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Old 05-09-2015, 06:08 PM   #1
smartDFS
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Taxes on profits from buying WSOP shares

1. Profited from % shares in a single WSOP horse across multiple events
2. He issued 1099-MISC accurately reflecting distribution of profits
3. I was advised IRS requires you report this under Schedule C business income, otherwise you get auto-flagged, so I filed it under Schedule C
4. It seems weird to me that this must be considered business income with 15% self-employment tax: I have a full-time job and spent zero time/effort on this besides texting this person saying "Can I buy X% in these events?"
5. I'd like to amend and refile it as gambling or hobby income.

A) What sort of explanation/documentation would best support my case?
B) More likely to be considered gambling OR hobby income?
C) Likelihood IRS accepts this amendment?
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Old 05-10-2015, 03:35 AM   #2
Lego05
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Re: Taxes on profits from buying WSOP shares

I don't know who advised you. If whoever that was really advised you that the IRS required that to be reported on Schedule C, then whomever advised you was just completely wrong.

Based solely on what is in your post, I would have included the 1099-MISC amount on the Other Income line on your 1040 as gambling winnings. I did this exact thing for 2014 for my taxes and attached a one paragraph written statement informing the IRS that the amounts reported on any 1099-MISC forms submitted to me were included as gambling winnings.

At this point I suppose you can try just filing an amended return and see what happens. If so, I think, I would just include a statement explaining exactly what happened. The other option is to hire a tax professional to straighten it out. I can not give you estimates of percentage chances of what may happen.

ALSO, ANYTHING ABOVE IS ONLY AS GOOD AS THE INFORMATION YOU PROVIDED.

ALSO, THIS IS NEITHER LEGAL NOR ACCOUNTING ADVICE AND SHOULD NOT BE CONSTRUED AS SUCH
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Old 05-10-2015, 08:40 AM   #3
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Re: Taxes on profits from buying WSOP shares

Quote:
Originally Posted by smartDFS View Post
3. I was advised IRS requires you report this under Schedule C business income, otherwise you get auto-flagged, so I filed it under Schedule C
...
B) More likely to be considered gambling OR hobby income?
Think of it like this. The proper way for the player to handle the tax assignment to his backers would have been to submit a Form 5754 to the casino. The casino then issues W-2G to the player and each backer, splitting the tax liability as GAMBLING WINNINGS. But the WSOP doesn't accept Form 5754 [incorrectly], hence the player properly distributed the tax liability with Form 1099-MISC. But this doesn't change the nature of the tax event from gambling winnings to business income.

So the amount on the 1099-Misc would appropriately be reported by you as Misc Income on your 1040, along with the rest of your poker winning sessions.
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Old 05-11-2015, 11:21 PM   #4
smartDFS
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Re: Taxes on profits from buying WSOP shares

Very helpful, thanks!
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Old 05-17-2015, 12:28 AM   #5
The4thFilm
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Re: Taxes on profits from buying WSOP shares

Quote:
Originally Posted by PokerXanadu View Post
Think of it like this. The proper way for the player to handle the tax assignment to his backers would have been to submit a Form 5754 to the casino. The casino then issues W-2G to the player and each backer, splitting the tax liability as GAMBLING WINNINGS. But the WSOP doesn't accept Form 5754 [incorrectly], hence the player properly distributed the tax liability with Form 1099-MISC. But this doesn't change the nature of the tax event from gambling winnings to business income.

So the amount on the 1099-Misc would appropriately be reported by you as Misc Income on your 1040, along with the rest of your poker winning sessions.
Does anything change if you are a professional gambler?
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Old 05-17-2015, 07:26 AM   #6
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Re: Taxes on profits from buying WSOP shares

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Originally Posted by The4thFilm View Post
Does anything change if you are a professional gambler?
Yes. If you get a 1099-MISC from a casino, report the income as part of your Schedule C. If you get a W-2G from a casino, report the income as part of your Schedule C, but you will have to include an explanation with your tax return that you are including the W-2G on your Schedule C instead of as Misc. Income (gambling winnings) on your Form 1040 because you are a professional gambler. If you have backers, issue them 1099-MISCs for their portions, and report those amounts as an expense on your Schedule C. If you are a backer, report your portions as income on your Schedule C in accordance with the 1099-MISCs you receive from your horses.

See the US Taxes Sticky for more info.
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Old 05-18-2015, 01:32 PM   #7
AHanrath
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Re: Taxes on profits from buying WSOP shares

I'm selling shares to my WSOP package and just had this question.

