I talked to tax adviser today

[cardcounter0]

Haven't found the exact case maybe you could help.

Donald Trump was in financial trouble, so his Father (Fred Trump) had his lawyer go to Donald's casino and purchase 3.5 million in casino chips. Trump used the 3.5 million to make his loan payments that were due, then later when Trump had the money, his father cashed the chips back in.

The courts ruled that Trump's Father had made a "loan" of the 3.5 million. This seems contrary to what you had discussed, since he *could* have cashed the chips at any time, or it was a wash transaction of equal value being exchanged - cash for chips.

When I buy chips in a casino, I don't think I am loaning them money, am I? Curious as to what the distinctions were in this case other than intent?

[TobDog]

[ QUOTE ]
Say I win $100,000 playing blackjack at Bellagio in December. Do you really think that I can avoid paying taxes for an entire year just by waiting until January to cash-in my chips?


[/ QUOTE ]

If you go to the cage after midnight Dec 31st, you will be paying taxes on it the following year. And the spirit of the law says you report it when it happens, if you colored up all your chips and walked out of the casino, are you going to pay the IRS with pretty colored Bellagio chips? Go ahead flame away, haven't had that in a while.

[MrGrob]

What my friend noted was this. You can win and lose session by session, but it is all going to even out. So if you win 1000$, and lose 500$ twice, you will owe 0$. So, waiting till you cash out is fine. However, you still have to pay withholdings. So, if you win 1,000,000, you have to pay the withholdings, but if you then lose 1,000,000, you will get back the withholdings at the end of the year.

Also, you can't tax session by session in poker, as there is no paper trail. You could say that you lost 10,000 at the end of the year to try to avoid paying more taxes. But cash outs are hard and fast. Your cash outs are taxable. So, you can buy into online a million times -- win and lose, but until you cash out the "chips" you owe nothing. Any other way, and it is too easy to get creative and to hard to track.

The tax guy is right...till you cash out, you owe nothing.

[grinin]

[ QUOTE ]
you don't have income unless you have "essentially unfettered control . . . over the date funds are actually received."

[/ QUOTE ]

I was going to point this out but you beat me to it. There are numerous online sportsbooks, casinos, poker rooms, etc. There are also equally numerous failures of these ventures. Since none of these businesses are regulated by the US, you have absolutely no control over the funds that you send to these companies. Why therefore should anyone pay taxes on winnings they may never collect, not to mention the fact that they may never collect their initial deposit.

As an example: It was common for sportsbooks to entice postup customers with large bonuses and glitzy marketing campaigns only to find out when you were ready to cash out, that the company had run off with ALL your money. Probably to pay for that newer marketing campaign to get more cash infusions or for the owners new Mercedes.

I think the key point is that these are unregulated offshore companies rather than a Brick and Mortar casino where you can exchange chips for cash instantly.

[fnurt]

[ QUOTE ]
Haven't found the exact case maybe you could help.

Donald Trump was in financial trouble, so his Father (Fred Trump) had his lawyer go to Donald's casino and purchase 3.5 million in casino chips. Trump used the 3.5 million to make his loan payments that were due, then later when Trump had the money, his father cashed the chips back in.

The courts ruled that Trump's Father had made a "loan" of the 3.5 million. This seems contrary to what you had discussed, since he *could* have cashed the chips at any time, or it was a wash transaction of equal value being exchanged - cash for chips.

When I buy chips in a casino, I don't think I am loaning them money, am I? Curious as to what the distinctions were in this case other than intent?

[/ QUOTE ]

This is a classic case of the court looking at the "economic realities" of the transaction, which is generally the most important consideration.

People tend to think that tax law is all about loopholes and technicalities, and as long as you can construct some technical argument to justify what you're doing, you can get away with anything. In fact, common sense comes into play a lot more than technical labels. Trump's father was obviously loaning money in a cute way, so whatever unique way he chose to do the transaction, the fact is that it was still a loan.

Classic example. Let's say you buy a car from my car dealership. You make payments for 3 years, and after you've paid it off, you get the title and it's yours forever. We all understand how this transcation works.

Now, let's say that instead of selling you the car, we decide to call it a "lease." You still make the same payments for 3 years, but at that time (unlike the typical commercial lease) you now have the option to purchase the leased vehicle for $1. In economic terms, isn't this the exact same thing as buying it and making installment payments for 3 years? Of course it is. So did you get away with anything by calling it a lease? No, the courts will still treat it as a sale, because they're not stupid.

[Franchise (TTT)]

I just wanted to say that I'm glad we have a lawyer here, instead of a bunch of guys who watch too many movies.

Thanks for the input.

[WSOPWinner2005]

Not bragging by any means here... but I ran 2K into $30,000.00 at the MGM in Vegas (BlackJack). Went to cashier's window and walked away with some bundles of c-notes... put them in the safety deposit box and took about 3500 to Palamedo's (sp?).

Anyways, I never got anything from the IRS regarding those winnings... Nada! I think they report sometimes, sometimes they don't... Mind you, this was years ago... about 3-4 roughly.