Risky sites, the casualty loss, and possible implications for *future* play post-Black Friday

[repulse]

Originally Posted by Nyu

Thank you for your opinion LT22, I know its late but I would also appreciate other responses later on. As for me tomorrow I am going to the IRS office here in my local state and see if I can not set up an appointment and get some answers. I got a lot of free time until school starts so why not.

Its times like this that I hate being the thorough person that I am or try to be.

Let us know if you learn anything from the IRS. And thanks, on behalf of all of us affected by this situation. We appreciate the thoroughness.

[repulse]

Originally Posted by PokerXanadu

I think this could fall under the Doctrine of Cash Equivalence. This doctrine requires that a promise to pay (e.g., a check) must meet five criteria to be considered a cash equivalence and therefore receipt of income for tax purposes:

1. the promise to pay is unconditional;
2. the promise is made by a solvent person;
3. the promise is assignable;
4. the promise is not subject to set-offs; and
5. the promise is marketable.

The bounced checks puts #2 into question, as do the revelations since BF about FTP's finances.

This seems interesting and promising. I think it is very easy to argue that FTP was insolvent at this point.

[taxdood]

Not that it's necessarily a complete waste of time to inquire, but I personally wouldn't put much stock, if any, in one IRS representative's take is on the applicability of constructive receipt to 2011 online poker winnings before Black Friday.

Why? A couple of reasons immediately come to mind:

1) I doubt the representative will fully understand the facts. It's also unlikely to convince a low-level auditor of the position. A taxpayer's best chance to prevail on this issue is likely either with IRS Appeals or in Tax Court.

2) An IRS opinion of the law is not binding authority. It can't be completely relied on to justify a taxpayer's position. If the taxpayer's position (that was also an opinion of the IRS) is later challenged by the IRS, the taxpayer may say he relied on the IRS interpretation, but it will likely only be helpful in fighting penalties, if at all. If the taxpayer loses, the taxpayer is still liable for the additional tax owed, plus interest.

Some possible arguments are raised that may justify the position that not all winnings were constructively received. It may just be a long and hard-fought effort to prevail. For taxpayers with larger amounts at stake, such effort may be worth it. Of course, a taxpayer should always consult with a tax professional to comprehensively review his particular facts and circumstances.

[LT22]

Originally Posted by PokerXanadu

I think this could fall under the Doctrine of Cash Equivalence. This doctrine requires that a promise to pay (e.g., a check) must meet five criteria to be considered a cash equivalence and therefore receipt of income for tax purposes:

1. the promise to pay is unconditional;
2. the promise is made by a solvent person;
3. the promise is assignable;
4. the promise is not subject to set-offs; and
5. the promise is marketable.

The bounced checks puts #2 into question, as do the revelations since BF about FTP's finances.

Originally Posted by repulse

This seems interesting and promising. I think it is very easy to argue that FTP was insolvent at this point.

xanadu,
Thanks for digging up that link. Bounced checks don't imply a solvency issue IMO. There are numerous reasons for bounced checks. What revelations since BF would show FTP was insolvent BEFORE BF?

repulse,
You say, "...was insolvent at this point." At what point are you talking about?

[Russ Fox]

I agree with Taxdood about meeting with the IRS. When you meet with the IRS, you will be meeting with an employee who almost certainly will not understand the issues. Indeed, most employees of the IRS do not understand gambling issues. Given that the IRS is not bound by the advice given to you, and you may still owe penalties by relying on said advice, and that statistically just under one-third of the time IRS advice is wrong, this is likely not a good use of time.

Regarding constructive receipt, today no one knows what the situation will be with regards to Full Tilt. It's possible that in 30 days everyone will be obtaining their money; it's possible that in 30 days Full Tilt will declare bankruptcy (or the equivalent). We just do not know today whether the substantial limitation test will or won't apply to Full Tilt. At a minimum, it's arguable that it does.

-- Russ Fox

[PokerXanadu]

Originally Posted by LT22

xanadu,
Thanks for digging up that link. Bounced checks don't imply a solvency issue IMO. There are numerous reasons for bounced checks. What revelations since BF would show FTP was insolvent BEFORE BF?

Most significantly, the $60M in uncollected player deposits which was floated on the player accounts.

[LT22]

Much of which was collected IIRC. We don't know FTPs financial situation pre BF. Frankly I get annoyed when people (not you, previous experiences such as Quadjacks idiots running their mouths) act like they know for a fact that FTP was busto pre-BF.

FTP is clearly not able to cover player balances POST BF, but it's pretty easy to understand why. The government has our money as well as FTPs.