Situation:
Player is a US Citizen subject to taxes on $5000+ scores
Backer is UK Citizen who would be exempt from withholding on his own scores

Assuming that UK Backer has a TIN, could US player transfer tax liability (through 5754 and then W2-G?) to UK Backer and thus no taxes would be withheld from the backer / US Citizen would then only pay taxes on his share of the winnings?
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Old 05-20-2015, 06:40 PM   #8
Lego05
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Re: Taxes on profits from buying WSOP shares

Quote:
Originally Posted by AHanrath View Post
I'm selling shares to my WSOP package and just had this question.

Situation:
Player is a US Citizen subject to taxes on $5000+ scores
Backer is UK Citizen who would be exempt from withholding on his own scores

Assuming that UK Backer has a TIN, could US player transfer tax liability (through 5754 and then W2-G?) to UK Backer and thus no taxes would be withheld from the backer / US Citizen would then only pay taxes on his share of the winnings?
First, US citizen is subject to taxes on any winnings (not limited to $5,000+ winnings). "Taxes" and "withholding" are not the same thing.

Second, I believe that what you say is how it is supposed to work. But Caesars won't accept Form 5754. So instead you will have to send a Form 1099-MISC to the backer (and IRS) reporting the backer's share to "transfer" the tax liability to him.
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Old 05-20-2015, 07:56 PM   #9
PokerXanadu
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Re: Taxes on profits from buying WSOP shares

Quote:
Originally Posted by AHanrath View Post
I'm selling shares to my WSOP package and just had this question.

Situation:
Player is a US Citizen subject to taxes on $5000+ scores
Backer is UK Citizen who would be exempt from withholding on his own scores

Assuming that UK Backer has a TIN, could US player transfer tax liability (through 5754 and then W2-G?) to UK Backer and thus no taxes would be withheld from the backer / US Citizen would then only pay taxes on his share of the winnings?
If you don't already know the answer to your question between the earlier posts here and the information in the US Taxes sticky, then you probably should get tax advices from a tax pro.
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Old 05-22-2015, 11:46 AM   #10
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Re: Taxes on profits from buying WSOP shares

Quote:
Originally Posted by Lego05 View Post
First, US citizen is subject to taxes on any winnings (not limited to $5,000+ winnings). "Taxes" and "withholding" are not the same thing.

Second, I believe that what you say is how it is supposed to work. But Caesars won't accept Form 5754. So instead you will have to send a Form 1099-MISC to the backer (and IRS) reporting the backer's share to "transfer" the tax liability to him.
You normally do not give a 1099 out to a non-U.S. entity. You would have to act as the withholding agent and send the foreign backer's taxes to the Treasury. They would then be issued a 1042-S, which shows the amount transferred to the backer, as well as the amount sent into the Treasury for withholding.
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Old 05-22-2015, 01:05 PM   #11
Gzesh
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Re: Taxes on profits from buying WSOP shares

Is there any source or cite for the position that under US law a poker backer, who never touches a card or makes a bet/wager, is to be deemed a "gambler".


While such a position makes some sense if someone is betting, perhaps with a Nevada sportsbook, on whether player X will win a tournament, it seems the provision of a stake is not really gambling on the outcome as much as investing in human capital.

The player who is staked is engaged in playing poker, sure.

I have read Brad Polizzano's analysis of the tax implications of staking,

https://pokerfuse.com/features/in-de...king-activity/ , but my question is whether such analysis assumes away the issue.

However, the backer is either a lender or investor in the player; do lenders/investors in a casino receive gambling income if the casino has a net win ? (A distinction should be drawn as to poker tournament fees earned by an event provider, the analogy to be drawn is to casino win/loss which is outcome determined by gambling activity.)

I believe the issue of how to treat staking/poker generally did arise in the context of whether poker is a skill game, maybe in California, but do not recall if it was in the context of a tax dispute ....

Does Russ Fox, or Brad Polizzano have something to educate me on this ? (or anyone else have a tax dispute authority on this point ? (If I dig one up I will post it.)
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Old 05-22-2015, 06:45 PM   #12
Russ Fox
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Re: Taxes on profits from buying WSOP shares

Quote:
Originally Posted by Gzesh View Post
Is there any source or cite for the position that under US law a poker backer, who never touches a card or makes a bet/wager, is to be deemed a "gambler".


While such a position makes some sense if someone is betting, perhaps with a Nevada sportsbook, on whether player X will win a tournament, it seems the provision of a stake is not really gambling on the outcome as much as investing in human capital.

The player who is staked is engaged in playing poker, sure.

