IRS Withholding on US Tournament Winnings Starts in 2008

[DeadMoneyDad]

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John Pappas replied to this issue as follows:

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I would also point out that this ruling, as I understand it, is based on the IRS opinion that poker is not a game of skill and should be taxed at the same rate of “wagering pools” like lotteries.

I think this is an issue that effects all poker players, not just high stakes pros. The PPA will dedicate the appropriate amount of time on this effort and will be sure that it does not slow us down on other fronts ...

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It sound appropriate to me. If we're going to get the tax justice we want, long-term, we should start by fighting it being designated as a wagering pool.

Here's a post from www.taxabletalk.com/posts/1188594494.shtml



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This is a different issue from the one originally suggested, but still a tricky one to argue. You can make the skills game arguement to make your point about that point, but you loose over all.

The arguement in the past and the IRS battle has been how to get as much gambling income reported on W-2Gs. In the past "table games" have had an exemption based on the arguement that the casino didn't know how much a person cashing out really had at risk. You could cash out for $7,000, and no one knew if you started with $100 or $25,000 in chips.

But in a poker Tourney your amount at risk is known, it gets a little tricky for re-buy events a potential arguement, but in general the case law and precedence of previous decisions you end up at the same point -- withholding.

I'm sure poker was over looked for years because it is commonly thought of as a table game as it's played on a table, and for years the majority of poker was ring games. With the explosion of the popularity of tourney poker someone at the IRS figured they had to get their hands on Jamie Gold's winnings.

Sure all the IRS needs to do is contact Cynthia McGreevy to get her boss Blaise G. Dusenberry to do a little more homework and cite the correct laws statues or previous decisions.

Because this is a technical issue, IMO, we poker players and the PPA need to make sure we make it clear we have no problem paying a fair tax on winnings. Using this issue to further the "fairness" of only paying taxes on net winnings vs. gross winnings gives it a hook that might resonate enough to justify significant expense.

In the end with-holdings from tourney wins are here to stay, the questions is how do we use that for our best purposes in the future? Getting the IRS to cite the proper laws is important. But in the long run actually having more people experience paying taxes on phantom income {the win one tourney loose two and pay taxes on a loss situation} increaes our chances for the major fight win.

D$D

[1p0kerboy]

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What am I missing? Is this even an issue? If you go onto "Who Wants to be a Millionaire" and win $250,000, I can assure you you do not pocket the whole $250,000. Uncle gets his take right up front.

A lot of folks that are not on a regular salary get withholding taken out.


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The problem is that for professional poker player, when they hit a 'big score like $250,000' it's not all winnings.

Most of it has to cover the entries of tournaments where they didn't win anything. But if the IRS is keeping a big chunk of the bankroll, it's difficult to do so.

[oldbookguy]

Posted in the "Was This To Be Expected" Thread as well with additions highlighted.


<Addition>
This is also in keeping with the online method used by all the ‘skill’ gaming sites.

On those, you deposit and with draw, redeposit and so on. If you hit big and the withdraw reached $600.00 BEFORE you can withdraw more, you must fill out the W2G form and taxes are withheld then on amounts above the $600.00 level.
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I have watched and read posts on this subject for sometime now.

The reality for business is the same for pro poker players.

Small business pays taxes by the quarter. If, when I was running mine I had a great quarter, I paid taxes on it. Later, if the next two were bad, I paid less.
At the year-end, taxes are then refigured on the total year, if I paid too much for that great quarter, I got it back.

Same in poker. Taxes are figured and paid per tournament / quarter.
At the year-end they are recalculated for the ENTIRE year, any over payment is refunded.

As a note, if a business ends up in the negative that is NOT carried over to the next year you start all over again at zero.

The ONLY difference is say I had OTHER income from stocks / bonds / rentals or whatever. IF my business lost money I could apply that loss to my other income.

With Poker / Gambling you cannot. Fair, no; the small business model is used by many to ‘lose’ some money to offset other income.

With that in mind, let me tell you, there are many ways to ‘lose’ money while actually making money.

obg

[Tuff_Fish]

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But if the IRS is keeping a big chunk of the bankroll, it's difficult to do so.

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I was under the impression they kept 20%. Does the amount vary? Anybody know?

Tuff

[yahboohoo]

The PPA needs to pick its fights carefully. If they spread themselves out on too many issues, they won't be effective. And if the PPA is to survive (so that it can fight these kinds of tax issues), the first thing it needs to accomplish is the legalization of online poker. Nothing is more important, and anything else is just a distraction.

[TripleNet]

Does anybody know how this would effect satellites?

Lets say you enter a $250 super satellite to the WSOP main event and win a $10,000 seat. Is there going to be withholding from that "tournament" to the tune of $2,500 leaving you only $7500 or enter the main event?

[DeadMoneyDad]

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Does anybody know how this would effect satellites?

Lets say you enter a $250 super satellite to the WSOP main event and win a $10,000 seat. Is there going to be withholding from that "tournament" to the tune of $2,500 leaving you only $7500 or enter the main event?

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Best question I've seen yet!

D$D

[oldbookguy]

My guess, since that would be a 'prize' not unlike winning a car worth 10K, you would receive a 1099 form for 10K.


obg

[DeadMoneyDad]

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My guess, since that would be a 'prize' not unlike winning a car worth 10K, you would receive a 1099 form for 10K.


obg

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But unless the satellite was run by the main event sponsor, or the main event sponsor allowed 3rd party direct registration the prize is paid in cash.


D$D

[TheEngineer]

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The PPA needs to pick its fights carefully. If they spread themselves out on too many issues, they won't be effective. And if the PPA is to survive (so that it can fight these kinds of tax issues), the first thing it needs to accomplish is the legalization of online poker. Nothing is more important, and anything else is just a distraction.

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Part of that is establishing that poker is a game of skill, not luck. I think we have a need to be here getting poker seen as skillful by the IRS. If we win this argument, we'll be far better off.