Chopping and Taxes

[KenProspero]

I was playing in a $100-20 game today at Taj in Atlantic City.

The game, for any who don't know is a winner-take-all. But when it gets down to two or three players, chopping is common. Anyway, although I busted out in third (a sad but not terrible interesting story) I stayed to watch the end.

Chip Leader, had 80%+ of the chips and offered the following deal to the other player.

"We split the pot 75%-25%, split the dealer tip, and you take the paper".

By this, he meant that the casino would report the second place finisher as the winner who received the prize. Taj said they will not officially sanction the chop by splitting the purse (and the paper).

Ok, let's assume everyone plays on the up and up and reports all of their income. Does anyone know what the rule is here.

From the IRS point of view, the person with the "paper" would be shown as receiving the entire $1000 purse ($880 profit). However, it seems that if this person had agreed to pay Chip Leader $750, the profit the reportable income should only be $130. I'm not sure, however, how we get there for IRS purposes.

Would the person received the paper have to report the $750 paid to Chip Leader to the IRS in order to claim this deduction? It was clear that Chip Leader did NOT expect this to happen.

Otherwise, it seems that person who took the 'paper', may very well owe more in taxes than he received in cash.

So, two questions -- What is the law here?

What is the practice for tax filings, etc. either in SNGs or in MTTs where there is a Chop that is not facilitated by the casino?

At the risk of stifling coversation, I'm more interested in what someone knows the answer to these to be, rather than what we all think the answer ought to be.