Ed Miller's Tax Article

[dogreplacer]

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- Whoever said that the IRS can't share information with other law enforcement agencies is plain wrong. If you voluntarily disclose that you're (for example) a drug runner, the IRS absolutely can tell the FBI or the DEA. The prohibition is when you involuntarily disclose such information to the IRS. Be careful for what you put down as your profession on your tax return. There's a famous case of a bookmaker putting down his occupation as "bookmaker." The IRS told the FBI, and he ended up in jail and lost his appeal.



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Whoops. You may be referring to what I posted in another thread. I had read that in a book, but I guess I should have looked into it a little further first.

For anyone interested, here is a link to section 6103 of the US tax code, which deals with the disclosure of tax return information by the IRS to third parties:

http://www4.law.cornell.edu/uscode/h...3----000-.html

Specifically, 6103.i.3 titled "(3) Disclosure of return information to apprise appropriate officials of criminal or terrorist activities or emergency circumstances " addresses the issue at hand.

If you look around, you'll see that the IRS takes privacy of tax return information very seriously, as they believe it is crucial to maintaining a high level of voluntary compliance with the tax code. In fact, as you can see in this report here - http://www.house.gov/jct/x-63-05.pdf -, the IRS only disclosed 276 returns in 2004 for the purpose of apprising appropriate officials of possible violations of federal law.

That said, it is obviously insane to be reckless when disclosing your occupation to the IRS. I'm sure nobody listens much to a guy with 4 posts, but sorry for posting inaccurate information.

Also, Mr. Fox, from what i can tell there's nothing in section 6103 that allows for the disclosure of information for the possible violation of state laws. Is this an accurate interpretation? For instance, say I live in Las Vegas, Nevada, a state that has specifically criminalized placing wagers with online casinos that are not licensed by the state. Would there be any reason to fear the IRS would or could share my tax return information with a state agency regarding my illegal online activity?

[lastsamurai]

The key to audits is this.

Can you prove it?
do you have written documents to support your proof?

Make sure you keep a daily log. I'm sure there are a handfuld of twoplustwoers who could file as a business expense. make sure you keep your receipts!

[driller]

I know that some of the references use pt's definition of a session as being the same as the IRS's. Obviously the idea of a session came about before online poker, and maybe just using net daily results would fly, but I believe it violates the language of the regulations.

I would run it both ways and see how much difference it makes. The IRS probably won't give in on this without some expensive negotiation or arbitration.

[Mr.K]

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In pt you can export all of your sessions to an excel spread sheet. Then you can set up a plus column and a minus column and some "if statements" to put the results of each session in the appropiate column. The sum of the plus col is your gross winnings and the sum of the minus col is your gross losses. There are probably more elegant ways to do it, but this works.

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This is probably not the best way though, since you will overestimate your tax liability with this method. The exact definition of a "session" as it pertains to online gambling hasn't really been established, but I think it is reasonable to consider any given period of time that I am playing multiple tables to all be a part of one session. If I play for 4 hours on a total of 8 different tables (including table switches), take a 10 minute break to go to the restroom and grab a snack, then play 3 more hours at 7 different tables, that will show up as 15 sessions in PT, but I would tend to think of it as one 7-hour session. Because of that, I feel that it is reasonable to net my earnings during that session rather than reporting a few winning sessions and a few losing sessions for that time period. I could be very wrong, but I think it would be an easy stance to argue.

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Agreed in full. You are giving away money if you utilize PT's definition of "session." The fact of the matter is that online poker is fundamentally different than B&M poker in that you can multi-table (ok, fine, Bill Fillmaff multitables B&M, but he's a poker god/worldwide champ) and table change so rapidly. As I mentioned above, in 2004 I believe I utilized a definition of session as "any poker playing that was immediately continuous with other poker play (e.g. I started at one table at 2pm and then added another at 2:15 while still playing the first table), or any poker play within 10 minutes of prior poker play (e.g. I started at 2pm, played one table until 2:45, took a 10 minute break to go to the john, and then resumed play at 2:55)." I suppose the 10 minute proximity rule I used is a bit arbitrary and perhaps not ideal (but what would make 5 minutes or 15 minutes more accurate?). Here's a question that might help resolve it: do B&M pros count it as one session or two sessions when they get up from a table, eat dinner, and then return to the same table (or another table of the same limit if they've been moved via must-move)? If the answer is one session, then we might be able to link online sessions as far apart as 90 minutes. Of course the ultimate would be to treat the year as a single, long session, but that is clearly a bad faith interpretation of the law.

