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Old 12-29-2005, 11:39 PM
KenProspero KenProspero is offline
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Default Chopping and Taxes

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.
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Old 12-30-2005, 11:26 AM
KenProspero KenProspero is offline
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Default Re: Chopping and Taxes

Bump
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  #3  
Old 12-30-2005, 12:36 PM
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Default Re: Chopping and Taxes

I'm an H&R Block tax preparer and here's my take:

First, gambling income (all of it, not just net), goes on the front of Form 1040 as "other Income"). Losses, up to the amount of winnings, are deducted on Schedule A IF taxpayer itemizes. If you don't itemize, you don't get to deduct your losses. Hardly seems fair, but that's the law and only Congress can change it. Also, if you are going to deduct losses, you'd better have damn good records. Date, place, time, game, etc. For more information, see IRS Publication 17, available online at www.irs.gov. Now to the individuals:

Legally, Chip Leader has to report the $750 less buy-in as income. It looks like he doesn't intend to do that, but sooner or later the IRS will get wise. Chip Leader doesn't need any paper from the Taj to declare his income. He just needs to enter it on Form 1040, deduct any losses (if he itemizes) on Schedule A, and calculate the resulting tax.

The person with the paper is in a pickle. You are right that, on the surface, he may very well owe more tax than he won (depends on his bracket). If he sat down at my tax desk I would want to go over all his gambling records (hopefully they will pass IRS scrutiny) to make sure we reported all his income and deducted all his losses. As far as this particular "win" is concerned, I would advise him to declare his net win and submit an accompanying statement fully explaining the chop.

The above discussion applies to individuals who are not professional poker players. If poker is your business, rather than a hobby, different rules apply.

As Ed Miller pointed out in the November (I think) issue of 2+2's online magazine, the day is coming when the IRS will start to look closely at all the money being made by poker players.
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Old 12-30-2005, 12:46 PM
citanul citanul is offline
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Default Re: Chopping and Taxes

i haven't played in ac, but i find it somewhat ridiculous that they make you fill out paper for a $1000 haul. are you sure they actually do that? it seems retarded. they don't make everyone who hits a roulette wheel for 1k fill out paperwork, do they? jeepers. they don't make everyone who wins a 1000 pot at say, a cash nl game fill out paper, do they? if this is actually the way things work, even if it's just the way the sngs work, there's no way you could drag me to that city. i know for instance that foxwoods wouldn't do something nearly that absurd. expecially as the casinos are in no way obligated to do something like this for such small prizes, i can't really see them doing that.

meh, end rant.

c

oh, and for tax stuff, listen to the tax pro, not me.
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Old 12-30-2005, 01:18 PM
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Default Re: Chopping and Taxes

My live play is mostly in Missouri casinos, which don't issue paper until the win (slot jackpot, etc) is $2,800. I think that is based on state law, because the casino is only required to withhold state income tax. If you want federal income tax taken out, that's up to you. (The feds still get a copy of the W-2G, however.) So the $1,000 may be based on NJ law. In MO, you only get paper for a distinct event, such as a jackpot or a tournament win, not for the results of continuing play.
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Old 12-30-2005, 01:21 PM
gumpzilla gumpzilla is offline
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Default Re: Chopping and Taxes

[ QUOTE ]
i haven't played in ac, but i find it somewhat ridiculous that they make you fill out paper for a $1000 haul. are you sure they actually do that? it seems retarded. they don't make everyone who hits a roulette wheel for 1k fill out paperwork, do they? jeepers. they don't make everyone who wins a 1000 pot at say, a cash nl game fill out paper, do they? if this is actually the way things work, even if it's just the way the sngs work, there's no way you could drag me to that city. i know for instance that foxwoods wouldn't do something nearly that absurd. expecially as the casinos are in no way obligated to do something like this for such small prizes, i can't really see them doing that.

[/ QUOTE ]

When I'd go to the horse races at Saratoga, there were always special booths to go to if your ticket was a winner for $600 or more where it would be immediately reported, basically. I'd always assumed that was some kind of federal requirement and not NYRA specific, but perhaps not, since I have a bit of a tough time imagining the roulette scenario as well. I think it's very feasible that they'd make all tournament winners exceeding $600 file the paperwork though. I guess the question is, from a legal perspective, what separates the tournament from the roulette scenarios?
(EDIT: I see Anjin addressed a lot of these issues.)
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  #7  
Old 12-30-2005, 06:36 PM
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Default Re: Chopping and Taxes

It's a law, federal I believe, that any gambling jackpot (slots and video poker) $1200 and above requires a W2-G. There are allocations whereby people can split jackpots and get separate W2-Gs from the casino.

How this applies to winning a poker tournament, I don't know.

I also know that if you win money in a promotional event such as a drawing or free promotional slot tournament, that if the total of such prizes in an individual casino adds up to some minimal amount (our tax acct. friend should know), you receive a 1099 for misc. income. I don't know if there is a way to divide a large score legally for such a prize as there is with the W2-G.

I don't know how the prizes for poker tournaments are handled, I could ask a friend of mine who has taken some top prizes in AC tourneys.

If they are handled with a 1099, some extra consideration should be given to the person taking the paper. For example, I was involved a while back in a promotional game that lasted for weeks where some skill was involved. A group of us were partnered up and it was agreed that if one among us was the top prize winner (100K), he or she would get enough extra to cover the tax bite.
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  #8  
Old 12-30-2005, 06:43 PM
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Default Re: Chopping and Taxes

I've won several 120s at the TAJ. "The paper" is just the payout receipt not a W2-G. This win is not reported to the IRS. The only reason to ask someone to "take the paper" is because it sometimes takes 10 minutes to get your money, or because you don't have valid ID.
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  #9  
Old 12-30-2005, 09:06 PM
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Default Re: Chopping and Taxes

O.K., I spoke with some poker friends of mine who have been on the AC scene for decades.

According to them, you don't get a W2-G unless your winnings are over 10K, and there is supposed to be some sort of formula where the entry fee gets subtracted from the total prize money to determine this. Also according to them, is that the Taj doesn't understand this scenario too well and automatically issues a W2-G for 10K and above. They said that the Trop seems to have a much greater understanding of how this should be handled.

For payouts below 10K, they didn't know if you get a 1099 at the end of the year or not. Your best bet would be to ask. Only problem with that is that you'd be hard pressed to find someone who will have the answer to that. In my dealings with the Taj over the years, I usually knew more about how things were supposed to be than their employees.

Based on what they told me, and my previous personal experience with the differences between W2-Gs and 1099s I will at this time guess that you will not receive a 1099 for those winnings.
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