Posts Tagged ‘Poker Player’s Alliance’

Full Tilt Money Soon, with a Tax Bill?

January 22nd, 2014 No comments

According to the Poker Player’s Alliance, the Department of Justice has approved the release of $82 million in funds to approximately 30,000 U.S. players who submitted a petition for remission for their Full Tilt Poker funds seized on April 15, 2011. Nearly three years after seizure, the funds (or a portion of) may be finally returned.

Do players have to pay federal and state taxes on the funds received? It depends.

Consider this scenario I described a couple of years ago:

Let’s say 2010 was the first year I played on Full Tilt, initially depositing $100. During the year, I played four “sessions.” I had two winning sessions of $25 and $75, and two losing sessions of $30 and $60. Throughout the year, I successfully withdrew $50 from my Full Tilt account. On my 2010 tax return, I claimed $100 in gambling winnings and $90 in gambling losses. Note that the $50 withdrawal has no impact on my tax consequences for the 2010 year.

At the beginning of 2011, my Full Tilt balance was $60 (initial deposit of $100, less $50 withdrawal, plus net winnings of $10). Before Black Friday, I played another four sessions. I had two winning sessions of $60 and $70, and two losing sessions of $30 and $50. I also withdrew another $50 before Black Friday, so my frozen account balance on Black Friday was $60 ($60 at the beginning of the year, less $50 withdrawal, plus $50 net winnings).

For the 2011 tax year, are any of my gambling winnings or losses reportable? As I said above, any gambling winnings that were successfully withdrawn would be considered taxable income because they were actually received. In my situation, however, that wasn’t the case. Why?

The $50 withdrawal in 2011 was not attributable to the 2011 gambling activity, but to the $100 deposit I made in 2010. To arrive at this result, I applied an accounting method called “First-in first-out” (FIFO), which is often used to determine the cost basis of securities sold. Before making the 2011 withdrawal, I had recovered only $50 of the $100 initial deposit made in 2010. Since the 2011 withdrawal was less than or equal to the remaining portion of the 2010 deposit, none of the $50 withdrawn in 2011 was attributable to the gambling activity in 2011. Therefore, due to a lack of constructive receipt of the 2011 gambling winnings, I would not report any gambling winnings or losses in 2011 attributable to Full Tilt. In addition, I would not report the $60 frozen balance as a loss because it was not considered permanent as of the close of the 2011 tax year.

I must note that there is no direct legal precedent that explicitly says to use FIFO when ascertaining the tax consequences in the context of Black Friday. Considering FIFO is sometimes used for computing the gain on securities purchased at different times, an activity arguably similar to gambling activity, it seems like a reasonable method to me. Some may say there’s no difference between gambling and investing in securities. In both cases, one deposits a specified sum and at some future time either cashes out or loses the entire investment once the sum becomes worthless.

Now suppose I receive from the claims administrator, Garden City Group, only $50 of the $60 that was in my Full Tilt account on April 14, 2011. In 2011, I didn’t claim any taxable gambling winnings or losses on Full Tilt Poker because the company didn’t have the money to pay the balances in player’s accounts. During the year, I had winning sessions totaling $130, and losing sessions totaling $80, for a net of $50.

$10 of the $50 received from the claims administrator should be attributed to the initial 2011 balance in the account; taxes were paid on those winnings in 2010. The remaining $40 is attributable to the $50 “net” winnings from the year, and taxable in 2014.

What about the remaining $10 I am never going to receive? Here are two options to consider for the 2014 tax year:

  1. Reduce the gross gambling winnings from $130 to $120, resulting in net gambling winnings of $40 for 2011, instead of the $50 on the site. The theory is that since I never constructively (or actually) received the $10, then it was never income to me.
  2. Claim the $50 net winnings, but also claim the $10 not received as a casualty loss.

For recreational gamblers, there is a $100 deductible for casualty losses, and a casualty loss is deductible only to the extent it exceeds 10% of the taxpayer’s adjusted gross income.

So I couldn’t claim my $10 as a casualty loss since it is less than the $100 deductible.

Professional gamblers, however, may be able to claim a casualty loss on Schedule C, and avoid the casualty loss limitations that recreational gamblers face. If I were a professional, then I could possibly claim the full $10 as a casualty loss.

Garden City Group is expected to release additional details here in less than twenty-four hours, at which point we can further assess the implications.

One question I’m wondering above all: Will Garden City Group issue a 1099-MISC or another tax form in connection with the return of funds to players? If so, I hope GCG does not simply report on the form the total amount received.

As seen in the scenario above, the amount received could include some combination of both winnings and deposits. Of course, only the former is taxable income.

Disclaimer: This blog discusses tax concepts generally, and does not address anyone’s specific tax situation. Consult a tax professional to discuss particular facts and circumstances.

Filing A Claim For Frozen Online Poker Funds

July 13th, 2011 1 comment

The Poker Player’s Alliance (PPA) is an American nonprofit organization “to speak with one voice to promote the game and and protect the right to play poker in all its forms.” Among recent PPA efforts includes coverage of the Department of Justice’s seizure of three offshore online casinos back in April and the freezing of funds held in player’s accounts on the sites.

The PPA has a legal team, and recently posted a legal guide regarding players’ funds entitled “Legal Rights of Players with Unpaid Account Balances: A PPA Information Guide.” On page 5, the PPA states:

Third-party claims filed in civil forfeiture proceedings must be filed within 60 days of the Government’s first publication of notice of intent to seek forfeiture. With respect to the April 15th cases, the government’s notice was first published on May 16, 2011, and so the deadline to file claims is July 15, 2011.

I am not an expert of civil forfeiture proceedings. I cannot comment on likelihood of success, and am not recommending whether or not a poker player with frozen funds should or should not file a claim. It is clear that what’s best for one player may very well be different for another. As stated several times in the PPA guide, one should consult an attorney to consider particular facts and circumstances. I. Nelson Rose, professor of gaming law, also recommends such.

Both the PPA guide and Mr. Rose mention possible tax-related issues that may arise from filing a claim. I’ll note that the Department of Justice very likely already has access to names of poker players who frequented the seized sites. Furthermore, the IRS is already involved to some extent with the DOJ’s crackdown on offshore online gambling.

That said, a poker player who files a legal claim for seized funds may stick out to authorities. Social security numbers, home addresses, etc., would suddenly become far more easily accessible to the DOJ, IRS, and state tax agencies. In addition, according to the PPA legal guide, an individual who files such claim is subject to questioning under oath “very shortly” after the claim is filed. Answers to these questions could be held against the individual in future proceedings.

The bottom line here: Tread carefully.

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