Quoted:
Got a letter in the mail from the IRS about that 2002 $2500 windfall. I owe Uncle Sam $711.
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BZZZZTTTTT!!!!!
Wrong answer.
I'm assuming your wife didn't drop just one single coin into the slot machine and win $2500.
Hopefully, she signed up for one of those slot machine cards that tracks her winnings and losings - you can call the casino and get a printout of all of the losings, then deduct losses to the extent of winnings.
Most people cycle an awful lot of coins through those machines before hitting any jackpot, and in most case, actually lose more than they win. It's not whether you brought $1000 to the casino, it's how many times you circulated those coins through the machines to tally your actual losses.
If your wife (and you) cycled more than $2500 through the machines, you can take losses on your schedule A to the extent of gambling winnings, and no additional tax would be due. To do this, you'd need to file an amended 1040 (1040X) for 2002. This is also assuming you itemized your deductions in 2002. If not, nevermind - you'll owe the tax.
If all of this doesn't make any sense to you, go to a CPA - it'll be cheaper than paying $711 to the gov.
(Yes, I play a CPA in real life too).