Part of the rational I heard for when poker winnings should be counted as "income" had to do with when you could reasonably say you had access to the money.

So if I win $1k online in 2010 but I am not able to widthdraw any money in 2010 because the Feds keep blocking withdrawals and/or seizing withdrawal funds, can I claim that I have not yet realized my winnings?

Alternatively, could I claim this money as some sort of "loss" until the funds become unblocked and I can withdraw, at which time I would obviously have to claim the money as a gain?

If you at any point had the option to withdraw the money then it is realized.

I do believe I have read somewhere that there are rules to deal with your second situation but that's all I know.

You earn the money when you make it, not when you withdraw it. So, you have to report the income based on your winning sessions regardless.

IMO, in this situation you can take a casualty loss on your taxes if it becomes permanently unavailable due to the UIGEA (or some other event, like a poker room going out of business). Temporary difficulties with withdrawal wouldn't qualify as a loss.

It is wonderfully ironic to have the government tell you that you own taxes on money that the government won't let you access because you have access to the money.

It is what it is ...

You're arguing that you wouldn't have "constructive receipt" of the funds, since there is no legal way for you to cash it out. It's an interesting theory, but I don't think it would fly. The standard for constructive receipt is usually interpreted fairly liberally. You would still have the option of doing a peer-to-peer transfer with someone outside of the US, who would then send you PayPal (or whatever).

Here is the Treasury regulation about constructive receipt btw.

Clear as day, right?

nice posts scrivenerjones.

This is the crux of my hypothetical. Modify the hypothetical as needed to keep it interesting. E.g. say that I start 2011 with a $500 balance on FTP, UIGEA et al. were implemented in 2010 and withdrawals fail pretty much all the time. I win $2000 and I can not withdraw anything in 2011 due to US government jerkness. I try to withdraw several times but each attempt is thwarted.

Your peer-to-peer argument seems bogus as you are essentially saying "if tax payer guy could circumvent the restrictions that the government is implementing and claims is the law of the land, then he has constructive receipt".

NOTE: this discussion is for fun -- I will report winnings as income regardless of whether I'm able to withdraw or not.

I guess one sticking point: if hero can gamble with it, he has constructive receipt. From a legal standpoint this view might be affirmed because it is what the government wants but from a logical standpoint it seems specious.

E.g. say there is a site called Faux Tilt Poker. Everyone plays with real money, there is 1% rake, not FTP points store or anything like that and you can never withdraw your winnings. Are you playing with real money if you can never withdraw? On such a site, you could gamble further with your winnings but you have 0% prospect of ever withdrawing (UIGEA, wire act or no).

The "substantial limitations or restrictions" language certainly gives you a case, in the event of the UIGEA scenario you describe. Most of the case law regarding constructive receipt that I have seen involves either (1) taxpayers electing not to cash a check on the last day of the year, or (2) deferred compensation agreements, neither of which are really on point. I will do a little more research and see what I can turn up.

Now the hypothethical gets interesting.

Faux Tilt Poker as described has to have reached the point of not having constructive receipt since the site says we'll credit you money, but you can't withdraw. Sounds like the Hotel California of poker sites.

At what point you cross that line I don't know. It seems that *if* the DOJ were to squeeze account processors hard enough and successfully enough that at some point the sites would have to say "we can't do withdrawls anymore unless you accept the risk of seizure." At that point you're definitely there. I'm don't think being able to transfer to someone else who can withdraw would make a difference.

I'm not sure that FTP points are pertinent. You can't withdraw. They can't close your account. All you can do it continue playing, hopefully building up your balance of what is now no different than play money.

You can still open up a Canadian bank account and have your withdrawal deposited there, and then transfer it to your U.S. bank account. It's also not illegal under the UIGEA for players to take withdrawals - they might be blocked, but it's not illegal. The sites are not putting any restrictions or limitations on your access to the funds, so the "constructive receipt" argument doesn't fly imo.

Please, help me find the step by step instructions to do this and I will do it tomorrow! If this obviously circumvents the alledged wire act violations and gets past UIGEA overblocking shouldn't we all be doing this?

Shouldn't FTP and PokerStars write up a FAQ that guides us through the process?


If by doesn't fly you mean "I personally would not want to risk this" I agree.

Your view seems to be (and perhaps a courts view would be) that if somebody somewhere could figure out how to get access to the funds (e.g. a Nigerian friend) then no matter how burdensome this work around is, constructive receipt has occurred. The legal outcome would probably depend a lot on your judge/jury's state of mind (e.g. did their dog get hit by a car and how they are hating the world).

To me, a reasonable level of effort would be that PokerStars (or what ever site) can walk me through the work around the receipt has occurred. If PokerStars tries to walk me through the procedure 3 times but each time we fail I would think that receipt has not occurred.

This seems like the answer. Perhaps you can help each other out to your mutual benefit.

There are some threads in this forum that go into those details. Search for "Canada", "bank account", etc.
No, my view is that if Pokerstars puts the money in your account and they do not impose any restrictions on your access to it, there is no valid "constructive receipt" argument. The fact that you have trouble making transfers from your account due to government interference is a different matter entirely.

Well, I'd be careful here. It doesn't matter who is responsible for the "substantial limitations or restrictions"; it merely matters whether they exist. The same issues arise in all of these constructive receipt cases with the check being written on 12/31 but not being delivered until 1/1 because of problems with the post office; the only controlling issue is whether the taxpayer had unrestricted access to the money, not whether it was the payer's fault or the post office's fault or whatever.

So does this example pass muster (12/31 check delivered late)?

It seems that having to jump through hoops at some point becomes a substantional limitation or restriction. Having to open a Canadian bank account might be. Having to fly to the Isle of Mann to personally get cash probably is.

