Is r***back taxable income?

[broiler]

Capital gain? Are you joking? Rakeback does not involve a sale or deemed sale of property in any way. Your description of how a pro gets capital gain is not correct. A rakeback payment is a return of a deduction from an item that is treated as ordinary income, therefore it is also ordinary income. There is no argument that a rakeback payment is capital gain.

[kickingit]

it would be an investment,
stock dividen is you just getting back part of your investment, decreasing your basis in the investment

and i am saying either way its getting taxed but at what rate?

[broiler]

You are comparing apples and oranges.

In a stock dividend, you are receiving more stock, which is a capital asset. You already own shares of the corporation issuing the dividend. A stock dividend does not decrease your overall basis in the stock. The basis is merely spread out across a greater number of shares.

Rakeback is no way related to a capital asset. Rakeback is a refund of your expenses for playing. You are receiving cash from an entity in which you have no ownership interest. Therefore, the payment cannot be a dividend, which would not receive capital gain treatment in this situation as the poker sites do not have securities that would qualify for the reduced dividend rate treatment. A return of any deduction item will always be income of the same type as the deduction.

[kickingit]

i said a capital going would be a strech
if you could find a way to tie it to it

rakeback is ordnary income and is taxed that way.

Thanks for all of your responses. FWIW, based on my recollection of my tax law class and my discussions with my accountant, I think phish's response may be closest to the mark.

[phish]

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If considered a type of rebate, then maybe not. But if one conceives of it as essentially returning some of your winnings, then it probably is.

Does anyone know definitively one way or the other?

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I don't get why people can't grasp the fact that it's income.

Look, if you 8 tabled at 2/4 all year and made 0BB/100, but made $80,000 in rakeback, do you really thing you haven't made taxable income?

Give me a break, you made 80 grand. Pay taxes on it.

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Yeah, but what if you lost 100K for the year. In the course of losing that 100K, you paid about 240K in rake. In this case, the rakeback could just be considered a partial rebate of fees you've paid.

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*strangled noise* So what? What do fees paid, and rebate on them, have to do with it? You lost $100k gambling and gained $80k because you're smart enough to sign up for rakeback. IT'S ALL GAMBLING INCOME!

I don't pretend to be a CPA, but trying to magically wish the IRS didn't see any and every gambling related monetary gain as taxable is insane. If you've got enough losses to offset that gain, then you're simply not likely to owe tax on the gambling related money.

Doesn't matter if it's rakeback, winnings, losses, lottery tickets, whatever, it's all gambling income/loss.

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Well, let's start off by assuming that the IRS and the Courts are fair in how they want to tax gambling income. No one would impose a tax on an overall loser, wouldn't you agree? Now, it would also be fair to include winnings and losses and rakeback as all income (or loss) from gambling. So in the end it should be your net proceeds (if positive) of all three that gets taxed. If you lose 100K net and get 80K in rakeback, then your total gambling activities would have cost you 20K. To tax you on that 80K would be adding insult to injury. If you only lost 30K, then they should tax you on the 50K difference. That's fair. If you're a winner, then it should all be taxed. That's fair.

Now I don't know if this has been decided one way or another in the courts, but if I were a tax attorney, that is how I would file it and that's how I would argue. And I think a reasonable judge would agree with that formulation.