I have read Brad Polizzano's analysis of the tax implications of staking,

https://pokerfuse.com/features/in-de...king-activity/ , but my question is whether such analysis assumes away the issue.

However, the backer is either a lender or investor in the player; do lenders/investors in a casino receive gambling income if the casino has a net win ? (A distinction should be drawn as to poker tournament fees earned by an event provider, the analogy to be drawn is to casino win/loss which is outcome determined by gambling activity.)

I believe the issue of how to treat staking/poker generally did arise in the context of whether poker is a skill game, maybe in California, but do not recall if it was in the context of a tax dispute ....

Does Russ Fox, or Brad Polizzano have something to educate me on this ? (or anyone else have a tax dispute authority on this point ? (If I dig one up I will post it.)
In tax, there is a rule that applies to this situation: You can never change the type of income by moving it, running it through a business entity, etc. There are numerous court cases where individuals have attempted to do this; all have failed.

Certain types of income are treated differently in the Tax Code. One such type of income is "wagering income" (what we think of as gambling income). You cannot change wagering (gambling) income by moving it, running it through a business entity, etc. If it begins as gambling income, it will always remain as gambling income.

Let's say you play a poker tournament and cash in that tournament. That is gambling income. If you are backed in that tournament, your staker's share of your income is also gambling income. It doesn't matter whether he actually did the gambling or not; under the Tax Code it remains gambling income. Similarly, if you don't cash your staker's losses are gambling losses. (This, rather than gambling income, is far more important to the IRS. Section 165(d) of the Tax Code limits gambling losses to the amount of gambling wins and applies to both amateur and professional gamblers.)

The skill game issue is irrelevant for taxes. Wagering (gambling) occurs when there is a prize, chance, and a consideration. For chance, this has been defined by the courts as any element of chance. Poker is considered gambling for tax purposes. (There are a few Tax Court cases on this. See, for example, Tschetschot v Commissioner, T.C. Memo 2007-38.)

So is the backer a gambler? I don't know, but I do know that if he earns any income from his backing he has gambling income and if he has any losses he has gambling losses.

-- Russ Fox
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Old 05-24-2015, 04:11 PM   #13
Gzesh
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Re: Taxes on profits from buying WSOP shares

Quote:
Originally Posted by Russ Fox View Post
In tax, there is a rule that applies to this situation: You can never change the type of income by moving it, running it through a business entity, etc. There are numerous court cases where individuals have attempted to do this; all have failed.

Certain types of income are treated differently in the Tax Code. One such type of income is "wagering income" (what we think of as gambling income). You cannot change wagering (gambling) income by moving it, running it through a business entity, etc. If it begins as gambling income, it will always remain as gambling income.

Let's say you play a poker tournament and cash in that tournament. That is gambling income. If you are backed in that tournament, your staker's share of your income is also gambling income. It doesn't matter whether he actually did the gambling or not; under the Tax Code it remains gambling income. Similarly, if you don't cash your staker's losses are gambling losses. (This, rather than gambling income, is far more important to the IRS. Section 165(d) of the Tax Code limits gambling losses to the amount of gambling wins and applies to both amateur and professional gamblers.)

The skill game issue is irrelevant for taxes. Wagering (gambling) occurs when there is a prize, chance, and a consideration. For chance, this has been defined by the courts as any element of chance. Poker is considered gambling for tax purposes. (There are a few Tax Court cases on this. See, for example, Tschetschot v Commissioner, T.C. Memo 2007-38.)

So is the backer a gambler? I don't know, but I do know that if he earns any income from his backing he has gambling income and if he has any losses he has gambling losses.

-- Russ Fox
Thanks, Russ.

(Tschetschot was the tax court case name I could not recall.)
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Old 03-23-2017, 10:04 PM   #14
Andy Dufrense
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Re: Taxes on profits from buying WSOP shares

This is a extremely helpful thread. This will be my first yr selling shares for the wsop so I am trying to do my due diligence.
I see these are 2 years old. Does anyone know of wsop still does not accept form 5754?
Do other poker tours around the circuit accept form 5754? Thanks in advance.
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Old 05-11-2017, 01:09 PM   #15
zzimbile
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Re: Taxes on profits from buying WSOP shares

Quote:
Originally Posted by Andy Dufrense View Post
This is a extremely helpful thread. This will be my first yr selling shares for the wsop so I am trying to do my due diligence.
I see these are 2 years old. Does anyone know of wsop still does not accept form 5754?
Do other poker tours around the circuit accept form 5754? Thanks in advance.
WSOP still does not accept Form 5754, but I have heard other casinos on/off the strip have accepted it
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