[broiler]

The IRS auditors that I have talked to consider the rake rebates to be a rebate in name only. Their opinion was that, since amount of play determined the size of the payment, rake rebate programs and bonuses are effectively the same thing. My research at the time led me to believe that the IRS would see comps, bonuses, and rake rebate as different names for the same thing. I think that the use of the word rebate in the description is what causes people to argue the taxability of the payment. The IRS looked at how the payment was generated at made their own assessment. The auditor stated that the company can call it a charitable donation or a grant, but that doesn't mean that you can get that kind of favorable tax treatment.

We weren't arguing the point with the IRS because the income was claimed on the tax return in question. Our goal was to try to see if we could get the income removed to lessen the audit change coming from other areas. We were trying to find a way to legally reduce the taxpayer's liability through a discussion of various grey areas. I will add that all 3 of the taxpayers were "fudging" on their taxes in different areas. We, as the CPAs referred by a tax attorney, were the middle man in the process.

I can tell you that my research found many corporate cases regarding rebates, but very little for individuals. This seems consistent with the tax attorney. I looked into the comps case because my gut feeling was that the IRS would use that as their guideline and I needed to be prepared for that.

I would agree that, under examination, it is much cheaper to pay the tax assessed when compared to the cost of attorneys and accountants to fight the change.