tax question

[Cactus Cactus]

So I have learned through the message boards that you have to pay taxes on what is in your account and not just what you cashout from neteller. I am about to pay for the state taxes before jan 1st 2006 so that I can deduct off the fed taxes. So... my question is... I have about 50k in an account that is being blocked and investigated because I was at a table where people were dumping chips. One person told me that he account was suspended for 8 weeks. So I am in a way scared, perhaps this is a shady site and I don't get my money back... There is a chance. In this situation would I have to pay taxes for the year with the money that is currently blocked?

[Niediam]

Yes.

But um... I wouldnt... like stuff... ya know? /images/graemlins/smile.gif

[ QUOTE ]
So I have learned through the message boards that you have to pay taxes on what is in your account and not just what you cashout from neteller. I am about to pay for the state taxes before jan 1st 2006 so that I can deduct off the fed taxes. So... my question is... I have about 50k in an account that is being blocked and investigated because I was at a table where people were dumping chips. One person told me that he account was suspended for 8 weeks. So I am in a way scared, perhaps this is a shady site and I don't get my money back... There is a chance. In this situation would I have to pay taxes for the year with the money that is currently blocked?

[/ QUOTE ]

This sucks on many levels. I would think you wouldn't have to pay since you do not even have access to it but who knows. I would find out from a professional. I wonder if this thread will still get flammed by the tax nazis.

[Schwartzy61]

I'm not a CPA just a recent college graduate in accounting using the good old common sense test (that isn't always applicable to the IRS).

Best thing to do is consult a professional with some experience.

But I would probably go ahead and do the following. Make an estimated tax payment on your state income tax ignoring the fact that the 50k is frozen, basically making sure you have paid tax on all gambling winnings.

The account should then be cleared (hopefully not cleared of all money) by the time you have to file your actual return. At which point you can use the proper method to account for your gambling activity.

If they take the 50k I would certainly classify that as a gambling loss and account for it accordingly...but since you are in limbo right now just go ahead and make the estimated tax payment as if you could withdraw it...

[___1___]

[ QUOTE ]
So I have learned through the message boards that you have to pay taxes on what is in your account and not just what you cashout from neteller. I am about to pay for the state taxes before jan 1st 2006 so that I can deduct off the fed taxes. So... my question is... I have about 50k in an account that is being blocked and investigated because I was at a table where people were dumping chips. One person told me that he account was suspended for 8 weeks. So I am in a way scared, perhaps this is a shady site and I don't get my money back... There is a chance. In this situation would I have to pay taxes for the year with the money that is currently blocked?

[/ QUOTE ]

Your account being blocked has no bearing on the taxes you owe. If you are filing as a recreational gambler, you owe tax on the sum of all your winning sessions minus the sum of all your losing sessions (if you file as a pro you will use the net). Simple as that.

As for a CPA, I recommend Russ Fox. A google search should give you plenty of info on him. PM me if you need more details.

___1___

[iceman5]

[ QUOTE ]
[ QUOTE ]
So I have learned through the message boards that you have to pay taxes on what is in your account and not just what you cashout from neteller. I am about to pay for the state taxes before jan 1st 2006 so that I can deduct off the fed taxes. So... my question is... I have about 50k in an account that is being blocked and investigated because I was at a table where people were dumping chips. One person told me that he account was suspended for 8 weeks. So I am in a way scared, perhaps this is a shady site and I don't get my money back... There is a chance. In this situation would I have to pay taxes for the year with the money that is currently blocked?

[/ QUOTE ]

Your account being blocked has no bearing on the taxes you owe. If you are filing as a recreational gambler, you owe tax on the sum of all your winning sessions minus the sum of all your losing sessions (if you file as a pro you will use the net). Simple as that.

As for a CPA, I recommend Russ Fox. A google search should give you plenty of info on him. PM me if you need more details.

___1___

[/ QUOTE ]

There is no way Im paying tax on that money yet. What if the money gets confiscated because they think you were cheating? Now you lose the money AND already paid tax on it? Not me.

The money is under investigation so you havent earned it yet. Think of it as a bonus that might or might not get. Its not your money until all conditions are released and you can withdraw it at will. Right now, the money still belongs to the site, not you.

[Niediam]

[ QUOTE ]

The money is under investigation so you havent earned it yet. Think of it as a bonus that might or might not get. Its not your money until all conditions are released and you can withdraw it at will. Right now, the money still belongs to the site, not you.

