The IRS, poker taxes on satellites, online gambling, and you!

[Lottery Larry]

Before I say anything else: I AM NOT A TAX PROFESSIONAL! If you fill out your taxes based solely on this information from my post, you deserve whatever you might get.

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Due to some other debates in threads about the tax liability of satellite wins- when you don't win cash, but a token/voucher that must be exchanged for the next satellite such as the WSOP- and some info renodoc sent me, I decided to check with the real authorities.

I called the IRS number on the website and eventually got connected to someone who was their "gambling expertise". I gave her the scenario renodoc and I used:

Player A buys into a $200 satellite for the WSOP and wins a $10,000 entry into the big tourney. He then plays the WSOP tourney, busting out without winning a prize.
Does he report:
A) $200 loss.
B) $200 loss, $10,000 win and then $10,000 loss
C) Something else

(I also mentioned other, lower satellite setups, that would never require a W2-G for the cash equivilent)

She eventually told me that, if the satellite prize can not be traded for a cash prize- if you are forced to either buy in to the bigger tournament or forfeit the "prize" entry fee that you won in the satellite- then there is no "fair market value" from the satellite prize.

Therefore, neither the satellite "win", nor the bigger tourney entry fee "loss", is reported on your income return. Only the initial $200 entry free is reported as a miscellaneous gambling deduction, subject to all of the other restrictions on recreational gambling.

If you won money in the bigger satellite, you'd report a $200 cost and a $x.xx gain from whatever the prize money was. If you won cash plus the buy-in token in the satellite, the cash would be reported as miscellaneous income.

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Other gambling information from the IRS site:

Publication 529 - Page down to the gambling deductions section
http://www.irs.gov/publications/p529/ar02.html#d0e2044

http://www.irs.gov/formspubs/lists/0,,id=97819,00.html
Publication 17- get the .pdf file from their website, page down to 98 (out of 322!)

Tax Tips- Gaming
http://www.irs.gov/businesses/small/industries/article/0,,id=99599,00.html

Here's a note on online gaming, from the IRS website:

"Internet Gaming
The legal status of Internet gambling is currently unsettled. However, any winnings from this type of activity are taxable and must be reported. Wagers made over the Internet may be subject to federal excise tax. For more information on Internet gaming, please refer to the Department of Justice web site."

Gaming Withholding and Reporting Requirements
http://www.irs.gov/businesses/small/industries/article/0,,id=99609,00.html


By the way, I couldn't find anything on filing as a self-employed gambling professional in my quick search, so I don't know what the requirements or restrictions are there.

[broiler]

I hope that you called the tax preparer line as opposed to the general question line. The tax preparer line has about a quarter of the wait time and opens earlier in the morning.

From my experiences with the IRS, a "gambling expertise" means that they tracked down a person in the Vegas field branch that was able to help. The Vegas office is very good at what they do and are very helpful when you can get them.

I will extend thanks from everybody here for taking the time to get an answer on this subject.

[ckessel]

I got, and read through much, of a gambler's guide to taxes (I think that's the name). It's pretty clear about showing winnings and losses separately. That's not too hard if you're doing small entry, big money tourneys. It's a hell of a lot harder if you're playing ring games.

Do you report every lost/won hand? Do you report by the hour, day? Do you report by the amount you bring to/take from a table? (I hope tables alot so that'd be a pain).

It's very nebulous about what consistutes a "session" for which you record a loss or a gain.

THere's also a big difference between the hobbyist and a professional gambler. They file taxes differently.

I think next year I'll have to consult a tax attorney next year...

[MrDannimal]

As long as you pick one method, and stick to it in all your recordkeeping, you're unlikely to have a problem with the IRS.

I use (Balance when I quit the program) - (Balance when I fire up the client) as my "session" for my recordkeeping. You could also do it by table (PT makes this easy).

[Lottery Larry]

"It's very nebulous about what consistutes a "session" for which you record a loss or a gain."

actually, I don't think it is nebulous at all. They specifically state for table games that you are supposed to record the table number. Along with other details, I think it's clear that a session is per table.

Now, with online being a different animal with easy records and lots of table hopping, maybe they'll accept a session as a day, or a game level or something. Check with them or an accountant, I guess.