"Constructively received" different for FT monies?

[Lottery Larry]

From Russ Fox's recent post on his site

"That income that wasn’t constructively received in 2011 will likely be constructively received in 2012. That means you will need to report your Full Tilt income on your 2012 tax returns. You may need to adjust your fourth quarter 2012 estimated payment."


I'd always thought that constructively received didn't require you to actually be able to access the funds. I thought you'd be responsible for the taxes when you won the money.

Was there some special steps that FT and PS victims took last year (2011 taxes) in order to allow them to push off constructive receipt until this year's taxes?

Or was my understanding of tax liability incorrect?

[Russ Fox]

In order to have constructive receipt, the money (income) there must not be strings to you receiving the funds; most individuals could not access their FT funds in 2011. Thus, most individuals did not have constructive receipt of FT monies won during 2011 in 2011.

[TeflonDawg]

it is my understanding that constructive receipt begins the moment you have the ability to use the money to play more

the minute you couldn't play more on FT means that constructive receipt can't be established until you actually receive the funds or if the site re-opened and u could continue to play

[daveh07]

Originally Posted by TeflonDawg

it is my understanding that constructive receipt begins the moment you have the ability to use the money to play more

the minute you couldn't play more on FT means that constructive receipt can't be established until you actually receive the funds or if the site re-opened and u could continue to play

negatory, constructive receipt means you have to be able to access your funds and be able to theoretically have some way to receive it in cash.

[Lottery Larry]

My understanding was similar to TeflonDawg's

Originally Posted by daveh07

negatory, constructive receipt means you have to be able to access your funds and be able to theoretically have some way to receive it in cash.

So, players would be able to retroactively claim a lack of constructive receipt, once Black Friday hit? Even though they'd had access for withdrawals before then?

That sounds too.... reasonable, to be an IRS ruling.

[taxdood]

Originally Posted by Lottery Larry

My understanding was similar to TeflonDawg's



So, players would be able to retroactively claim a lack of constructive receipt, once Black Friday hit? Even though they'd had access for withdrawals before then?

That sounds too.... reasonable, to be an IRS ruling.

Black Friday taught us that Full Tilt was $330 million short on funds owed to players in April 2011. So, theoretically, had all U.S. and non-U.S. players requested full withdrawals from their accounts immediately before Black Friday, many players would not have been paid.

These circumstances presented a "substantial doubt" that players with winnings in their FTP accounts immediately before BF would not actually receive their funds. Thus, no constructive receipt with respect to those winnings.

At least that's the argument. It's one interpretation of applying the law to the facts. The IRS has not provided their view one way or another.

[DrMickHead]

Since there were withdrawals that went through in 2011 we did have a window of accessibility to our money. I went ahead and paid my taxes on that money in 2011.

Do I really need to do anything special if/when the DOJ repays my balance?

[zerosum79]

Originally Posted by daveh07

negatory, constructive receipt means you have to be able to access your funds and be able to theoretically have some way to receive it in cash.

Prior to BF didn't players have constructive receipt?

zero

[zerosum79]

Originally Posted by Russ Fox

In order to have constructive receipt, the money (income) there must not be strings to you receiving the funds; most individuals could not access their FT funds in 2011. Thus, most individuals did not have constructive receipt of FT monies won during 2011 in 2011.

What about a $20 withdrawal fee? Is that a string?

zero

[Lottery Larry]

Originally Posted by DrMickHead

Si

Do I really need to do anything special if/when the DOJ repays my balance?

Make sure they don't double-tax you, I guess. I assume you still have your records.

[northeastbeast2]

It does not matter what happened before black friday. The money you are getting from PokerStars as part of the settlement is not the same money that you lost when Full Tilt Poker was unable to pay you.

This money is compensation for a loss. It is current income.

[repulse]

While the interpretation that US 2011 FTP money wasn't constructively received was convincing enough to make it into the tax sticky for this year, it wasn't completely unanimous and there seems to be another reasonable interpretation. Some argued that the fact that US players could access at least somewhat-regular cashouts from January 1, 2011 to April 14, 2011 meant that the money was constructively received in that year.

My overall non-professional impression is that either interpretation would be defensible given the lack of guidance from the IRS on this unique situation, as others here have noted.

If you treated your balance as constructively received in 2011, then the remission shouldn't be income, but if you treated it as not constructively received in 2011, then you're realizing the income upon remission. I haven't come across any special rules that would automatically consider remission to be income. It seems to me to be a return of stolen property, which doesn't seem like it could be income. If it were seen as compensation for a loss, maybe it's possible that compensation could be seen as income?

[Lottery Larry]

Originally Posted by repulse

If you treated your balance as constructively received in 2011, then the remission shouldn't be income, but if you treated it as not constructively received in 2011, then you're realizing the income upon remission. I haven't come across any special rules that would automatically consider remission to be income. It seems to me to be a return of stolen property, which doesn't seem like it could be income. If it were seen as compensation for a loss, maybe it's possible that compensation could be seen as income?

I'm not sure how it could be described as a non-income "return of stolen property" if you never claimed the income as taxes in the first place? Maybe I'm misinterpreting what you're saying... ?

[repulse]

Originally Posted by Lottery Larry

I'm not sure how it could be described as a non-income "return of stolen property" if you never claimed the income as taxes in the first place? Maybe I'm misinterpreting what you're saying... ?

Yeah, I should have been more clear, I meant to say that the remission itself isn't inherently income. If you treated FTP as constructively received in 2011, then you're done, but if you didn't, then the remission does represent the constructive receipt of that old income and becomes taxable.