When are internet poker earnings taxable income? - Page 4

renodoc · #31 03-07-2005, 07:07 PM

Niediam,

Do you have a reference for the sattelite issue? My accountant seems to disagree, but I don't know of case law or tax code.

What is one supposed to do if they forgot/lost/can't find their records for the year? Make a guess?

Also, on a different note- Card Player publishes winnings which probably do not accurately reflect the true amounts taken by players because of deals made at the final table. Is there anyway to document this?

Niediam · #32 03-07-2005, 07:20 PM

I have read so much information on gambling tax law that a lot of the sources have blurred in my head but when I come across this issue again I'll let you know where you can find the information.

I really don't know what one should do when they don't have very good record. The most logical thing seems to make a good faith estimate. But you never know with the IRS...

There really is no way to know how much professional tournament players have really won because of prize splits, deals, and backers. Only way you are going to find out is to become friends with the player in question and hope they are honest. [img]/images/graemlins/smile.gif[/img]

renodoc · #33 03-07-2005, 08:15 PM

Yes but if Card Player reports that someone won $25,000 but they actually cut a deal for $19,000, then they might have $6000 in unfair tax liability if someone calls them on it.

How do you document this?

broiler · #34 03-07-2005, 08:35 PM

If the tournament staff are aware of the deal, then they should adjust any W-2G according to the terms of the deal.

The other possibility is that they are unaware of the deal and report the higher amount to one side of the deal. You have to report any amount on a W-2G or there will be questions. The IRS is good at matching numbers reported to them. The next line under that I would state "amount reported to SSN: ..." with a negative amount. This of course would require you to get the other persons Social Security Number. If you don't have the SSN, you can still use the negative amount, but you may get questions.

Alerting the tournament staff is obviously the easiest way to fix the problem. A good director will know what to do or at least direct the people to the right answer.

Niediam · #35 03-07-2005, 08:55 PM

I assume the same way you do normal casino ring game play - you write it down in your journal.

renodoc · #36 03-07-2005, 09:22 PM

I dunno. The magazine and the casino's like to show big numbers for the winners. Most of the time a deal is struck but the "first place money" is still listed with the winner's name next to it.

W-2G's aren't always issued to tourney winners regardless of the amount of the win.

broiler · #37 03-07-2005, 09:55 PM

You won't find anything authoritative from the IRS that directly speaks to satellite tournaments. The only thing that you can do is look at similar situations and what others have said.

Gambler's Guide to Taxes says that satellites are not taxable until all related tournaments are completed. The book on the Frugal Gambler site (it was reviewed on here a couple of months ago) says that the satellites are taxable at every step.

I would say that a reasonable position is in between the two extremes. In a situation where you must participate in the next step, no income should be recognized. Therefore, the Party steps would not have a taxable event until you lose out or win cash. If you have the option to get cash, then you have a taxable event because you have chosen to participate in the next tournament with your cash.

Most B&M satellites will expressly state that you get lamers for a series of events or that you must participate in a specific event. They will also usually state that your entry is nontransferable as well.

Online is a problem because almost everything from a satellite can be transferred in some easy manner into cash. I think that in terms of online you are generally stuck treating the satellite as income because the sites generally assist in the process of transfer.

I equate the satellite issue to payouts of accrued sick time upon retirement. Some plans let retirees use sick time as health insurance premiums until the days run out. If the plan allows the retiree to choose cash or insurance, the payments are taxable. If the plan is take insurance or lose the sick time, the payments are not taxable. I think that this is the most similar situation where there has been an actual ruling.

As I said before, there are no rulings that specifically state the proper treatment. The IRS is always subject to inequitable treatment for different people.

broiler · #38 03-07-2005, 09:59 PM

I would say that the safest thing to do with a deal is to get your share broken down into a check or a bank transfer, so that if you were ever questioned, you could point to a specific transaction that relates to that tournament. Make sure to get a copy of the check or some documentation from the casino and you should be ok.

Lottery Larry · #39 03-07-2005, 10:47 PM

"You do not have to report any income if the only prize you received in a tournament was entry into another tournament."

When/if you do find the official legal source for this statement I would be interested as well.

renodoc · #40 03-07-2005, 11:35 PM

I think this is an important issue.

If you pay $60 and parlay that into a $25,000 seat at the WPT finals and then lose the first day, it makes a big tax difference whether or not you treat the entry fee as "winnings" or as some type of non-taxable sattelite rollover.

Since winnings are above the line, losses below it and deductions (unfairly) limited, one can lose money on this freeroll come tax time.