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fat_nutz
02-02-2005, 02:15 PM
I have read the tax code section on tax evasion--penalties in the hundreds of thousands of dollars range, jail time in the 5 year range... but I'm wondering what sort of penalty a relatively small-time poker player might face for not reporting poker income... I amagine it isn't that bad.

Has anyone been audited and faced this unfortunate circumstance? What was the penalty?

(specifically, I'm wondering what the penalty would be for someone who didn't report, say, $20k in poker earnings for a year)

cardcounter0
02-02-2005, 02:59 PM
Yes, there is a special new clause in the tax code. If you evade taxes on income derived from poker, instead of the standard penalities, you just have to write "I'm sorry I didn't pay taxes on all my income." 100 times on a blackboard, and they send you home with a note to your mother.

Not paying taxes on 20k of income, is not paying taxes on 20k of income. It doesn't matter if it was from poker, your job, your second job, money you found on the street, money you made dealing drugs, or money you got robbing a bank. 20k of income is 20k of income, and the IRS wants it's share of taxes.

Now 20k isn't enough to get Federal Housing in the Pen with your new roommate Bubba, but after penalities, fees, interest, fines, interest on the penalities and fees and fines, and an extra $1000 fee plopped on top of that, you will forever wish you had paid the 28% or whatever you owed on that 20k in the first place.

Or not. If they don't catch you, you are ahead 28% of 20k. If they do catch you, try to have around 10k extra in reserve over the 20k, you will probably need it.

J.R.
02-02-2005, 03:00 PM
If you understate your income, you can be liable for interest and penalties under the income tax laws and general criminal statutes. Abatement of interest is rare since the government believes it is entitled to an interest charge for the taxpayer's use of government funds. But penalties can be abated under a broader set of circumstances.

The most common penalties are the "accuracy-related" penalties of negligence and substantial understatement of income. These penalties equal 20% of the portion of the tax underpayment cased by the taxpayer's error. The penalty for civil fraud is more severe: it equals 75% of the tax underpayment.

In addition to the civil sanctions discussed above, a tax evader can be convicted of tax evasion under IRC 7201, provided the government can prove, beyond a reasonable doubt: (1) willfulness on the part of the taxpayers, (2) the existence of a tax deficiency and (3) an affirmative act by the taxpayers constituting an evasion or attempted evasion of tax.

The tax evasion statute imposes the most severe sanctions of any tax offense described in the Code. Taxpayers convicted of tax evasion are subject to a fine and imprisonment for not more than 5 years, or both, plus the costs of prosecution. The maximum fine is $100,000 ($500,000 for a corporation), but 18 USC sec. 3571, a general statute on fines as punishment, raises the maximum for individuals to $250,000 and allows a fine exceeding this dollar ceiling up to twice the pecuniary gain from the offense.

FWIW, Criminal cases require extensive and investigations since the government must establish guilt beyond a reasonable doubt; consequently, the IRS and Justice Department will generally pursue more aggravated cases that involve deliberate omissions, false statements, destruction of records, and bribery.

drewjustdrew
02-02-2005, 03:27 PM
That's all well and good, but can't he just tell them his nickname is Fat_Nuts, and be forgiven?

J.R.
02-02-2005, 03:41 PM
only if he spells it "fat_nutz"

4thstreetpete
02-02-2005, 11:28 PM
I'm pretty sure you get the death penalty. Happened to a friend of mine.

Jonny
02-03-2005, 12:45 AM
The chance of being audited is what, 2%? Would this be worth the risk in not reporting 20K. I think so, if there is no jail time.

drewjustdrew
02-03-2005, 07:17 PM
[ QUOTE ]
The chance of being audited is what, 2%? Would this be worth the risk in not reporting 20K. I think so, if there is no jail time.

