pretty sure there will be tax implications...esp since the feds are controlling thepayouts here...as for the player with six gfigs not being his money..that is money laundering

Solid 0 for 3.

It's seems likely to me that rather then trying to sift through the forensics of FT records, the DOJ is more likely to just refer everyone with a 5 figure+ balance (probably less then 1% of FT accounts) to the IRS for possible audits (which is some cases might be worse then losing your FT balance).

No, the IRS agrees with me. You are wrong. Your quote of:

Originally Posted by IRS
Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).

addresses compensatory damages for personal physical injury or physical sickness. If you peruse further in additional IRS materials or other commentary on taxability of p.i. compensation, you will discover that any portion of an award that is attributable for claims for loss of wages, future earning capacity or the like (and a number of other recoverable losses), becomes a tax issue; how it is eventually valued and taxed may be very complicated but it is almost certainly taxable.

0% chance obama lets this go untaxed

I think that another portion covering other gambling winnings under certain circumstances is the most likely provision to cover this situation; if not, then it will probably be reported on a 1099-MISC. That is the form that usually is used for the taxable portion of p.i. settlements and can be used for any payment that the payor feels a need to report.

They don't want a cluster **** or a media circus?

This issue will have to be decided on by a tax court. If you win money at a B&M then it's obvious you made the money then because it was handed to you in cash.

Online is a grey area. Consider that if you "profit" from investments in the stock market, the income is not considered realized until you sell the stock. Gains made as the price fluxuates while you hold it are not considered taxable income.

Would an online poker account balance be treated like a B&M "cashout" or like unrealized captial gains? I'm not sure.

It's possible there has been a ruling on this issue, since people have been playing poker online professionally for over a decade, but I'm not about to go shifting through tax law. If there hasn't been a ruling however, there will most likely need to be one now.

If someone knows for sure that there had been a decision about this at the federal level, please let us know.

That is how the stock market works, but I thought I read where each tournament is considered a session as well as entering/leaving a cash game. The difference is once a tourney is over, and you have cashed in it, then you have realized the money. It is in your account. Whether or not you cash out is your business, but the IRS views it as yours. Thats my take on it.

There is really no way on its face to know if a balance returned represents a remainder of a deposit (and hence has no tax implications) or a deposit plus winnings (which has tax implications)*.

The only way to know the difference would be to scrutinize the individual's entire playing history, a herculean task I seriously doubt the DOJ will even consider undertaking.

The IRS may consider it worth undertaking, but hardly for every player. One would expect the IRS, to the extent it decides to examine the figures available, to only undertake such a time consuming task for exceptionally large balances.

And since the government will have all the information to begin with, it will somewhat amusing if they issue forms to inform themselves of what they already know.

Skallagrim

* please note this is an over-simplification of the way taxes are assessed on playing poker. Accordingly, do not use this statement as part of figuring your taxes. This distinction is made only to illustrate that the amount of the balance ALONE does not indicate one way or another whether taxes are owed or not.

I didn't mean to suggest that I thought they would sort out the taxable from the non-taxable (as there would be no way for them to know this anyway as other gambling wins and losses would play into that). I think, if the AFMLS chooses to report anything, they will choose either the $600 level or, more likely, the $5,000 level and report the gross amount on W-2G's or 1099-MISC's. Then it will be up to the individual to report as appropriate and take the allowable deductions.

As to the discussion regarding whether individual poker winnings are capital gains or ordinary income. I think ordinary income is the indisputable answer.

I think Skall is right on on this one. W-2G's and 1099s are meant to report income, and the DOJ has virtually no way of knowing what portion of a balance represents income (and from what years), what represents deposits, and what would be allowable deductions, without going through a prohibitively costly review.

Based on the assumption that the size of one's balance is positively correlated with the total tax liability a player incurred, there's more of an upside for the IRS to scrutinize players with higher balances. (i.e. even if someone with $100 didn't properly file their taxes, back taxes, interest, penalties etc. would likely not cover the cost of an audit.)

Because of the above, it seems like it would be far more likely that they will just flag accounts above a certain threshold for at least a cursory look from the IRS than attempt to issue thousands of incorrect tax forms.