[/ QUOTE ]

You really shouldn't try to pass off statements such as this as a fact.

[iceman5]

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[ QUOTE ]

The money is under investigation so you havent earned it yet. Think of it as a bonus that might or might not get. Its not your money until all conditions are released and you can withdraw it at will. Right now, the money still belongs to the site, not you.

[/ QUOTE ]

You really shouldn't try to pass off statements such as this as a fact.

[/ QUOTE ]

I didnt say it was a fact. He asked what people would do in his situation and I told him what I would do. He can do whatever he wants.

You guys are ridiculous about this tax stuff. The IRS doesnt know what is in your poker account. If you wanted to not report your winnings until you withdrew them, the IRS wouldnt know. Is that legal? No.

But this is a different story. OP doesnt know if this is his money or not. If I was in that spot, theres no way I would pay tax on the money until I knew If I was getting it for sure or not. and THAT is a fact.

[Joe Taylor]

I have to agree with Iceman on this one - I *religiously* pay my taxes (quarterly, etc.), and I'm fairly sure if I was in this situation (which I hope never to be), that I would just "ignore" this income while this situation was up in the air. If the amount was significantly smaller ($1k or less?), I would just pay the taxes and deal with it as a loss if it turned out that way later on... but at 50k, that is a fairly significant amount of money to be paying taxes on that may or may not be yours to keep, and no guarantee as to when the investigation would end.

I think there is the "black and white" answer, and the reasonable answer. Obviously if the IRS audits you, you would be forced to explain the situation, and they would probably force you to pay the taxes at that point, but I think the argument is reasonable.

Needless to say, this isn't actual tax advice, and each person would have to deal with this individually and within their own comfort zone.

[TStoneMBD]

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Its not your money until all conditions are released and you can withdraw it at will. Right now, the money still belongs to the site, not you.

[/ QUOTE ]

This does make sense to me. The money isn't necessarily yours, it still belongs to the site because of the situation you're in. As a result I think you can get away with not claiming it. Everything is such a gray scale with filing taxes. I would just use your judgment on this one but consulting a professional is your best bet if you want to make sure you aren't liable. IMO, it is morally ridiculous to me to even consider filing money that I may not even get. I personally think it would be fine to just file that money on next year's returns instead.

However iceman, the IRS doesn't know what's in your poker account but if you are audited the IRS has the right to ask for the passwords to your poker accounts to check the balance of them. Someone on this forum was audited and refused to give the IRS their password to his accounts and he was penalized.

In this situation however, if the IRS wanted the password to your confiscated poker account they wouldn't be able to access the information they needed to anyway since you can't login yourself, right?

[cardcounter0]

Can't believe the answers given here so far.

You pay taxes on your INCOME. Income is defined as funds that are under your complete control. Control over funds would be cash in your hand, a check you can take to a bank and cash, funds in an account that you can withdrawl from, assets that you could easily sell, etc.

Since your funds are locked up, you don't have control over them. There is a question about if you will ever get them. Until your account is unlocked and you are able to freely withdrawl -- It isn't income -- You don't owe taxes -- Yet.

[Niediam]

But he did have funds in an account that he could withdraw from. He voluntarilly opted not to withdraw those funds. Then the account operators 'stole' the money.

[cardcounter0]

You must be drunk.

I just deposited a million dollars in an account for you.
Whoopppss! I just froze the account. In a couple of weeks, I will put the money back into my pocket. Be sure to pay the IRS the taxes on your million you "had".
/images/graemlins/grin.gif

I suggest you look up the terms "constructive receipt" and "unfettered control" in regards to the definition of income.

[Niediam]

I think a more appropriate example would be you cashed your paycheck at the bank and received cash, were mugged while in the bank parking lot, and are now saying you don't owe income on that weeks pay. There are quite a few differences between the two situations...

[Schwartzy61]

That's all well and good. Problem is he did earn the money and had the money under his control. There was then an unexpected event that caused him to lose control of this money. In your example, the other party NEVER had control of the money.

After a little research I believe he would have to pay tax on all the gambling winnings and then if the site does confiscate his money, and he isn't at fault or did nothing to trigger the event, it would then be considered a theft loss and should be accounted for accordingly.

I again I am not in the profession of tax accounting nor have I passed a CPA exam, and cannot defend you if the IRS decides to audit you and doesn't like this procedure.

The best advice is always to see a CPA and take along some of the information that has been given to you in this thread...