My main point: Post-BF insolvent =/= pre BF insolvent. I'm not sure of the tax implications of being insolvent now but you have to assume they were solvent pre-BF which is when personal income was generated on FTP.

It would certainly look foolish for people to say, "we has significant worries about FTP solvency pre-BF but yet I continued to generate all my income there." The IRS prob laugh in your face if you told them you truly believed you were working with an insolvent company.

Like I said I'm not sure where the law stands on this as it is such a unique situation and these are merely my opinions.

As Russ said, the best strategy right now is to wait and see what happens. If we get very close to the end of 2011 without clear cut answers from FTP/ the DOJ, then I will start seeking professional advice from those qualified. The big prob is even those qualified might not be able to give a solid interpretation of the law in this unique situation.

[repulse]

Originally Posted by LT22

repulse,
You say, "...was insolvent at this point." At what point are you talking about?

I was referring to at or around BF, because of the 60M shortfall, but yeah, you are right. I see what you're saying, we wouldn't be able to figure out how far before BF they were insolvent just because they were afterward, and the shortfall on its own doesn't imply insolvency. So, never mind! But still a potentially interesting means of attack, potentially.

[Gramps]

Glad there's some more detailed discussion on this issue. Another fact scenario is Americans who relocated and played/ran up balances on FT post-BF. I had a bunch of WD's processing in June, but like many players was unable to get a dime off the site before Alderney pulled the plug.

Somewhat OT, but I'll harp on it again - it would be awesome if Congress addressed the taxation issue in a poker bill (whether just for regulated online poker or gambling taxation period). If they don't, a lot of amateur players are going to be in for a rude awakening on the federal, and especially (in some cases) on the State level. Like lol-tastic bad.

Hopefully they can add some language/income categorization in an iPoker bill so that anyone (professional or amateur) can net their wins/losses for the year. I.e., your final number (cumulative for all sites you play - assuming all have some year-end reporting requirement to the Feds) counts as a single win or loss. Or some other scheme so that amateurs in States that don't allow deductions of gambling losses aren't faced with massive tax bills (even if they lost money gambling).

Otherwise, several years into US iPoker and a lot of amateur players will boycott the US sites b/c too many people got surprised/upset/screwed on their tax bill. Maybe the States/feds will take in more tax revenues the first year or two before people catch on, but years 3-infinity will be a lot less $$ into State/Federal coffers.

[Lego05]

Originally Posted by DeathAndTaxes

Sadly you may be correct.

The IRS sees this as two unique events which are handled separately. The gambling wins are a series of events which create a new unearned income. The site loss is a separate taxable event. The IRS doesn't care that the "rules" are unfair in that they require you to pay taxes on what but not be able to deduct the other.

That being said, I never tell anyone to cheat on their taxes but if it were me this is one time I would cheat on my taxes. I wouldn't report either the gambling income or the casualty loss. With no income to spend, no bank transfer, no 1099 from the offshore site the risk of an audit is minimal and one could claim ignorance. Now ignorance doesn't get you out of the taxes if you get caught but IRS can waive penalties is they feel the underpayment was due to mistake rather than evasion. Given the extreme nature of the situation, the rarity of an event like this, and the small number of individual filers who would get this correct my guess (which is worth nothing) is that IRS would settle for taxes due. So I think it would be +EV to "forget" about the whole thing if it does happen.

However larger issue:
We need regulated US poker with segregated player funds and govt oversight, and we need is yesterday! We also need a simpler tax code but that is a battle for another day.

Maybe true. But it may have been personally slightly -EV for you to have posted this. Very very very slightly I suppose, but ...

[Lego05]

Originally Posted by repulse

This seems interesting and promising. I think it is very easy to argue that FTP was insolvent at this point.

I think it would be a lot harder than you think it would be.

[repulse]

Originally Posted by Lego05

I think it would be a lot harder than you think it would be.

yeah, I was too optimistic at first. It would definitely be tough and complicated, and perhaps not even possible.

[repulse]

Demonstrating pre-BF insolvency looks like it may have just gotten a lot easier, assuming that a DOJ allegation is any sort of precedent for tax law:

http://forumserver.twoplustwo.com/57...usdoj-1101516/

http://www.forbes.com/sites/nathanva...-ponzi-scheme/

The amended DOJ complaint even uses the phrase "phantom funds". If that doesn't support the argument that our Full Tilt balances never represented real money, I dunno what will...

[repulse]

Russ Fox gives his quick take on today's news: http://www.taxabletalk.com/2011/09/2...-ponzi-scheme/

[repulse]

FWIW, a take on Full Tilt funds deductibility: http://sosickbro.com/poker-news/your...tax-deductible