Pay on withdraws or earnings? - Page 4

broiler · #31 12-23-2006, 08:00 PM

Especially since Treasury Regulation 1.1-1b says that US and foreign source income are both taxable in the same manner for all US citizens and residents.

Even Wesley Snipes' accountant knew that foreign source income was taxable. [img]/images/graemlins/smile.gif[/img]

joeker · #32 12-24-2006, 01:32 PM

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On what basis do you make this wildly inaccurate statement?

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It's not inaccurate, it's common sense. Money in offshore ewallets and poker sites is not reported to the IRS like deposits to US banks are, nor is there a paper trail.

Sitting here telling to people to "report" monies not withdrawn to a US financial institution is impractical and stupid. There's no reason to do that.

Money that hits your US bank account is the income you should worry about.

Exceptions are any poker sites that would report your income and send you a 1099, but I've never heard of a site doing that.

Russ Fox · #33 12-24-2006, 01:48 PM

You are sadly mistaken. The law is quite clear: when you have "constructive receipt" of gambling winnings, it's taxable income. That's what courts have held.

You're correct, of course, that there isn't *much* of a paper trail for online gambling. However, should you be audited, you will find yourself paying penalties and interest because of your erroneous beliefs. And if the government believes that your conduct rises to the level of either criminal tax evasion or tax fraud, you could find yourself in prison.

In summary, your "common sense" beliefs just aren't correct. The U.S. Tax Code isn't fair. But the old adage "ignorance of the law is no excuse" still holds true.

-- Russ Fox (EA)

joeker · #34 12-24-2006, 04:32 PM

And tell me exactly how money on a poker site counts as income before you withdraw it, or how if you were audited the IRS would ever get any evidence of such money?

Under your scenario any money you have online at various poker sites at the end of the fiscal year should be reported as income to the IRS

That's just ridiculous.

[ QUOTE ]
You are sadly mistaken. The law is quite clear: when you have "constructive receipt" of gambling winnings, it's taxable income. That's what courts have held.

You're correct, of course, that there isn't *much* of a paper trail for online gambling. However, should you be audited, you will find yourself paying penalties and interest because of your erroneous beliefs. And if the government believes that your conduct rises to the level of either criminal tax evasion or tax fraud, you could find yourself in prison.

In summary, your "common sense" beliefs just aren't correct. The U.S. Tax Code isn't fair. But the old adage "ignorance of the law is no excuse" still holds true.

-- Russ Fox (EA)

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wpr101 · #35 12-24-2006, 04:55 PM

[ QUOTE ]
[ QUOTE ]

On what basis do you make this wildly inaccurate statement?

[/ QUOTE ]

It's not inaccurate, it's common sense. Money in offshore ewallets and poker sites is not reported to the IRS like deposits to US banks are, nor is there a paper trail.

Sitting here telling to people to "report" monies not withdrawn to a US financial institution is impractical and stupid. There's no reason to do that.

Money that hits your US bank account is the income you should worry about.

Exceptions are any poker sites that would report your income and send you a 1099, but I've never heard of a site doing that.

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What if at the end of 2006 your online roll is like 10k. Then in January you lose most of your bankroll say down to 3.5k. Would you still have to pay taxes on that 10k? That just seems insane.

Also, what about the fact that your online roll is your working roll. Like how I gave the example if you have money in a stock and it goes up you don't pay taxes on it until you sell (i.e. cashout in this case).

broiler · #36 12-24-2006, 05:35 PM

The earnings in your poker account count as income because it is held in an account in which you have control. That is the point of constructive receipt, so that people don't hold checks, cash, etc. in order to defer income outside of the period in which it was earned. You are deemed to have control here because there are no substantial restrictions on you making a withdrawal of your money.

The IRS would pick up on this income when they see that you have withdrawals or gambling income reported on your return. They would ask for your documentation to prove that there was not additional income that you have failed to report.

If you don't have sufficient documentation of your gambling activity, then the IRS gets to estimate. Once you have failed to produce sufficient documentation, the burden of proof is on you to prove that the number that the IRS "calculates" is incorrect.

The money itself that you hold online does not need to be reported as income, but the winning and losing sessions that constitute your earnings for each year must be reported.

StellarWind · #37 12-24-2006, 05:40 PM

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It's not inaccurate, it's common sense. Money in offshore ewallets and poker sites is not reported to the IRS like deposits to US banks are, nor is there a paper trail.

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A lot of people assuming this may be very disappointed.

We all want online poker to be legalized in the U.S. Do you really think Congress would ever do that and not mandate tax reporting by the sites? Don't be surprised when all the offshore sites hand over ten years of back records to the I.R.S. They will do it in a heartbeat in exchange for a U.S. license.

broiler · #38 12-24-2006, 05:56 PM

Your taxable income from gambling is based upon you winning and losing sessions. The balance in your account is irrelevant, except for the fact that it does reflect net activity at that site.

Gambling and investing are two different activities with two different sets of rules. A stock is a capital asset in an activity over which you have no control over the increase or decrease in value. Gambling deals in cash with many seperate transactions (sessions) which you have control over at all times.

Your working roll does not have any impact on your tax situation. The only thing that matters is your winning and losing sessions.

broiler · #39 12-24-2006, 06:01 PM

A good example to prove your point is Indian casinos. They might be a sovereign nation and possibly not subject to the reporting requirements, but every casino compact includes a requirement that reporting will be followed. They have no problem agreeing to report in order to get all of the necessary approvals from Federal and State governments to operate a casino.

StellarWind · #40 12-24-2006, 06:02 PM

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Shouldn't a site not paying you, be handled the same as a theft? (itemized deduction, form 4684, etc)

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I've wondered about this. I've always assumed that winnings should only count if there is an actual opportunity to withdraw that money.

In other words if you win money and choose to leave it at the site that is taxable income even if the site happens to go bankrupt at a later time. But if there was never any hope of getting paid then you didn't really win anything.

Same situation as winning money in a B&M game only to discover your chips are no good because all the money snuck out the back door before the first card was dealt.

I'm not sure that I am right about any of this. Probably this is an "it depends" situation where a judge would have to rule on the specific facts.

Leaving your money at a reputable poker site for years and not even trying to withdraw it? Then telling a judge that you didn't recognize it as income because "they might not pay me". Good luck with that [img]/images/graemlins/blush.gif[/img].