Paying taxes overseas in lieu of paying taxes at home.

[Nick Rivers]

Suppose, hypothetically, that a person was tired of paying taxes to the American government on his online poker winnings but, at the same time, did not have any realistic means of emigrating. Would getting a foreign account and paying taxes in that account's country be a way of achieving this goal? I'm not advocating any fraud, just paying taxes to a different government than the US government, because it seems illogical for a poker player to give financial support to the United States government as it continues to trounce us with its legislation and tax codes. It is my understanding that the interest gained on money in foreign accounts is taxed by either the country in which the account exists or by the country in which the account holder resides, but not both. Is this also true for income deposited in said account, earned from an offshore entity (like a poker site), or does residence always trump this?

[Berge20]

I don't see how doing this wouldn't be viewed as tax evasion in the US (assuming you live/work here)

[Russ Fox]

US citizens are taxed on their worldwide income, no matter where they reside. There are deductions/credits available when you reside abroad: the foreign earned income deduction (note: gambling is not considered earned income, so this deduction is not available for gambling income for amateur gamblers), and foreign tax credits.

But if you live abroad, and don't file a tax return and are a US citizen and you should have filed a tax return, you have committed tax evasion.

[Merkle]

Can somebody please explain why if I earn a living playing chess or bridge it is not treated as gambling income, but poker is?

Or am I mistaken about how income from chess and bridge is treated?

Do we need to stop referring to our winnings as gambling income?

[Russ Fox]

[ QUOTE ]
Can somebody please explain why if I earn a living playing chess or bridge it is not treated as gambling income, but poker is?

Or am I mistaken about how income from chess and bridge is treated?

Do we need to stop referring to our winnings as gambling income?

[/ QUOTE ]

This is an extremely important question. And it goes to the heart of a major issue relating to making poker a "skill game."

Under Tax Law, poker is considered a wagering activity. This is akin to gambling. The Tax Court has consistently ruled this way, and this has never been overturned by a Court of Appeals. The Tax Court most recently ruled on this issue in Tschetschot v. Commissioner, where they concluded:

"That said, the Tax Court is not free to rewrite the Internal Revenue Code and regulations. We are bound by the law as it currently exists, and we are without the ability to speculate on what it should be. Accordingly, we hold that tournament poker is a wagering activity subject to the limitations of section 165(d)." (While this decision related to tournament poker, previous decisions have classified poker as a wagering (gambling) activity.)

It will take an act of Congress to change the classification of poker for tax purposes.

Chess and bridge are not considered wagering activities.

-- Russ Fox

[MiltonFriedman]

Next time it comes up in Tax Court, someone could argue the Humphreys case, but will likely lose because that was a different statute than the tax code.

The interesting thing about Tschetschot v. Commissioner is that even it puts the "betting" activity at the player level, not the poker tournament sponsor level. ... a point somewhat relevant under UIGEA.

[Merkle]

Thank you Russ for the acknowledgement. I know quite a few professional chess players and I was under the impression that their tournament winnings were not treated as gambling income. I see no reason why poker income (especially tournaments) should not be treated the same as chess tournament income.

I believe having this acknowledge by the IRS would go a long way to moving it into a skill game category. Or would the inverse be true, if poker is declared a game of skill by the Wexler bill would that change the tax treatment of poker income?

[BrassMonkey]

[ QUOTE ]
US citizens are taxed on their worldwide income, no matter where they reside. There are deductions/credits available when you reside abroad: the foreign earned income deduction (note: gambling is not considered earned income, so this deduction is not available for gambling income for amateur gamblers), and foreign tax credits.

But if you live abroad, and don't file a tax return and are a US citizen and you should have filed a tax return, you have committed tax evasion.

[/ QUOTE ]

Why is playing poker not considered "earned" income if it is the sole means through which you make a living? Is there some special process through which one becomes a "professional" whose earnings from poker play are taxed as earned income? This is critical for me, as I was planning on filing for the foreign earned income exclusion as a poker player in Thailand.

Thanks,

Brass

[lala]

[ QUOTE ]
[ QUOTE ]
US citizens are taxed on their worldwide income, no matter where they reside. There are deductions/credits available when you reside abroad: the foreign earned income deduction (note: gambling is not considered earned income, so this deduction is not available for gambling income for amateur gamblers), and foreign tax credits.

But if you live abroad, and don't file a tax return and are a US citizen and you should have filed a tax return, you have committed tax evasion.

[/ QUOTE ]

Why is playing poker not considered "earned" income if it is the sole means through which you make a living? Is there some special process through which one becomes a "professional" whose earnings from poker play are taxed as earned income? This is critical for me, as I was planning on filing for the foreign earned income exclusion as a poker player in Thailand.

Thanks,

Brass

[/ QUOTE ]

I'm sure it won't be a problem considering the IRS wants people, including non-pros, to file as a pro. This recent thread is a good example.

[Russ Fox]

[ QUOTE ]
Why is playing poker not considered "earned" income if it is the sole means through which you make a living?

[/ QUOTE ]

Professional gamblers living abroad can take the foreign earned income exclusion. As I wrote, it's amateur gamblers who cannot take the exclusion.

-- Russ Fox