Can somebody explain the tax implications of a staking transaction.

I see in all of the staking listings that if there is a $5k win a 1099 will be issued. This should transfer the tax liability from the player to the investor. Does this hold up in an audit?

My main question is how does an investor prove to IRS that he invested in player A. i.e. he invests $1k(assume no MU) 10 times 50% of 2k tourney, and player A bricks 9 times , but wins the 10th time for $50k ($25k investor portion). How does the investor prove to the IRS that his net is $15k, not $25k.

From Player A perspective, is he writing off only the portion of his buyins or is he writing off full buyin amt? In above example he does 1099 to transfer tax liability for tourney 10. In reality his total net is 15k. But if he writes off full buyin, not just 50%, he lowers to 5k.

Similar swap question. 5 friends each swamp 10% in 1k tourney. Friends a,b,c,d brick. Player e wins 100k. He gives abcd $10k each. He has w2g for 100k. How does he transfer 40k tax liability?

Have these issues come up in anybodys taxes?

1) No matter what you 'invest' or 'return' from a staking site, you will have proof as the 'investor' of the transaction. Somewhere on a bank or credit card statement you will have the records.

The real question is did you 'gamble' or 'invest' per the IRS? This could change where this goes on your tax return. That is a question for an accountant/tax attorney and could potentially change each tax year based on current law.

2) As the tournament player who issued the 1099 ... yes, that is a direct write off. But again where he gets to write it off is in question and WILL change between amateurs and Pros. Usually (and certainly with a staking site) there would've been a contract between player and 'staker' (text, paper, email) showing the agreement and that's what the player will have to back up his tax return.

IMO the best arrangement for an amateur is to receive a higher percentage of the payout that would cover the taxes on the whole amount. As long as the others in the deal get less than $10K ($20K if the player is married) then the cash can be considered a gift and wash through while still being 'fully' taxed. Of course the IRS can (and will) step in and potential test this if it comes up in an audit.

3) Swapping is basically the same idea .. get a 'contract' between the players somehow (text, email) and use that as the vehicle to handle the loss or gain. Again .. I am anxious to see if the IRS deems this a gambling gain/loss or an investment gain/loss.

On a side note ... some casinos will divide up the winnings based on your staking agreement right at the cage. I would think that all the parties involved would need to be there at one time, but you need to check with the casino. This would be the best way to avoid all 'issues' related to staking, swapping and cross-booking. GL

Is there a better forum to post this. If so, can moderator move.

Read the US Income Taxes sticky in the Poker Legislation forum, and the related linked threads there.