tax question

[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".
[img]/images/graemlins/grin.gif[/img]

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...