I think DOJ will eventually pay back back full player balances but I wouldn't be surprised if a list of all player receiving a refund over a certain dollar threshold (say $10,000) was forwarded to the IRS for audit. At that point its up to you, the taxpayer, to prove that all taxes have been paid. I hope you have good past tax records and banking records.

W-2G's and 1099-MISC's report payments that may, or may not, be income. In fact rarely are they 100% income. Sometimes they are not income at all. There really is not the coordination between IRS and other government payors that I see assumed in this thread. The payors will do their thing and let the IRS do its thing.

im no tax attorney or anything but it makes sense to me that the irs will not have anything directly to do with the payouts. they will just wait for any unclaimed $$ to hit your bank account and then their computers will flag you for an audit. you will get audited like any other person and it will be up to you to explain where this money came from..the burden will be on you not them.

if they have time to audit servers over nickels and dimes then they DEFINITELY have time for unreported 5 figures..

This post makes no sense, they will tax you, and leave it up to you to provie if it is profit or not. This is no different than winning a Live tournament and getting a W2 for it. They don't check your Live Poker history to see if you are a winning player, they tax you, and then you have to prove you aren't 100% profitable.

The task is Herculean if done by hand, but surely the IRS has some software engineers on staff. If I can write a perl script to analyze my hand histories and spit out my income and deductions then surely they can hire someone to write a program to crunch the numbers.

It could be done.

But first the software would have to be written, then tested, then retested, then run hundreds of thousands of times (because there will be hundreds of thousands of accounts - at least - seeking return of their money).

Given that in the vast majority of situations the result will be worth nothing or at best a miniscule tax adjustment, making that effort does not seem worth it.

Far easier, if they are inclined to check at all, is to do as RaisingNaked suggested and just look at accounts with a very large balance.

Skallagrim

Apples and oranges. The W-2G you get for winning a tournament is solely for winnings. If you register for the main event, pay Caesars 10K, then de-register, and Caesars gives you your 10K back, do they also issue you a W-2G? Of course not, because that does not reflect winnings. Same thing here: the government does not know if it is paying you winnings or a return of deposits; and as Skallagrim points out, it aint gonna take the time and effort to find out.

I think perhaps a more analogous situation would be if a bank fails, and the govt reimburses you your balance through FDIC insurance

The govt doesnt attempt to determine whether the money in your accont is money from your paycheck that is post tax, or if it is business revenue that you still need to report on your taxes

Another fallacy in some posts is that the govt taxes you. In fact, the US system is based upon the individual reporting taxable income and determining the taxes. Only if your return is flagged for an audit does the government ever ask you to prove that what you claimed is true.

The flag could come from a computer check of key items (like your employer submitted a W2 on you but you didnt report it) or by random chance, which is an extremely small percentage of returns.

IMO simply receiving a remission payment from DOJ would not single anyone out for special scrutiny. In the IRS world, even millions of dollars is relatively small potatoes compared with the size of accounts they deal with.

I'm amazed how many supposedly knowledgeable people have said or agreed with the the "They will probably send out 1099's to everybody over a certain amount" thing. That shows an insane ignorance of basic income tax.

What odds are you willing to lay, and how much are you willing to wager pending a suitable escrow?

At the very least part of the remission process will be submitting a W-9 and checking off the exempt from backup withholding checkbox

http://www.irs.gov/govt/fslg/article...110339,00.html

As to the title of the thread, logic and government are not always a match, precedence and law will guide the doj and they will do what they interpet the law to be and what they can defend. The best arguement for paying balances is that is what they let PokerStars do.

The thoughts that a 150 million payout would be held up because of politics really misses how little impact that poker players really have in political decsions, its not like PPA can deliver blocks of votes anywhere that make it politically viable to care. Where is there a poll that targets single interest voters who are guided by the PPA. Its not like PPA can deliver voters like unions or NRA or any other well mobilzied and funded group.

JD

Such a fearful bunch we Americans are, huh? And of our Government no less.

Thanks for this view, junglepork. I thought it was very well-written and appreciate your optimism.

Once you get paid, you would report that income or whatever income it is. Could do a quarterly.