871(a)(1)(A). The court observed that the per-session approach is a more appropriate method than the per-bet
approach for measuring gambling losses and gains for nonresident aliens, for the same reasons the IRS had adopted the per-session approach for U.S. taxpayers. The court further found the fact that nonresident aliens cannot deduct gambling losses is irrelevant in determining how to measure gambling winnings and losses.

Looking Forward

This case is a step in the right direction for nonresident alien gamblers, but it does not equalize their treatment with the treatment of U.S. gamblers. As noted above, currently the Code does not allow nonresident alien gamblers to deduct gambling losses from their gambling income unless the amounts are connected to a U.S. business. Also, it is not yet certain whether the IRS will acquiesce to this decision. At this point, the IRS has not changed Form 1040NR, U.S. Nonresident Alien Income Tax Return, or its instructions; nonresident aliens technically may not deduct gambling losses from gambling winnings on their tax returns. Form 1040NR, Schedule NEC, “Tax on Income Not Effectively Connected With a U.S. Trade or Business,” line 11, states “Gambling winnings—Residents of countries other than Canada. Note. Losses not allowed.” In summary, even after the Park decision, nonresident alien gamblers receive very unfavorable tax treatment compared with U.S. gamblers when they gamble in the United States.


Mark Cook is a partner with SingerLewak LLP in Irvine, Calif.

For additional information about these items, contact Mr. Cook at 949-261-8600, ext. 2143, or

Unless otherwise noted, contributors are members of or associated with SingerLewak LLP.

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