[Nomad84]

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To file as a professional, the IRS believes (and has argued this position in court) that you must be a full-time gambler. If you are working at a job, and you also file a Schedule C as a professional gambler, there's a strong likelihood that the IRS will challenge you.

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I'm not very familiar with the process of paying taxes and the paperwork involved since my mom's CPA (and mine too, I guess) has done mine every year I've worked thus far. I don't plan to file as a professional this year, even though I have treated it like a business and I have not had another job for the majority of my playing. Even so, I plan to look into it for next year. How does it work if you are a "professional" for part of the year? I am still in school now and poker is my only job. This will remain the case until sometime after I graduate. If I get a job after I graduate in May, can I claim that I was a professional gambler for the first half of the year? Or will this no hold up given that I only started playing for money early this year? Until I get another job, poker will be my only source of income, although I could get by on my savings without earning any more money if I had to, so poker is not the only way I'm surviving. Even so, it improves my standard of living. I will discuss this with my CPA, but I seriously doubt he's very familiar with tax laws related to professional gamblers. There just aren't many pros in southern Oklahoma.

[tek]

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The key to audits is this.

Can you prove it?
do you have written documents to support your proof?

Make sure you keep a daily log. I'm sure there are a handfuld of twoplustwoers who could file as a business expense. make sure you keep your receipts!

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I would think that your log of cash-ins and cash-outs (plus the Dec 31 balance taken into account) would constitute a sufficient log. I know on Stars this is readily available. This would be equivilant to an inventory system of cash treatment.

Anyway, I was audited a few years back for my 1999 stock trading as reported on my Schedule C. I brought my log of stock purchases (the broker issued a 1099 for sales transactions but not purchases). They made copies and a few weeks later I received a letter stating that there woulkld ne no change in tax liability. Uncle was assessing me tax on the total sales volume until a cost basis could be proven (not just claimed).

Full-time stock trading using Schedule C was new so I hit the radar along with many others. The whole matter was no more scary than getting a drivers license renewed.

My deductions (such as technical analysis software, books, 1/3 of cable tv cost, etc) wasn't an issue.

Since using Sch C for gambling will be a new issue, there will be audits. You may not get one for 2-3 years, but it will happen. As long as you have had a logical and forthright way of accounting for your wins, losses and expenses you should not worry.

The agents want low hanging fruit. If you are above-board they will move on to get the evaders.

[oxymoron]

I'm wondering if it is easier to just keep an excel spreadsheet and update it every night when I am done playing rather than waiting until tax time (as I was planning on doing) to figure out how to determine what I owe with PT.

I'm really glad Ed brought this up because I was planning on paying taxes but had no idea how much is involved in the process. I thought it would be a simple matter of net profit/loss. I recently purchased a book (forget the name right now) about taxes and gambling and it is very helpful but obviously doesn't have information regarding PT.

Does anyone keep a daily log aside from PT? If so, do you just have an excel sheet with the date, how long you played, win/loss and that's it? Do I need to know how many hands played, which site, etc.? Since online is illegal should I keep in my log that I was playing online?

I just want to make sure I do everything right and my original plan of waiting till tax season to tackle this stuff sounds like a bad idea.

[cpk]

What happens if all you do is play live (not online), don't keep records, and have a big wad of cash at the end of the year? How do you go about reporting that to the IRS?

[toss]

Wow taxes are seriously a pain in the ass. I'd kill for a simple solution.

I didn't even know you had to pay quarterly taxes even if you're not filing as a professional.

About 9 months worth of my PT data crashed. Am I screwed?

[oxymoron]

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Wow taxes are seriously a pain in the ass. I'd kill for a simple solution.

I didn't even know you had to pay quarterly taxes even if you're not filing as a professional.

About 9 months worth of my PT data crashed. Am I screwed?

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I have been fearing that something could happen to my computer and I would also be screwed. I'm going to start backing up my important data (I should already do this anyways). I believe if you do not have anything to back up what you have done than you have to take a standard deduction? My brother's ex-wife used to work for a place where they get tipped. She didn't keep any records and was not going to pay taxes on it. She was caught on what the IRS made her pay was substantially higher than what she claims she actually was tipped. It pays to have accurate information.