[Schwartzy61]

[ QUOTE ]
I think a more appropriate example would be you cashed your paycheck at the bank and received cash, were mugged while in the bank parking lot, and are now saying you don't owe income on that weeks pay. There are quite a few differences between the two situations...

[/ QUOTE ]

Yes there are and there are ways to account for these things...

[cardcounter0]

I think a more appropriate example would be you took your paycheck to the bank to cash it and they said it was a phony check and wouldn't accept it.

[Schwartzy61]

[ QUOTE ]
I think a more appropriate example would be you took your paycheck to the bank to cash it and they said it was a phony check and wouldn't accept it.

[/ QUOTE ]

Once again you provide another example of when someone NEVER truly had control over the money. This is not akin to what the OP is discussing. You are assuming the OP only played at that one table, won the 50k but it was IMMEDIATELY suspended and he never had control over it. If this is what happened your argument holds water. But that is not how I am interpreting it. I'm assuing OP had a bankroll in this particular site that he played with for awhile and won X amount of money over the year. Then recently an investigation was undertaken by the site at which he played, during this process his money is locked. It's temporarily suspended while they investigate any wrong doing. This doesn't change the fact that he earned the money and had control over it for the rest of the year. If the site confiscates it because he violated some rules he's SOL and will still owe tax. If they confiscate it without proper reason then he can classify that as a theft loss and follow the directions for using that as a deduction. Either way he owes tax on all gambling winnings.

The best example I would think is if your bank account, filled with all your income for the year, is temporarily frozen while the FBI investigates links you may have to terrorism. Did you earn the income? Yes. Did you have the ability to withdraw it? Yes. Do you pay tax on it? Yes. Although taxes would be the least of your problems...

[cardcounter0]

Wow! Interesting theory. SO he had control over the money he accumulated in his account, up until the time he tried to exercise his control and actually withdraw his money. Suddenly he no longer had control over it. Hahahaha!

I suggest you look up the terms "constructive receipt" and "unfettered control" in regards to the definition of income.

[ QUOTE ]
I think a more appropriate example would be you took your paycheck to the bank to cash it and they said it was a phony check and wouldn't accept it.


[/ QUOTE ]

My check example is perfect. Because you don't recognize income when you cash the check, you have taxable income when you get the check. If you are given a check, at that point -- you have income -- UNLESS it isn't a valid check, or for some reason you can never cash the check.

So the player would have had income as the money was accumulated in an account he had control over, but since as it turns out, he doesn't have control over the account -- he really didn't have any income -- UNTIL it can be shown that he can indeed withdraw the funds.

[Schwartzy61]

Well then, since you must be a CPA or a tax accountant, how about this...

I start my own bank. You deposit all of your income in it for the whole year. During the year you have access to your money and can withdraw and do with it as you please.

Then on 12/31 I decide to freeze your account with all of your income in it because you hang with the wrong crowd.

A week later you get a jump start on everyone and file your federal taxes claiming a minimal amount of income because you don't have access to your account for the time being. 2 weeks after filing your tax return, your account is unfrozen and you now have access to it.

At what point do you pay taxes and how do you justify your decision...

[cardcounter0]

You claim to have gotten a degree in accounting? This wasn't some mail order course, was it?

[ QUOTE ]
You deposit all of your income in it for the whole year.

[/ QUOTE ]

You got a year's worth of income. You had constructive receipt of the funds. You had to have "unfettered control" of the funds if you were able to deposit them in the bank. You owe tax on it.

However, if you can show legitimate seizure of the funds, versus just throwing the money away, you have a deduction of the loss.

Net Taxable Income = 0. Your losses equal your winnings.

Later, if the funds are freed, tax due on 1 years worth of income the next time you are required to file.

[iceman5]

[ QUOTE ]
[ QUOTE ]
Its not your money until all conditions are released and you can withdraw it at will. Right now, the money still belongs to the site, not you.

[/ QUOTE ]

This does make sense to me. The money isn't necessarily yours, it still belongs to the site because of the situation you're in. As a result I think you can get away with not claiming it. Everything is such a gray scale with filing taxes. I would just use your judgment on this one but consulting a professional is your best bet if you want to make sure you aren't liable. IMO, it is morally ridiculous to me to even consider filing money that I may not even get. I personally think it would be fine to just file that money on next year's returns instead.

However iceman, the IRS doesn't know what's in your poker account but if you are audited the IRS has the right to ask for the passwords to your poker accounts to check the balance of them. Someone on this forum was audited and refused to give the IRS their password to his accounts and he was penalized.

