The question of whether or not comps are taxable at all seems to be not settled, as of the time it was last discussed on 2+2:
http://forumserver.twoplustwo.com/27...taxable-36513/

For now, let's assume:
- comps are taxable
- we are looking to account for them properly in the eyes of the IRS (i.e. we're willfully reporting our poker income properly and are choosing NOT to hide gains that might be "easy to hide")

A comp or bonus of cash, such as spending FPPs on PokerStars' Concierge Service, or purchasable bonuses, is easy to account for. The amount of the cash is recorded as a session win at the time of purchase, or bonus clearance. I think this is pretty well-accepted beyond perhaps some different means of allocating the gains through accrual accounting methods, but let's ignore this for now and take the basic cash accounting method for comps and bonuses as the simple baseline.

But what if I exchange my points for something other than cash? Are there standard rules to account for the value of the items? If so, I am not aware of them and have not seen them discussed here.

What are the proper answers to the following questions, and do they differ between amateur and professional players?

--------------------------------------------------------------------------------------------------

Question 1: Points for Retail Merchandise

I am a Supernova member at PokerStars and decide to buy a copy of No Limit Holdem: Theory and Practice from the PokerStars FPP store for 1,900 FPP. Which of the following represents the amount of taxable gains that I should record?

a) $30.64, the value of the 1,900 FPPs I spent on the book (at the Supernova concierge rate; adjust appropriately for players of different VIP levels)
b) $29.95, the book's MSRP
c) $19.77, the cost of buying the book from Amazon.com or other leading retailers
d) $0; only cash comps are taxable

--------------------------------------------------------------------------------------------------

Question 2: Points for Retail Merchandise that I intend to resell

I purchase a Nintendo Wii with FPPs, or am comped it at a B&M cardroom. I have no use for the Wii and immediately resell it on the secondary market and end up getting $125 for it. Which of the following represents the amount of taxable gains that I should record?

a) $199.99, the MSRP of the Wii
b) ~$175, the approximate secondary market value of the Wii as inferred from eBay
c) $125, the money I ended up getting for it

(If the answer is (c), what stops me from "selling" the Wii for $5 to a close friend?)

--------------------------------------------------------------------------------------------------

Question 3: Points for Non-retail Merchandise with no clear value

I am a Supernova member at PokerStars and decide to buy a PokerStars logo dress shirt from the PokerStars FPP store for 2,500 FPP. Which of the following represents the amount of taxable gains that I should record?

a) $40.32, the value of the 2,500 FPPs I spent on the book (at the Supernova concierge rate; adjust appropriately for players of different VIP levels)
b) ~$12, the approximate secondary market value of this promotional item as inferred from eBay
c) $0; this is a promotional item with no MSRP and hence no taxable value

--------------------------------------------------------------------------------------------------

Question 4: Points for Non-retail Merchandise with a stated value

I am playing at a B&M cardroom and decide to cash in $15 of my comp dollars in exchange for a crappy hamburger from the casino's overpriced food offerings. Which of the following represents the amount of taxable gains that I should record?

a) $15, the overpriced menu cost of the hamburger
b) $4; it's a freaking hamburger and I'm paying my taxes based on its fair value dammit
c) $0; comped food that I consume has no taxable value

--------------------------------------------------------------------------------------------------


I am interested in other taxpayers' common-sense approaches to these types of comps and bonuses, or more official answers that someone with tax experience could weigh in with.

If anyone else has come across any special cases of comps that they aren't sure how to account for, we should share them in this thread.

+1

Everyone,

Please don't respond with speculation on the likelihood of the IRS finding out. On this forum, we discuss what the law says. What you personally choose do to is your business, but it's not what we post here.

Thanks!

This won't be too informative of a reply, but I can shed a bit of light on the minor question after 2...the "(If the answer is (c), what stops me from "selling" the Wii for $5 to a close friend?)".

There are things codified for companies that make transactions between different branches, with no money going back and forth, to account for taxes. That is, you might have a foreign branch of a company that makes part of a product, ships to the US for integration in another product and that product is sold. For tax purposes, obviously the company would like to claim that it had to 'purchase' the intermediate good for as much as it could. However, for tax purposes, it has to be valued 'at arm's length', or what they would have to pay to a totally unrelated firm. So if you sold it on eBay or soemthing to a random, that would be arm's length, but not to your friend. I don't know if they have this for personal tax reasons, but it actually seems fairly reasonable. (Strange for the IRS)

IMO:

1:c It's reasonable to figure that this is the fair market value of the book - which is what the IRS would accept.

2:c You don't have to pay taxes on more than you can get for it at market.

3:b Same as #1. A shirt is still a shirt even if it has a logo on it.

4:c The casino isn't incurring much expense in the way of food comps, so it is more of a rebate to you than a tangible gift.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

Oh my PX. You really outdid yourself here.

In number two though he opted to sell it for less than the going market rate so it seems that your answer and your comment don't fit together.

