IRS Keeps Rejecting Valid Reporting of PayPal Transactions

Hello Reddit,

I will try to be as concise as possible. This has been going on since my 2019 return that was flagged in 2021.

In 2019 I did a lot of online gambling and all my deposits and withdrawals were done through PayPal. I have been able to move on thankfully, but not from the tax situation. I did not know that I needed to report anything because I suffered significant losses. My total deposits were around 200k and withdrawals around 150k, so a loss of around $50k.

Fast forward to 2021 and I receive a letter for underreporting and a penalty, with the IRS claiming that the 150k is underreported revenue. PayPal incorrectly processed all the withdrawals as payment for goods or services as if I was a business. They have refused to make any changes.

I previously used H&R Block and they tried to list the amount as matching gambling wins of 150k and gambling losses 150k. This has been repeatedly rejected because the IRS keeps saying there are no gambling wins. I never received a WG2 or 1099G from any sites as I did not win, just the incorrect 1099K.

I eventually paid for another accountant who spent a long time speaking directly to the IRS and they told them to report the PayPal transactions as business revenue and write off the corresponding amount as business expenses. This lines up with how PayPal reported the transactions.

The return was filed and I repeatedly got letters in the mail saying they needed more time to review.

This week I finally got the letter that I was dreading that they had rejected the return once again. Their letter still says that I am trying to claim gambling losses incorrectly and says that I need to get my payments vendor to correct the statement. This is impossible because PayPal will never do as such.

I can provide a screenshot of the letter if this will help but my question is what should I do now?

I cannot afford the $83k that they are incorrectly claiming I owe between original amount and interest.

Should I go to another accountant? Should I bite the bullet and just use the tax advocate like TRA? They have quoted me as a likely settlement of around $15k, which is not ideal, but an amount I can manage.

Again, this should be pretty simple, there should be one row where I put the revenue and one row where I put the expenses. I have all the required documentation to support that these are gambling transactions including every PayPal transaction, a rollup by month and by site, and win/loss statements for as many as I can get showing there are no wins.