[/ QUOTE ]

Is this 2% accurate? Or is that a figure:

a. Pulled out of your ass
b. Based on the entire population of taxpayers

I would guess the answer is a, but may be close to b. What are the chances that the extra 20,000 if removed from online accounts or used for purchases would cause a flag with the IRS?

fluff
02-03-2005, 08:37 PM
[ QUOTE ]
[ QUOTE ]
The chance of being audited is what, 2%? Would this be worth the risk in not reporting 20K. I think so, if there is no jail time.

[/ QUOTE ]

Is this 2% accurate? Or is that a figure:

a. Pulled out of your ass
b. Based on the entire population of taxpayers

I would guess the answer is a, but may be close to b. What are the chances that the extra 20,000 if removed from online accounts or used for purchases would cause a flag with the IRS?

[/ QUOTE ]

Link (http://www.gao.gov/new.items/d01484.pdf)

Someone feel free to post the EV calculation for omitting $20k. Assume that you will not be charged with evasion, and thus will not go to Federal, pound-me-in-the-$#@ prison, which is hard to put an exact -EV number on.

KingDan
02-03-2005, 08:40 PM
What about transfers through netteller? Do they get reported?
Because there were difficulties in creating my own, my dad lets me use his, so I wouldn't want to screw him over.

cardcounter0
02-03-2005, 09:47 PM
If you do get caught skipping on 20k with that 2% chance, or whatever, the rate is --

You then have a 100% chance of getting the fine tooth comb every year for the rest of your taxpaying life (which is a little bit longer than your actual life).

This perpetual extra scrutiny is even more fun when you are trying scrap together funds to pay off interest on penalities from previous years.

mmcd
02-03-2005, 10:35 PM
The number is actually less than 2% for individual taxpayers. A statistician has figured out the formula the IRS uses to determine who gets audited in this book (http://www.amazon.com/exec/obidos/tg/detail/-/1568580487/qid=1106858474/sr=1-8/ref=sr_1_8/102-9552056-0441736?v=glance&s=books)

Arm187r
02-04-2005, 06:14 AM
[ QUOTE ]

If they don't catch you, you are ahead 28% of 20k. If they do catch you, try to have around 10k extra in reserve over the 20k, you will probably need it.

[/ QUOTE ]

Is this a semi-accurate estimate on the precentage of taxes that must be paid on poker winnings? Also what about jackpots.

dakine
02-04-2005, 01:40 PM
[ QUOTE ]

(specifically, I'm wondering what the penalty would be for someone who didn't report, say, $20k in poker earnings for a year)

[/ QUOTE ]

Ten years imprisonment in China, manufacturing Dice Chips at .005 each for ebay sellers. /images/graemlins/grin.gif /images/graemlins/tongue.gif /images/graemlins/grin.gif

LargeCents
02-08-2005, 11:20 PM
No, they just cut off your balls for the first offense. Hard to play poker without the nuts.

esknights
02-11-2005, 02:31 PM
Has anyone here actually been audited? If so can you tell your story? Lets here what happened and what the penalties were.

Wake up CALL
02-11-2005, 05:07 PM
[ QUOTE ]
Has anyone here actually been audited? If so can you tell your story? Lets here what happened and what the penalties were.

[/ QUOTE ]

Unless you are charged with fraud the penalities are only monetary. They do become substantial particularly if your audited return has been churning in the bowels of the IRS for two years, all the interest and penalties really add up fast.

A good way to be charged with fraud is to make an obvious effort to hide income. ie: making many withdrawals just below the normal trigger threshold, moving money thru offshore bank accounts, having accounts with multiple names and so on. If it just appears that you "forgot" to claim some income they generally just collect the cash on go on to the next forgetful yahoo. /images/graemlins/smile.gif

Pinga
02-11-2005, 09:38 PM
I screwed up on reporting a retirement withdrawal and some self-employment income. A $5-10k mistake becomes a $60k problem. Especially if you don't handle it quickly.

It's not very funny when they take your paycheck and leave you just enough that you can eat PBJ and live in your car. You essentially have no recourse but to pay off whetever they feel like busting you for. Good luck trying to fight them, talk to them, work things out... Just send them the cash or pull your pants down.