In this situation however, if the IRS wanted the password to your confiscated poker account they wouldn't be able to access the information they needed to anyway since you can't login yourself, right?

[/ QUOTE ]

Im not saying youre wrong, but this is hard for me to belive. Maybe you were mislead? What was the penalty?

The IRS cant just penalize you for not giving them your password. Thats like the police arresting you for not confessing to a crime.

If they want to try to get a subpoena for the password, let them try.

Like I said, Im not saying this is impossible. but I would have to see evidence of this happening for me to believe it. Maybe someone fibbed to you about it?

I have a feeling theres more behind this than meets the eye. How did the guy get audited in the 1st place? Did he not file a return at all and was under investigation for tax evasion?

Its not like the IRS automatically asks for your poker info when yo get audited. Not that many people even play poker online compared to the number of people who get audited, so I doubt they assume that you have a poker account just because they are auditing you.

Like Ive said before, I pay my taxes to the best of my ability, but Im not going to be bullied by the IRS either.

[Krazy Dan]

[ QUOTE ]
You must be drunk.

I just deposited a million dollars in an account for you.
Whoopppss! I just froze the account. In a couple of weeks, I will put the money back into my pocket. Be sure to pay the IRS the taxes on your million you "had".
/images/graemlins/grin.gif

[/ QUOTE ]

The joke's on you. That could never be considered income by him because if anything, that would have been a gift. I suggest you look up the term "gift tax."

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I suggest you look up the terms "constructive receipt" and "unfettered control" in regards to the definition of income.

[/ QUOTE ]

The problem is that, before he sat at the alleged chip dumping table, he definitely had unfettered control and very probably constructive receipt, depending on an interpretation from the IRS regarding whether a poker site is a bank.

[scott2130]

Does this help?

There is constructive receipt when income is credited without restriction and made available to the taxpayer. There must be no substantial limitation or condition on the taxpayer's right to bring the funds within his control. An insubstantial forfeiture provision, a notice requirement, or the loss of bonus interest for deposits or accounts in certain financial institutions is not a substantial limitation (Reg. 1.451-2(a))

[scott2130]

Here is one you didn't think of.

Claim-of-Right Doctrine. Under an established principle of tax law, payments must be included in gross income if the taxpayrer receives them without restriction under a claim of right. This is true even though the taxpayer may discover in a later year that he had no right to the payments in the earlier year and is required to repay the same amount. Under the claim-of-right doctrine, the taxpayer may deduct the repayments in the year in which they are made.

I am to tired to think this all the way through but I am pretty sure he has to pay the tax and then take a dedution if the site keeps it. How he files is also important, form 1040 or schedule c.

Trying to put logic to the US tax code is not the way to solve a tax question.

Of course they will make their determination by the end of the year and this discussion will be mute.

[Schwartzy61]

[ QUOTE ]
You claim to have gotten a degree in accounting? This wasn't some mail order course, was it?

[ QUOTE ]
You deposit all of your income in it for the whole year.

[/ QUOTE ]

You got a year's worth of income. You had constructive receipt of the funds. You had to have "unfettered control" of the funds if you were able to deposit them in the bank. You owe tax on it.

However, if you can show legitimate seizure of the funds, versus just throwing the money away, you have a deduction of the loss.

Net Taxable Income = 0. Your losses equal your winnings.

Later, if the funds are freed, tax due on 1 years worth of income the next time you are required to file.

[/ QUOTE ]

As for my degree it was from a respectable Virginia University, but it's been awhile since the only tax course that was required, and even that focused more on business entities.

I think I know our divergence now. I am considering the site a sort of "bank" account. It's a money account that he had control over up until the point of suspension. So in essence he had a whole year's worth of winnings and control over those winnings until an unforeseen event. To me it comes down to what is recepit of the money in this particular case. I am using the assumption that once he wins the money and it is placed in his poker account he has received it and has the ability to withdraw it, or "unfettered control." Then he loses said control when his account is suspended. You on the other hand say he can't have recepit of the money until it is in his bank account nor has he ever had control over it because he can't withdraw it right now. Two ways to look at it and it would be hard to predict which side the IRS would lean toward. But I would think they would side with the version that has you paying the most tax, cause the IRS is cool like that...

So like I've mentioned and another poster reiterated I would fall on the safe side of paying tax on it now and if the site keeps the money on an unsubstantiated claim, or downright thievery, go ahead and use the 50k as a casualty/theft loss deduction...