Kondler & Associates analyzes recent IRS hearings regarding the 90% gambling loss deduction rule.

The IRS held a public hearing on the 90% gambling loss deduction cap. Industry experts and gamblers unanimously opposed the regulation, arguing that taxing "virtual income" would impose an unfair burden on legitimate gamblers and could damage the gaming industry.

On the morning of Friday, July 17, 2026, the Internal Revenue Service (IRS) held a public hearing on the 90% gambling loss deduction provision in the Big and Beautiful Act (BBB), which will take effect in the 2026 tax year.

The IRS heard from several speakers, including Representative Dina Titus of Nevada's 1st Congressional District, Joshua Hamlet of Clarity Tax Counsel PLLC, Mike Vanaki of the American Gaming Association, Gary Kondler of Kondler & Associates, and numerous amateur and professional gamblers. All speakers shared the same goal—to convey to the IRS that the 90% gambling loss deduction cap is unfair to all gamblers, especially those who did not win any gambling profits throughout the tax year.

"The gaming industry is expected to face a decline in participation due to the fear instilled by the 90% rule among many gamblers."

The recurring theme among speakers was "virtual income." Virtual income refers to income that is taxable even if the taxpayer has not actually received the money. This has caused significant concern among gamblers who are experiencing a net loss in the tax year but are still required to pay income tax on gambling winnings due to the 90% loss deduction cap. As the 90% rule has instilled fear in many gamblers, the gaming industry anticipates a decline in player participation.

Dina Titus stated, "The domestic gaming industry supports 1.8 million jobs, $104 billion in wages and salaries, and $53 billion in state and local tax revenue." Other spokespeople noted that 2025 is one of the strongest years for the gaming industry, but warned that these figures are likely to decline due to the BBB's 90% rule, and argued that legitimate businesses should not be adversely affected by IRS regulations.

While alternatives to the 90% deduction exist, such as the "session method," these methods, while permitted at the federal level, have limited guidance at the state level. Furthermore, using the session method is likely to be opposed by the IRS, which would add more work for both the IRS and taxpayers in drafting and responding to correspondence.

After hearing from gaming industry professionals and individuals directly affected by the provision, there was strong concern and frustration regarding the IRS. Many speakers described gambling as a legitimate hobby but explained that the provision could force them to pay significantly higher taxes, making continued participation more difficult and expensive. This also raises the question: why should people be financially penalized for engaging in perfectly legal activities?

At Kondler & Associates, we highlighted the executive order relating to the new proposed regulations under the BBB. Executive Order 13563 states that regulations should be designed to promote predictability and consistency, enabling individuals and businesses to understand their obligations and plan accordingly.

One concern is whether the BBB’s proposed amendments provide sufficient predictability.

The purpose of Executive Order 12866 is to reform the regulatory system only if it improves economic performance, but we believe that this provision of the BBB does not.

We also emphasized the structure of the session method and questioned the definition of the term "session".

The increased IRS staffing required to generate the letter may also be inconsistent with the objectives of the executive order.

Finally, we emphasize the need to clarify who should bear the liability for loss deduction when selling shares under a partnership agreement.

At the hearing, all speakers made a simple request: to restore the loss deduction limit to 100%, which would allow gambling losses to fully offset gambling profits, and to repeal the entire clause in the BBB. The expected tax revenue for the IRS from this provision is negligible compared to the time, effort, and costs incurred by the IRS in issuing notices, drafting letters, and managing the process. It is unfair to law-abiding taxpayers to face various consequences due to the BBB's 90% loss deduction cap.

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