Oh yeah, and don't believe any of those ads on TV ("i just settled my tax debt for $25"). The only people who can cut a break are so poor it's ridiculous. And they probably owe $300 to begin with. The only thing the lawyers do is fill out the same form any moron could fill out themselves. And put you another $2000 in debt when you most need it.

I think the link already provided has info on exact penalties. I couldn't even tell you how bad it was for sure.

Here's the basic process:
* You get a letter saying "You owe us $1,000. Since we can, we have assigned a penalty of $2,000, so you now owe us $3000 plus interest on $3000 since the day you screwed up compounded daily. Send us $4,000 now or else".
* You figure out what is wrong and try to contact them. You spend 10 hours on the phone and get nowhere.
* You get another letter. "You owe us $4,500. Send it to us now or else".
* You send them 500 because thats all you have.
* You get another letter "Thank you for the $500. You now owe use 4,800. We have assigned a new penalty because this is not paid. You now owe us $5,500. Send it now..."
* Your work gets a letter "Do not pay Pinga again until we tell you to or we will shut down your business".
* You get a form to fill out. It says "how much do you need for rent, food, kids, etc?". You fill it out. They say: too bad, you are only allowed $20 for rent, $5 for food, and your kids should go stay with someone else.
* You call and spend another frustrating 6 hours on the phone. No one will give you a name because they think you will bomb their house. Funny, because you truly are starting to think something like that.
* They send another letter to your work. "You are allowed to pay Pinga $25. Send the rest to us for the next 28 years until he is payed off".
* They send you another letter. "Thank you for your paycheck. You still owe use $5,900..."
* They send you another letter. "Thank you for your paycheck. You still owe use $6,300..."
* You beg $6,300 off someone and send it to them.
* You get a letter saying "If you could send us $6300 now you should have sent us money before. We gave you another $1000 penalty. Send it to us now or else"

Be good,
Pinga

knifeandfork
02-11-2005, 10:48 PM
sorry pinga gott pay thr price to live in the land of the free. nice post'

Jonny
02-12-2005, 01:59 PM
lets say that 20K is your only income, and you are a full time student. Would I still have to pay the full 28% or whatever it is? I'm assuming I would have to pay less, no?

Kurn, son of Mogh
02-12-2005, 02:12 PM
The chance of being audited is what, 2%?

If you usually earn less than $100K and it's mostly W2 income your probability of being audited is probably closer to 2/10 of 1%.

Jonny
02-12-2005, 06:19 PM
so its really not worth it to pay taxes...

Thythe
02-12-2005, 08:16 PM
[ QUOTE ]
so its really not worth it to pay taxes...

[/ QUOTE ]

Except that you wake up screaming every night, wondering if they are getting closer and closer to catching you.

johnfromvirginia
02-14-2005, 12:22 PM
You pay tax at whatever your marginal rate is. There's no discount for college students. But if you have no other income, a lot of it would be taxed at the lowest rate.

AviD
02-15-2005, 05:26 PM
Nice post Pinga...very funny (and I'm guessing somewhat realistic)

OrangeCat
02-16-2005, 03:37 PM
[ QUOTE ]
Has anyone here actually been audited? If so can you tell your story? Lets here what happened and what the penalties were.

[/ QUOTE ]

I have and I know people who have been. Most of the time, it starts with the 1099G. These days they might also look at NetTeller or PayPal records but I don’t know. In a nutshell, the IRS has a hard time believing that the only thing you won all year was the money from a big trifecta, poker tourney, slot machine, etc… They figure if you won a big bet you probably also won a lot of small ones and they want a cut of those winnings too.

At the same time, the IRS knows that almost all gamblers are losers. So it is not that hard to convince them you lost all the money you won and then some. But convince them you must. The way to do it is by having records. Good records. If you show up at the audit some rubbish that looks like you dummied it up the night before you are toast.

Most importantly, don’t ever go to the audit yourself. Hire a tax attorney or accountant who specializes in audits to represent you.