question on dealmaking and taxes

burningyen · #1 03-14-2005, 02:37 AM

The following situation came up in a live tourney this past weekend:

$70 buy-in with $40 rebuys and a $40 add-on, 300+ entrants, top 9 were to be paid. When it got down to the final 19 players, the blinds were so high that skill was becoming less and less of a factor. So the final 19 cut a deal where they would each get at least $1000, with play resuming and the top 9 getting percentages of what was left (e.g. if 1st originally would have been paid 40% of the total pool, 1st would now get $1000 + 40% of the remainder of the pool). But for some reason the casino reported the top 9's earnings on W-2G tax forms as if they had won the original amounts they would have been paid without the deal (e.g. they reported that 1st won 40% of the total pool). The $1000s paid to players 10 through 19 were not reported. And the casino did not note on the W2Gs or subtract from the prize money how much each player had bought in/rebought/added on for.

1) Was the casino correct in how it reported the winnings?

2) What options do the final 9 players have as far as correcting mistakes by the casino (if any) and/or otherwise minimizing their tax exposure? Can they treat the amounts taken out of their prize money for the deal as gambling losses to offset their reported winnings? If so, what kind of record would be enough to demonstrate to the IRS that such a deal did in fact take place? A letter from the casino or the tourney organizer?

If you'd rather PM me your answer I'll be sure to keep it confidential.

Chaos81 · #2 03-14-2005, 03:50 AM

I don't see how the casino could be right about reporting it that way. Those players didn't make that money therefore they are paying taxes on money they didn't even make. The players below them aren't paying taxes on money that they should be.

To me it sounds like the casino is trying to save themselves some money. I don't know how that works, but that is what I would think.

If I was one of those players, I would go straight to the casino and see why it was done. I wouldn't want to be paying those extra taxes.

tek · #3 03-15-2005, 10:04 AM

You can give your backer a 1099 (and send a copy in with your taxes). When you make a deal, you should have a 1099 filled out ahead of time with the backers info so you are ready or don't give any money untilhe gives you the info (name, address, SS#).

ilbeeg · #4 03-15-2005, 10:21 AM

I had a similar situation at the Taj in A/C, I believe it was a $75 with $60 rebuys and one double add-on. We were down to the final 6 when we decided to chop, there were only 100 or so people in it, so I believe only the top 5 got W-2Gs, so we informed the Tournament Director of our decision to chop and he told us that the W-2G's were already drawn up based upon their payouts and that they would not redo the W-2Gs and that someone would have to sign for 1st place and the $5,500 payout, when they would receive less. That caused a disagreement among the players and we just decided to play it out. I guess the only advice I could give anyone is in the future to speak to the TD before you decided to chop or make any deal.

jlzinck · #5 03-15-2005, 12:55 PM

FWIW Turbo Tax asked me if all the winnings I had were mine or if someone else was was involved. You can then enter the other person's info and how much was for them.

I will try a test tonight on the software and see if it lowers my tax liability by entering someone else and applying some $$ to them.

Will post results tomorrow

burningyen · #6 03-15-2005, 05:05 PM

I don't understand your response. Who is the backer in this scenario? Players 10 through 19?

burningyen · #7 03-15-2005, 05:07 PM

Not coincidentally, the tournament in question was also at the Taj.

burningyen · #8 03-15-2005, 05:10 PM

Thanks, jlzinck. Let me know what you find out.

dogmeat · #9 03-15-2005, 05:15 PM

The casino incorrectly handled this. Probably, they already had the w2-g's made out for any spot that paid over $599, and didn't want to redo them. They may a software program that was set-up already and the people running the tournament could not change it, or they may just be lazy.

The Taj will issue a "gaming losses" statement after the first of the year (either through the VIP office, or the club desk)for you if you have a tracking card, just ask. They can probably fix this for you then, or don't worry too much about it, just make sure the poker room can verify some losses and you will be fine.

Dogmeat [img]/images/graemlins/spade.gif[/img]

burningyen · #10 03-15-2005, 05:51 PM

[ QUOTE ]
The casino incorrectly handled this. Probably, they already had the w2-g's made out for any spot that paid over $599, and didn't want to redo them. They may a software program that was set-up already and the people running the tournament could not change it, or they may just be lazy.

[/ QUOTE ]

Since they were filled out by hand, I vote for the latter. [img]/images/graemlins/smirk.gif[/img]