I've been playing on/off for a while now. Pretty much just jerking around at micros. I plan to play a bit more seriously in the future but I'm wondering if I have to deal with any tax forms if I don't bother to touch the money in my account?

I searched and found 1 thread about this subject but it was fairly old. Maybe the law(s) changed since then.

So, let's say I run up a $500 roll to $5000 or something but continue to leave the money in my account to use as a bankroll, do I need to bother with anything or am I ok until I decide to cash out some?

It does not matter when you cash out...

It doesn't matter whether the money is sitting in your account on line or you withdrew it to your bank, its the same. You cashed out the moment the money was deposited to your account from the poker site. So if you ran the 500 up to 5000 on July 2nd playing cash games, then when you left the table and they deposited the money to your poker sites account is when you cashed out

Ok, so I guess nothing changed. Thanks.

I understand what the law is on this, however...

1) There's always a chance you won't get paid from an offshore site.

2) If you worked a 9-5 job and your employer held back wages (assume you're responsible for your own tax payments), that income isn't taxable until he makes good on it and the check clears in your bank. Or...

3) You own your own business and a client owes you money for a job. When he pays you, it becomes income, not before. Or...

4) You win money in a Teddy KGB type place and they stiff you when you go to cash out your chips.

How is this situation different than #2 and #3 and #4?

EDIT: if someone tells me you still owe income tax for #4, I might flip out.

2,3 and 4 are different. That would be like saying you won the Sunday big one for 150 K and the poker site refuses to deposit it in your account.

So for 2/3 (I'll omit #4 for now ) you don't have to pay taxes but for online poker winnings sitting on Stars/FTP/etc you do?

That seems pretty messed up, especially since in 2/3 there's going to be paperwork and/or a contract which I guess legally proves the money absolutely belongs to you.

Has anyone ever heard of a case where someone payed taxes on let's say $20,000 (which never left their poker account and was 100% legit) and the site never sent them the money?

The legal test of when income is earned is when you have "dominion and control" over the money. That's definitely going to be interpreted as when the money hits your account, not when you cash out. If somehow you were to pay taxes on money in an account and then were not able to get a payout from that account, you probably would be able to get a refund for the taxes you paid. Every type of account (other than an FDIC-insured account) has some degree of risk of not getting paid out.

How about a curveball here then....

Since the DOJ is chasing down as many of our cash out options as possible, would it be a viable legal arguement that I do not reasonably have "dominion and control" over the money UNTIL it is cashed out due to the current environment and availability of payment processors?

If that arguement held, one could then argue that the DOJ's actions are costing the IRS interest income on taxes that are delayed due to the fact that they were only due upon cashout, not at the time earned.

^^ No one is going to have any sympathy for that position IMO.

And keep in mind, separate and apart from declaration of income, you have an obligation to declare your foreign accounts to the IRS if they had more than $10K in them at any point during the year.

So for the most part it's not worth worrying about until you break 5 figures?

many of you are sadly misinformed

try this:
http://archives1.twoplustwo.com/show...=1#Post4712394

It is your discretion whether to cash out or not, therefore it is your money. If later the offshore goes bust that is a new transaction. You could make your same arguement for virtually any income.

Bogus arguement example:

My client paid me in a check for $10,000 and I put it in a bank account I control and I haven't spent it yet. However my bank may go under because of the mortgage crisis therefore its not income to me yet --- right?

Why wouldn't they have sympathy, besides that they might be a FoF friendly judge or jury? Look at the current situation at FTP. There are many players who have no available cashout method except bank wires where there is a $20K minimum. So even though I have no way to cash out my money, I am viewed as having "reasonable control or dominion" over it? I personally have a decent roll on that site, with a decent amount of winnings for the year, yet have no withdrawal options at the current time. A judge considers me as having "control or dominion" over money that there is no way to withdraw, therefore I should pay taxes on it now instead of when its withdrawn, or REALLY in my control?

What about the frequency with which these smaller sites go under/disappear with the players money in their accounts?

What if I declare my winnings, pay the tax, then the site goes under, can't get a withdrawal method, and/or site pulls out of the US market without a valid US payment processor at the time? Can I get that credit back without winnings to offset it? As far as I know, I can't take a credit for gambling losses without an offsetting gambling gain, so in these scenarios, without being able to play again, I paid taxes on money I never had control over, and have no way of getting that credit back.

Seems to me that there would be plenty of reason for sympathy and/or reasonable expectation of certain events. It just hasn't been challenged in court.

I don't believe it is that same at all due to this simple fact:

Gambling losses can only be offset by gambling winnings, in that same year. Other losses can offset any type of income and be carried forward to future years under certain circumstances. The new transaction theory may not be available to a player whose site goes busto, with his entire roll on it, due to the fact that he effectively has lost his means for gambling, or offsetting that new transaction with gambling winnings

As I stated in my above post, it is not always at your discretion as to when you cash out, and there are many examples of this all over this board, especially for FTP players. Try to telling a Full Tilt Player right now that its at their discretion as to when they cash out. You'd get flamed faster than a Democrat knocking on Jimbo's front door.

Nobody ever said that the tax laws are designed to be fair. For gamblers they are extemely unfair.

I believe the consensus of the board agrees with me and there are a lot of people on
the board much smarter then me.

I think you misunderstand the original intent of my line of thought here....
(and I'll never argue that tax laws are fair for anyone)

The conventional wisdom is that if the money is in your account on a site, its in your control, therefore you owe taxes on it. This has been true for a long time. My point was that lately, things have changed and the notion that money in your account is in your control could be challenged.