The canonical "late check" case is Davis v. Commissioner, TC Memo 1978-12. Wikipedia summary: Like I said--not exactly on point.

My opinion, anyway, is that it would depend on how big the UIGEA obstacles became, but the courts would probably not look favorably on someone claiming not to have constructive receipt of poker winnings because of cashout problems. Especially if you continue to play regularly--the court would probably wonder, well, if you don't expect to have dominion and control over this money, then why the hell are you still playing?

^^^

Well I continue to play because I trust the sites will eventually get me my money. Even when the money I had in NETeller was seized, I still believed I was going to see it again.

I still don't agree that money in your poker account is constructive receipt. If it is, then "drawing upon" my funds is repeated twice, arguably three times (site to 3rd party, 3rd party to bank, and then bank to owner of funds).

That I have to hold my breath until the actual money clears my account and I can spend it seems reasonable to claim limitation. It's the environment created. Just because I have a tolerance for it and have made an effort to not immediately need my profit and rakeback within 24 hrs. to cover my expenses doesn't mean I'm not subject to substantial limitations.

Another point of view: In a B&M, I can walk out within minutes with gambling and/or poker winnings as chips turn to money instantly, so that's ldo contructive receipt

The same exact situation online requires days, sometimes weeks or months before the money is finally in or depositable into our bank account. Even then the funds still take more time to clear from holds or in the semi-occasional event, be seized by the gov't. I think constructive receipt is at least debatable here.

I guess I don't agree that "it takes a long time" is a bar to constructive receipt. Say someone puts a whole bunch of gold bars in a vault that you own, and the vault is on the other side of the country, and you have the key. Even though getting to the gold bars would be a hassle, and you'd then have to sell them in order to convert them into cash, you've still received income in the amount of the FMV of the gold bars.

Again, I have no idea what would happen in the event of a poker player taking the position we're talking about on his tax return. And much would depend on the regulatory environment for the period in question (i.e., are all withdrawals getting seized, is every US bank no longer doing business with payment processors, etc). But my sense is that it would take a very large roadblock before a player could claim "substantial limitations or restrictions" to cashing out.

Don't know that this matters/is relevant, but I took an income tax accounting class last quarter, and the prof. told a story of a simliar situation:

His brother lives in PA, and a couple of years ago, won the state lottery for ~$500,000. Because of state problems wrt paperwork and timing issues, he was unable to claim the funds until January of the following year...

Of course, the IRS tried to make him pay taxes for the year in which he won, but my prof. and his brother fought the IRS based on the fact that the funds weren't made available to him until the following month, which just so happened to be the folowing tax-year.

Based on that information, a ruling was made in their favor that funds were NOT taxable until the funds (in whole) were made readily available to the person(s) in question.

Now, if the funds were available in Dec. and he just chose not to claim at that time, he'd still be responsible for taxes in that year, but since the funds were not made READILY available to him, the taxes were deferred until they were.

I asked about UIGEA and poker relating to this at the time, and his opinion (he's a tax-guy; teaches taxes and has a tax business in Ohio) was that if you could not access the funds, you didn't have to claim them until such time as they could be accessed (sorta like cash-basis accounting: income's only reported WHEN RECEIVED and expenses only WHEN PAID).

Kinda reminds me of equities and realized gains a bit.... no gains/income reported until a gain is realized (and inverse wrt realized losses).

So.... take that for what it's worth, I guess. I wouldn't give any advice based on this, as in the poker situations, it may be hard to actually determine WHEN a gain/loss is realized, but as someone else stated, you may be able to deduct based on a casuality loss IF withdrawals were blocked.

The IRS considers your poker site account to be a foreign bank account. Since you have received money into it (winnings) and can use them freely to place more wagers (buy-ins), I think the IRS position will be that you have constructive receipt, regardless of any difficulties in moving the money from your site account (your foreign bank account) to your US bank account due to implemenation of the UIGEA. But that's just my opinion. Let's hope we don't have to find out.

I can easily believe:

1. the IRS would be jerks and claim constructive receipt
2. if we fought it and UIGEA et al. indeed made the funds very hard to access we might stand a good chance of winning our point.

of course #2 would no doubt cost lots in lawyer fees and we are only fighting to shift which year the taxes occur, not how much tax is owed.

I think the hypothetical has succeeded in bringing out many interesting points. Thanks everybody!

But that vault is my vault. Poker winnings still on the poker site are not in 'my vault'...it's still in 'their vault'.

In one case, you've already received the booty. In the other, you haven't received anything.

That gold has value. The money on a poker site has no real money value until I actually receive it. I could probably use that gold as collateral (as it sits in my vault) but could not use my online poker BR as collateral.

If that money on the poker site actually has FMV, then the IRS should have no problem with me paying my taxes from that account.

You guys know way more about this than I do, just throwing out some seemingly 'common sense/layman' responses. In any case, I'd still guess the IRS is gonna do whatever screws ya.

[x] If it is impossible to transfer the money to your US bank account to buy things with it, you don't have constructive receipt.

[x] The IRS will want you to pay taxes on it anyway because you have received it in your foreign bank account (poker site account).

[x] You can probably go to tax court and win based on #1, but...you have to go to tax court (if the IRS audits you).

Actually I think we all hope someday sooner rather than later that we do find out. It's just none of us want to be the guinea pig...

Here is an argument I find amusing: Defendant challenges IRS to suggest a method of receiving the funds (e.g. eCheck, wire transfer). If IRS suggestion works then the defendant will cede the point of constructive receipt. IF the IRS can not come up with a resonable suggestion for defendant to access said funds, IRS should concede the point.

I don't know if it would fly but it would be hilarious if the presiding judge accepted it. I can just imagine the IRS council's apoplexy.