There was a clarification memo issued a couple of months ago by the IRS. The link below is to a site that discusses some of the implications and uncertainties in the tax law for casino players. Be sure to read the memo that is referenced at the beginning.

You may find some requirements that you never thought about, like the one that says you must list ALL your winnings on your 1040 form, before deducting your losses on Schedule A. That means ALL, even if you won something on a machine, put it back in, and lost it. Inflating of your Modified Adjusted Gross Income is one of the major probloems. This is not a new regulation, just one that many players have ignored. As the discussion notes, listing all winnings can really bump up your MAGI and you may find you lose most of the traditional deductions you list on schedule A, like tax payments, mortgage interest, charitable contributions, etc., even if you are loser for the year!

The other requirement that many gamblers have probably not thought about is the need to document ALL your losses. Just saying you were a loser for the year doesn't work. If you have to prove losses during an audit, a log you keep every day as you play is the strongest evidence.

Again, many will choose to ignore the regulations, and if you are a small player it will probably never be an issue. But the threat is there.