Another Tax Question...

[Zele]

Please, no replies on the morality of paying taxes or exhorations to cheat on taxes.

My question:
If I have won money online, and those winnings stay in my online account until next year, do I pay US tax on them this year or the year that I withdraw the money?

[cardcounter0]

Every one will tell me I'm wrong, but here is the answer.

If you had a winning lottery ticket, and you wait until next year to claim it, You don't have income until that next year. Proven several times in Court.

There is a concept called 'constructive receipt'. It basically means until you have full control over money, (Like cash in hand, or a check you can cash at your bank, or money in a bank account under your full control, etc.) then you don't have income. When you are in control of the funds, it is income.

Since in an online poker account, you have to 'request' a cash-out, then the poker site 'reviews' your request, then it is 'approved', and then you get a wire or check -- you don't have 'constructive reciept' of your winnings until that money hits your netteller account, or is electronically transfered to your bank account, or you get their check in your hand.

Just like if a stock goes up, I don't have income until I sell it. (or cash my lottery ticket, or sell my bond, or my car, or my house.)

[Kurn, son of Mogh]

There exists no paper trail until you cash out.

[Zele]

Thanks for the replies, guys. Much clearer now.

[Wake up CALL]

[ QUOTE ]

Every one will tell me I'm wrong, but here is the answer.



[/ QUOTE ]

That is because you are wrong. Your arguement has been countered on here several times yet you still spout the drivel for other unsuspecting posters. Get you head out and read the IRS guidelines.

[fnurt]

http://forumserver.twoplustwo.com/sh...mp;o=&vc=1

http://forumserver.twoplustwo.com/sh...mp;o=&vc=1

I really don't understand why you keep running around giving people this bad advice, after a lawyer has explained otherwise. I realize you feel that things -should- be the way you want them to be, but you're just being so irresponsible to the people asking the questions.

[cardcounter0]

Talk to a CPA.

[cardcounter0]

Talk to a CPA. The concept of constructive receipt is a part of GAAP and been proven in Court countless times.

[cardcounter0]

Under Internal Revenue Service rules, a person is deemed to have received funds when there is control over the disposition of money, when the present value of money is specifically set aside for use by the person, or when the funds are available to the person. Funds are not constructively received if something of value must be relinquished to obtain them, if the right to receipt is legally contested, if the obligor is financially insolvent or cannot make payment, or if a valid contract requires that payment be postponed.

Constructive receipt is the tax law doctrine that says that income is taxed to you before it's actually received if it is credited to you, set aside for you, or made available to you so that you can draw on it at any time. However, there is no constructive receipt of income if your control of it is subject to substantial limitations or restrictions. [Treas. Reg. 1.451-2(a)]

Constructive receipt generally occurs when a taxpayer receives "an unqualified vested right to receive immediate payment," Childs, supra, quoting Martin v. Commissioner, 96 T.C. 814 (1991).

>>>>>>
Note: In the case of online poker, you must 'request' a cash out, the cash out is then 'reviewed', the cash out request is then 'approved', and then the funds are transferred.

Look at your user agreement. They will withhold 'your' funds if they detect cheating, collusion, credit card fraud, chip dumping, playing with a bot, etc. The money is not yours, you do not have 'constructive receipt' until AFTER your cash out request is approved.

From the regulation: "However, there is no constructive receipt of income if your control of it is subject to substantial limitations or restrictions."

The poker site imposes restrictions on your money. It must meet its approval process. The Courts have upheld such arrangements as triggering a 'safe harbor' and that constructive receipt has not occured.

>>>>>>>>

A lawyer should know about this, since if they receive money in a settlement for a client into their accounts, they could trigger constructive receipt since they are an agent of their client, even if the money is later put into some kind of annuity and the client actually never gets a lump sum payment -- all the taxes on the money could be due, if the lawyer had control of it in his trust account.

[fnurt]

I know what constructive receipt is. It was like week 1 of law school. But no court has ever decided the issue of how the doctrine of constructive receipt applies to online poker winnings. Any CPA, or lawyer, will tell you that there are a lot of nuances.

If a client calls me up with a question, and I can tell him how courts have decided his issue, I will do so. If no court has ever decided his issue, but I know in theory how it should turn out from reading law books, I will tell him this is how it ought to be in theory, but it might cost him an expensive lawsuit to set the precedent. That's how the real world operates.

I can't disagree with anything you've said about what "constructive receipt" means, but you seem to be 100% convinced that if you were before the Tax Court, they would rule in your favor. As a lawyer, I am saying that I am not 100% convinced, and you should be more cautious about giving this advice to people as though it were gospel.