Happy New Year!
Of course, that also means the 2011 tax year is behind us. Over the weekend I put together a post highlighting some of the most significant tax stories during the year impacting poker players in the U.S. Read it here.
If you are in the U.S. and have funds frozen on Full Tilt or AP/UB, you have until July 15, 2011 to file a legal claim in the U.S. government's civil forfeiture proceeding, according to the Poker Player's Alliance. I discuss this claim and tax-related issues in my latest post at Taxes in the Back.
Best of luck to all DC members who are participating in this year's Main Event.
Earlier today, I wrote about a Tax Court case in which the taxpayer likely received a more favorable result because he chose to report income earned from an illegal gambling business, instead of not disclosing it. We may see this same issue arise in connection with the recent lawsuit brought against Tobey Macguire and others to recover sums gambled away by jailed Ponzi schemer Brad Ruderman in an invitation-only underground poker game.
New York is known as a "bad" state for recreational gamblers. Yesterday, I wrote about a recent case that illustrates why:
http://taxdood.com/2011/06/20/lose-once-lose-twice-lose-thrice/
What are the tax consequences if Full Tilt or Absolute Poker announces they will *not* be returning U.S. customer funds? My latest post at Taxes in the Back:
http://taxdood.com/2011/05/27/frozen-online-poker-funds-and-the-casualty-loss/
The deafening silence has ended. Yesterday, the Department of Justice
issued a press release announcing an agreement entered into with
Absolute Poker to facilitate the return of funds to U.S. players. Read the actual agreement here. My latest post at Taxes in the Back analyzes the agreement, compares it to the agreements entered into by PokerStars and Full Tilt Poker, and discusses whether frozen funds may be considered taxable income.
Considering many players still have funds frozen on online sites, I wouldn't be surprised to see an increase in staking arrangements (sponsorships) for entry fees to this year's World Series of Poker. Caesar's is running the show and refuses to acknowledge any sort of player partnership, despite being required to do so. So, if you agree to give your backer 50% of the winnings, and you win $90,000, as far as Caesar's is concerned, the income is all yours.
This makes the accounting side of things somewhat messy. Back in February, I wrote about the tax implications for staking agreements at the WSOP as applied to U.S. residents. If, however, you are part of a staking arrangement that includes a U.S. nonresident, the tax implications are different (whether or not you are the nonresident), and even more complicated.
I break down these issues in my latest post at Taxes in the Back.
Taxpayer asks:
I initially deposited $100 into a PokerStars account sometime in 2007. I played poker on the site once a week or so, gradually building my bankroll each year. Throughout this time, I did not withdraw any funds from the account, and never reported any income from gambling winnings. On April 15, 2011, when the Department of Justice seized the PokerStars U.S. internet domain, my PokerStars account balance was $9,000. This past Tuesday, after learning that PokerStars was accepting withdrawal requests from U.S. players, I immediately requested withdrawal of all funds. As of this morning, the $9,000 is sitting in my U.S. bank account. I have $9,000 in taxable gambling winnings in 2011, right?
Answer: Wrong.
Head over to the blog for my explanation.
One of the many popular questions currently circulating the pokerverse: Is it possible the Department of Justice internet domain seizures of Full Tilt Poker, PokerStars, and Absolute Poker will result in IRS audits of poker players who were using these sites?
Yes, it is possible.
But to what extent? One method for predicting future actions is to examine past actions. In this case, I took a close look at those of the DOJ. More specifically, I recently compared the DOJ's pursuit of tax evaders in the UBS U.S. tax evasion controversy of 2009 with the DOJ's pursuit of the individuals charged with bank fraud and money laundering in the Poker Company case. Are there significant parallels between the two indicating that the DOJ and/or IRS will begin to send audit letters to online poker players? Check out my analysis:
First, I must say I feel for all of you. For the DOJ to simply shut down a billion dollar industry in the U.S. is over the top ridiculous. Their action greatly affects all of us. I'm confident, however, if we can pull through this blackout phase, then all will be forgotten once federal legislation is passed legalizing online poker in the U.S. I'm very confident it will happen. It just may take a while. For more on my take, head over to the blog:
http://taxdood.com/2011/04/16/department-of-justice-seizes-domains-of-major-online-poker-sites/
Second, for U.S. residents required to file a U.S. tax return, today, April 18, 2011 is the deadline to file. If for whatever reason you are unable to file your return by today, you can file for a 6 month extension here:
http://www.irs.gov/pub/irs-pdf/f4868.pdf
Keep in mind, however, that this 6 month extension does NOT provide an extension to pay any tax due to Uncle Sam for 2010. The penalty for failing to timely pay the tax due is .05% of the tax due per month past due (with no maximum). The penalty for failing to timely file your tax return is more severe: 5% of the tax due per month past due, up to a maximum of 25%. Don't forget that interest accrues on both the tax due and the penalties, if any.
If you are unable to pay the tax due by today, the IRS does offer various payment plans to address the outstanding balance. I'll put a post together summarizing these options in the near future.
Keep those heads up, folks.
--taxdood
