Here's the scoop on what
should have happend at the main event at the WSOP for the winners.
Poker tournaments are in a grey area of the tax code. They are considered as "other gambling," and normally
not subject to withholding. However, if you win at least $600 and that's at least 300 times the buy-in, the prize is subject to withholding (at 25% of the gross prize). Given that the buy-in was $10,000, the first and second place winners are subject to withholding. Steve Dannenmann, who happens to be a CPA, should have had $1,125,000 withheld of his $4.5 million. His winnings are also subject to tax from his state (I believe he's a resident of Maryland).
The rules for the winner are a bit different since he is not a US citizen. Joseph Hachem is from Australia; there is no tax treaty covering gambling income with Australia. He is subject to 30% withholding of his $7.5 million, or $2.25 million. Depending on the tax law of Australia (I'm not familiar with it), he might be able to claim a credit on his Australian tax return for the taxes he paid in the US.
Finally, the issues for a Canadian are a bit different. Canadians are subject to withholding, but can get a refund of the amounts withheld by filing a 1040-NR at the close of the tax year. I wrote an article about this available at
http://www.bigpoker.ca/tax_article.cfm
Russ Fox, EA