Will my Full Tilt Poker money be taxed?

Posted by Steve Ruddock on Aug 02, 2012 Posted in Legal Poker News, Online Poker News | No Comments »

We’re two days after what some in the poker world are calling Super Tuesday, but there are still plenty of remaining questions, and after the initial euphoria surrounding Tuesday’s good news settled-in one of the questions that people are concerned about is if the government will tax their Full Tilt Poker accounts.

While I am far from a tax expert, I have been involved in several discussions with actual CPA’s on this matter and will try to relay this information to the best of my ability. The general consensus is that it seems as though the government will take the easiest and most effective line when it comes to making sure the IRS gets their due share of the $150 million payout.

Will the IRS Bother?

One debate is if the IRS will even bother getting involved, and the answer is almost assuredly. It’s highly probable that the DOJ will be sharing information with the IRS as people claim their Full Tilt Poker funds. This is not uncommon according to gambling tax expert Ann-Margaret Johnson “The IRS could know about it if they want to know about it. It is not uncommon for the IRS and DOJ to share information.”

And as one CPA stated on an Internet poker forum, “the 1099 process is highly automated, and the 1099 issued… will easily fit into the existing IRS machinery”. So what is a 1099 form?

1099s

According to Wikipedia: “Form 1099 series is used to report various types of income other than wages, salaries, and tips (for which Form W-2 is used instead)… Each payer must complete a Form 1099 for each covered transaction. Four copies are made: one for the payer, one for the payee, one for the IRS, and one for the State Tax Department, if required.”

What will then occur is that these 1099’s will be entered into the IRS computer system and people who received Full Tilt Poker payouts from the DOJ that do not list these amounts on their 2012 taxes will draw a red flag; as will people claiming large gambling deductions to offset the amount of their 1099s.

1099s are used for amounts of over $600, so for the vast majority of Full Tilt Poker players 1099s will not be issued.

How it Will Likely go Down

The most likely scenario will see the government (the DOJ) send Full Tilt players cashing-out $600 or more a 1099 tax form. Even if you are down money on Full Tilt Poker you will still need to fill out the 1099, and then you can declare your losses when you prepare your 2012 taxes.

Assuming the government sends out 1099 forms (these are not the same as W-2g forms you receive when you win $5,000+ in a casino), non-professional gamblers the 1099 income will get reported on line 21 (other income) of your form 1040, and you can then claim any losses on schedule A in the miscellaneous deduction. Professional gamblers prepare a Schedule C, and will basically just be business as usual.

Unfortunately, if you cannot verify you have lost money (by showing the deposit amount from your bank statement or credit card) the government will assume your entire account balance from Full Tilt Poker was income –the burden of proof is solely on your shoulders when it comes to the paper trail for your deductions.

What about Players Who Have Not Been Paying Taxes?

For some professional poker players, the online poker sites have been used as something as a bank for their funds, and it goes without saying that some of these individuals have likely been avoiding paying taxes on these balances. For these players the remission process could be so scary that they simply don’t bother and forfeit their funds.

The DOJ has had access to Full Tilt Poker for a while now, and it’s likely that players with large balances have already drawn the attention from the IRS (it’s almost a certainty that the DOJ and IRS have looked into the accounts of Full Tilt owners like Howard Lederer, Chris Ferguson, and Phil Ivey).

Some players have likely been skirting taxes for several years, and after filling out a 1099 form to receive their funds these individuals could very well find themselves facing a full audit.

How Much Could I Be Taxed?

This all depends on the amount of money you are cashing out of course, but for professional players it could be extremely high. Some winning players could very well find themselves in the top tax bracket of 35% (this bracket only applies to income over $250k, all income up to this point is taxed at the lower rates), along with having to pay the Self-Employment Tax –Social Security and MediCare– which is roughly 12%, and any state taxes that might apply. In theory players may be losing some 50% of their Full Tilt Poker accounts to taxes.

 

 

 

 

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