For some reason though all this isn't sounding right in my head (from a logic standpoint - not the law which I don't know... so probably what's in my head means nothing ). So would you say that if I entered a contest at a car dealer and won a brand new $25,000 card that I'd only owe taxes on $20,000 if the exact same card could be purchased on the other side of town for 20k and therefore that is the 'market value' of said car even though the place I got it from values it higher? What if instead of across town the car could be bought five states away for less?

Your example is much different. In the case of the OP's examples, the player received points, which he exchanged for some bling. Determining the fair market value is a valid method of assigning a value for tax purposes, imo.

Winning a car is much different: the car would be valued at the purchase price for tax purposes. Same would be true if a player won a car in a casino promotion or was given a car as a comp (which happens with some whales).

I'm not seeing why the two things are significantly different. Is your main point that with Stars that the person is trading something of value for something else of value but with the car example the person won the item?

Apologies for the hijack, but this actually happened to me last year.

If you win, income taxes are on the full MSRP (the casino will tell you what they plan to state as the MSRP if you ask). There is a sales tax due to register the vehicle as well. In my case, taking the cash value of the prize, though lower than the vehicle MSRP, was a much better option.

Good discussion so far.
I was not aware of this "arm's length" principle for corporations, and I agree that it would be sensible for something similar to apply to poker, which would mean that it would be improper to account for an item at less than its market value by selling it to a friend.

Then the question becomes whether to go with market value or MSRP. I'm not seeing why winning a car in a casino promotion would be different than, let's say, buying the Porsche from the Pokerstars store (3M FPPs, which is about $48k for a Supernova, while the MSRP of the car is $60k). In this case, assuming the car can be found on the market for $48k rather than $60k, the Supernova would be better paying cash for the car and using Concierge to get the $48k in cash from Stars. From a common-sense standpoint, why should the tax effects be different depending on which of these two avenues the Supernova takes to get the car?

IMO if the proper tax method for getting comped a car is that you have to claim it at MSRP, then it seems like this would apply to smaller comped items as well, which would certainly create tax-inefficient situations with many smaller items such as the books in the PokerStars store whose market values are significantly less than their MSRPs.

This is an interesting wrinkle as well. In the case of items smaller than cars, I would think the common-sense approach would be that the market price is the amount I would pay to have the item delivered to me. For books, clothing, and electronics, it wouldn't really matter where it was coming from. Transporting a car that far might be impractical though.


FWIW here are my answers to my initial questions in how I've been accounting for them personally:

1c - at least for small items such as books, I think this practical method "should" be acceptable (but I don't really know).

2b - same as above

3c - I can see the argument for b, but many of the silly promotional toys and clothes I've gotten are not actively bought and sold on eBay enough to infer a price. I also feel like there's some sort of principle that says that promotional items have no value -- though this may be in terms of MSRP, in which case I'm contradicting myself by using MSRP here but market value in the previous questions.

4a - This one I've been being conservative on, my reasoning being that, if I weren't using my comps on the overpriced food, I'd be using $15 of my own cash, so the value of the comps is $15 to me. I'm not understanding how an inexpensive (to the casino) food comp to me is any more or less of a "rebate" than any other comp. If it's a rebate that I've become eligible for by playing poker and generating revenue for the casino by doing so, shouldn't it be taxable just like rakeback is?


Here's another special case I thought of:

----------------------------------------------------------------------

Question 5: VIP Buffet comp

I am playing at a B&M cardroom and am comped passes to the VIP buffet -- the high rollers get in for free, and the general public cannot get in. There is no price associated with the buffet at all. Which of the following represents the amount of taxable gains that I should record?

a) $30, the cost of the non-VIP buffet at the casino, despite having different food offerings
b) $0; there is no reasonable means of assessing the value of the VIP buffet (or comped food is non-taxable)

You lucky SOB!

Let me get this straight:

If I order a $100 camera from PokerStars, I owe like $40 in taxes.

If my buddy gives me a $100 camera for my birthday, do I have to pay fuqing taxes on that too?

How is taxes not the #1 topic in every mutherfuqing forum on this site? Taxes are such a scam.

The difference in these situations is that the camera you order from Stars is, effectively, a rebate of rake you have paid. This is most easily seen in the simpler situation where you order a $100 bonus from Stars with your FPP that you earned by paying them a bunch of rake. If you had paid $100 less rake, your gambling winnings would have been $100 higher, and you would have owed tax on that additional $100. So the $100 cash bonus is clearly taxable. Now swap the $100 cash for a $100 camera and the situation should be similar.

When your buddy gives you a $100 camera, you don't owe tax on that because gifts between individuals with value under $13,000ish are not taxed.

I thought that there was a method to determine true retail value, rather than MSRP, for the IRS.... that was acceptable. I wish I could remember my source....

When's the last time you passed the hat in order to pay for:

Highways

Schools

Hospitals

Military

etc.. ?



"scam" ?? No