If we have more situations like the one currently on Full Tilt, could you argue, and win before a judge, the fact that its only taxable upon cashout due to the reasonable expectation of withdrawal problems that the DOJ seems intent on causing for poker players?

If you could actually prove that you made significant efforts to withdraw the money and were not able to do so, you would have an argument that would prevail. In my opinion, anything short of that would not.

I think that general murkiness and uncertainty isn't going to cut it. Especially since the reason for the general murkiness and uncertainty has to do with law enforcement efforts, that is why I said I don't think you'll get too much sympathy from a judge -- "Judge, I might not be able to access those funds because the Government might stop the site from breaking the law to get them to me."

Significant efforts would probably be easy to prove, but point taken on that.

I actually see the opposite argument there, that the "site would be breaking the law by getting the money to me, and the government is strictly enforcing that law, so how could I have a reasonable expectation of having control over this money? Therefore why should I pay tax on money that the government is, by law, preventing me from getting? If I was able to gain access to that money, then I would be more than happy to pay taxes on it!"

Wouldn't put a difficult question to the judge? How do you argue that an activity is illegal, you are legally, and practically, prevented from gaining access to the funds, yet you still owe taxes on it because you still control it? The legallity and enforcement pieces seem to play into the favor of the poker player here, correct?

I could then explain that although transferring money is outlawed by the UIGEA (debateable), I only intend to keep playing poker, build my roll for pure enjoyment, and to possibly withdraw (and pay taxes at that time) when legislation is passed that clearly legalizes and regulates this activity. In this scenario I am doing NOTHING illegal, and only arguing about the timing of when taxes are incurred.

(I don't even want to get into the legality piece of poker, as thats a whole different thread).

I understand your point.

Also understand that our current government has demonstrated how sympathetic they are to online gamblers.

As an analogy, take a look at an example as to when to deduct worthless stock, the stock must be completely valueless:

(Copied from RIA Internet Research):

Worthlessness has been defined as “having no value.” Taxpayers didn't establish that the stock of their wholly owned S corporation was worthless where they proved the corporation's business, a tavern, had ceased operations, but not that the corporation's stock had become valueless.

An inconvenience (severe or mild) is not a tax event (Neteller/Full Tilt.)

If you want to give me complete access to your online account on December 31 because you have no chance of getting the money, I'm up for that, and will completely support your right not to claim the income.

Would a live player who keeps his roll in a casino lockbox be required to pay tax on his chip balance before he has cashed out?

My answer would be absolutely. It is the live player's choice when to cash out. The IRS would have difficulty figuring it out because your records/bank deposits would be their main source of verrifying the income.

Read some of my posts in this thread relating to online funds.

No one pays taxes "when they cash out," live or online. You pay taxes once a year (of course you may also have estimated quarterly payments or withholding from paychecks).

In the IRS basic view, you "earned" the money the moment you stop playing a winning session, which is why you keep those session records. This makes some sense live, but not so much online, because of the effect of needing to transfer the money to actually be able to spend it on something other than more poker.

I'm no tax expert, but maybe one of you tax experts could answer the questions here by analyzing the following analogy: you play a session of poker at the "local x casino" - you play with chips, you win many more chips than you started with. As you are walking to the casino cage, it gets shut down, and a loudspeaker comes on saying the casino is closing for good. Since you cannot cash those chips, have you really earned any income? In fact, dont you have a loss (the chips you bought to start)?

Clearly, this is not a "gambling" loss as you didnt lose it in the game, but it would seem to me to be a loss.

Skallagrim

The US uses the doctrine of "constructive receipt" to determine when (or if) you have income. Skallagrim makes a slight error when he says, "In the IRS basic view, you "earned" the money the moment you stop playing a winning session...." You've earned the money if the chips have some value.

Assume you buy-in for $500, play, win $100, cash out, but between the time you cash out and the time you reach the cage the casino is closed and your chips become worthless. That individual has no income, and likely has a loss of $500. (This would not be a gambling loss. There are several ways for tax purposes of handling this loss, and that's beyond the scope of this post.)

Now, take the example of a gambler who buys-in for $500, wins $100, and puts the chips in his box. One week later the casino is destroyed, the owners flee the country, and the gambler is out $600. He has a gambling win of $100, and a loss (not a gambling loss though) of $600.

For the online gambler the questions that must be asked are, (a) could the gambler have used the funds he won for more gambling, or (b) could he have cashed out at any time after he won? If the answer to either question is yes that gambler generally has a reportable gambling win for tax purposes.

There are two recent examples that illustrate this issue. Last year many individuals were impacted by Neteller. They won money in 2006, cashed out in 2007, but the funds were stuck in limbo for months. They clearly had gambling income in 2006, and even if the funds had not been returned until (say) 2008, the gamblers had to report that income on their 2006 tax returns and pay taxes.

More recently, Battlefield Poker and some other Microgaming skins went into receivership. Gamblers who had income in 2007 from one of these skins but waited until 2008 to withdraw the funds have reportable 2007 income. They may have a loss in 2008 (and this will depend on the ultimate outcome of the receivership) but that's a separate issue dealing with a different tax year.

Since it's certain that a gambler on FullTilt can use their funds for other gambling, and it's likely that he or she will be able to make a withdrawal at some time during 2008, and given the IRS' view of online gambling, winners on FullTilt clearly have gambling income for tax purposes.

-- Russ Fox

Makes sense to me (though its still not really "fair" ). THANKS RUSS

Skallagrim