I talked to tax adviser today

[Lost Wages]

I don't think that the courts have addressed online play but I think it is safe to say that common sense will prevail if you are ever audited. We all know what a session is and what it isn't. No one is going to believe that you played a 3 month session. The IRS will make a decision and if you disagree it will be up to you to hire a lawyer to fight it.

Lost Wages

[josie_wales]

[ QUOTE ]
but if your tax bill is going to be $1000 more than the taxes you've paid throughout the year you're going to get penalized

[/ QUOTE ]

Now what does this mean?

If I paid at my regular job $3500 in taxes.

Then at the end of the year when i claim my winnings and say i end up owing $1200.

Am i ok? That is to say, that since the amount I owe ($1200) is less than what I paid ($3500) am I ok?

Thanks

JW

[cardcounter0]

No, only for 3 months when your quarterly tax payment is due.

[cardcounter0]

I think I will put my money on the Tax Advisor.
[img]/images/graemlins/grin.gif[/img]

[cardcounter0]

You are okay. If you don't have enough withheld (or pay quarterly) so that you end up owing $4500 at the end of this year, then you need to worry.

[fnurt]

[ QUOTE ]
According to him, when you buy into a site you don't have to report winnings/losses until you convert back to currency, since while it's in your Party account it's "chips". So, when you deposit money into Party you don't have to claim it until you pull it back to your Neteller account.

[/ QUOTE ]

I'm going to play the "I am a lawyer" card, even though I'm far from the only one who reads this site. That advice seems 100% incorrect to me.

For one thing, this practice would make it far too easy to shift income from one year to the next, something the IRS is particularly sensitive too. That's far from the only issue, however.

[DanS]

[ QUOTE ]
[ QUOTE ]
According to him, when you buy into a site you don't have to report winnings/losses until you convert back to currency, since while it's in your Party account it's "chips". So, when you deposit money into Party you don't have to claim it until you pull it back to your Neteller account.

[/ QUOTE ]

I'm going to play the "I am a lawyer" card, even though I'm far from the only one who reads this site. That advice seems 100% incorrect to me.

For one thing, this practice would make it far too easy to shift income from one year to the next, something the IRS is particularly sensitive too. That's far from the only issue, however.

[/ QUOTE ]

The vast majority of poker players are losers. What's the threshold for the IRS to require you to withhold estimated taxes quarterly? A few years of consistently winning? Professional status?

I'm somewhat confused by the "if you underwithhold by greater that $100 you'll be penalized" line.

Dan

[cardcounter0]

Being a lawyer, you should have no trouble finding these cases.

THOMAS J. PAUL, JR. v. COMMISSIONER OF INTERNAL REVENUE
T.C. Memo 1992-582; 1992 Tax Ct.
September 29, 1992, Filed

Zarin, 916 F.2d 110 (3d Cir. 1990), reversing 92 T.C. 1084
(1989), in which the Third Circuit treated chips as
merely being evidence of the casino's indebtedness,
and not property until they were cashed in.

It all hinges on a concept called "constructive reciept".
Casino chips are little clay disks that are worth about 2 cents each, if that. You don't actually get "contructive reciept" of your money until you cash them in.

The fact that it takes a day or two for an online site to process your cash in request -- or that fact that you have to 'request' a cash in in the first place -- shows you really don't have control over your winnings.

So until online chips are transfered to a netteller account, your bank account, or you get a check, then you have "constructive reciept" of your winnings and at that time it is recognized as income.

[fnurt]

[ QUOTE ]
Being a lawyer, you should have no trouble finding these cases.

THOMAS J. PAUL, JR. v. COMMISSIONER OF INTERNAL REVENUE
T.C. Memo 1992-582; 1992 Tax Ct.
September 29, 1992, Filed

Zarin, 916 F.2d 110 (3d Cir. 1990), reversing 92 T.C. 1084
(1989), in which the Third Circuit treated chips as
merely being evidence of the casino's indebtedness,
and not property until they were cashed in.

It all hinges on a concept called "constructive reciept".
Casino chips are little clay disks that are worth about 2 cents each, if that. You don't actually get "contructive reciept" of your money until you cash them in.

The fact that it takes a day or two for an online site to process your cash in request -- or that fact that you have to 'request' a cash in in the first place -- shows you really don't have control over your winnings.

So until online chips are transfered to a netteller account, your bank account, or you get a check, then you have "constructive reciept" of your winnings and at that time it is recognized as income.

[/ QUOTE ]

This is an interesting post. Let me try and give it a thoughtful reply.

The Paul case involves a winning lottery ticket. It's well established by now that if you win the lottery today, you don't have to claim any income until you actually cash in the ticket. The reason is that you need to go through the claims process, the state might decide you're disqualified for some reason, blah blah blah.

Casino chips are a different case, and the Zarin case is a particularly interesting example. In that case, the Tax Court ruled that chips are a substitute for cash, and that if you win chips, they represent income because you can redeem them at any time and walk out of the casino. The appeals court agreed that chips are a substitute for cash, but said the Tax Court got it wrong in this particular case because the guy hadn't WON his chips, he had gotten them in exchange for a MARKER. He couldn't cash them in and walk out, because the casino would have kept the cash to pay off the marker. So he didn't have any income, because he didn't actually have the right to walk off with cash in exchange for those chips.

In the ordinary case where you walk into a casino and win money, the chance that you could take the chips back to your hotel room, keep them until January 1, and thereby avoid recognizing income until the following year, is none, zip, zero. While you're sitting at the table gambling, the chips are in play and you haven't won anything yet, but when you walk away, those winnings are income regardless of whether you go to the cashier's cage right away.

I'm confident that I'm right when it comes to casino chips, but the poster may have a point that online gambling is different. The point is that, as the Paul case said, you don't have income unless you have "essentially unfettered control . . . over the date funds are actually received." As anyone who has tried to make an online cashout knows, you really don't know when you will get your money, it might be in your account tomorrow, or they might hold it up for a week while they do "security" checks, or whatever.

But as a lawyer, I can tell you this. Until a court agrees with your position, all you have is a good argument. No court, as far as I'm aware, has ever made a ruling on this issue as it pertains to online gaming. Generally, if the court thinks you're trying to get away with something, they find a way to rule against you - so if the first case on this issue involves someone who kept his money online for 3 years and wants to call it "one long session," I would bet that the court will say it was income at the time he won it, if I were a betting man that is.

I thought this issue was interesting food for thought, and hopefully some of you thought so too, but even if you think I made sense, I should caution that no one ought to rely on what I've said as legal advice. If you have money riding on this issue, talk to a lawyer who is licensed in your jurisdiction, someone who can look at the facts of your particular situation.

[radek2166]

My question is this. How much do u have to make before u have to claim it as incometax? I know one night I cashed in 1k from a craps table at the babary coast. no questions asked.

I also know here in Arizona if u win over 599 dollars. U get the tax form right along with it