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2008 and the rumored tax law implication

As I prepare for an explosive 2008 year in tournament poker with a quest to land corporate sponsorship at the Nascar level (but for poker) I have been researching and collecting information to ensure my future sponsors do not incur any surprises as I plunge back in as a professional poker player. 

One issue that has the poker world steaming was the rumour regarding a new Tax law that will implemented by the IRS on March 4th, 2008.   I use the term “rumor”, as I haven’t been able to find any credible sources (until now) on what the tax law is and why its being implemented.  Previous to talking with Blaise Dusenberry of the Office of Associate Chief Counsel, thousands of poker players across the US believed that 30% of all tournament winnings over $5000 would be withheld by the IRS, in conjunction with the casino where the tournament was held (described by the IRS as the Sponsor).  Poker players further believed this chunk of cash would be taken from the player at the time of winning and they could retrieve the withholdings at tax time the following year when they filed.  This is absolutely, positively 100%….not true. 

Today I called Ms. Dusenberry, who took the time to explain to me that the IRS is not witholding any taxes from any players unless the casino (where the tournament is being held) is unable to verify a players’ valid Social Security Number with a matching picture ID.  She went on to tell me that the reason the tax procedure and law is being implemented is for those players who refuse to provide a Social Security Number and try to avoid receiving a W-2G form.  Apparently there has been a plethora of players over the years who have been avoiding gambling tax winnings and the IRS stepped in to ensure everyone was on the same playing field when it comes to winning and paying taxes.  Ms. Dusenberry was very passionate in describing to me how players that abide by the tax laws should not be the only ones to comply with IRS regulation while other players have been getting around the tax system for years avoiding taxes all together.

This new law will  simply force everyone to provide a Social Security at the time of winning, and if they refuse or are from out of the Country, 28% of the total will be withheld by the Casino in escrow for the IRS.  For Canadians and other tax treaty countries, players will be able to retrieve their withholdings by going through the proper government channels of their respective country or use services like RefundManagement.com that will provide you with a refund in a short time and go through all the red tape  for you to ensure any withholdings are recovered. 

As a professional poker player that is coming back onto the circuit on a full time basis, I have to say I was relieved to learn and understand exactly what the IRS was doing and squash the rumor that is circling the poker world.  I’ve copied and pasted the tax procedure as it was pointed out to me on the IRS.GOV site from Ms. Dusenberry:

Poker Tournament Winnings Must be Reported to the IRS
 
IR-2007-173, Oct. 19, 2007 WASHINGTON — Starting next year, casinos and other sponsors of poker tournaments will be required to report most winnings to winners and the Internal Revenue Service, according to the IRS.The new requirement, which goes into effect on March 4, 2008, was contained in guidance released Sept. 4 by the Treasury Department and the IRS. The guidance is designed to clear up confusion about the tax reporting rules that apply to poker tournaments. In recent years, some casinos and players have been confused over whether poker tournament sponsors who hold the money for participants in a poker tournament are required to report the winnings to the IRS and withhold tax on the winnings.For tournaments completed during 2007 and before March 4, 2008, casinos and other sponsors of poker tournaments will not be required to report the winnings to the IRS or withhold tax on the winnings. But beginning March 4, 2008, the IRS will require all tournament sponsors to report tournament winnings of more than $5,000, usually on an IRS Form W-2G.

Tournament sponsors who comply with this reporting requirement will not need to withhold federal income tax at the end of a tournament. If any tournament sponsor does not report the tournament winnings, the IRS will enforce the reporting requirement and also require the sponsor to pay any tax that should have been withheld from the winner if the withholding requirement had been asserted. The withholding amount is normally 25 percent of any amounts that should have been reported.

So that tournament sponsors can comply with this requirement, tournament winners must provide their taxpayer identification number, usually a social security number, to the tournament sponsor. If a winner fails to provide this identification number, the tournament sponsor must withhold federal income tax at the rate of 28 percent.

The IRS reminds tournament winners that, by law, they must report all their winnings on their federal income tax returns. This rule applies regardless of the amount and regardless of whether the winner receives a Form W-2G or any other reporting form. This is true for 2007 and earlier years, and will continue to be the case after the new reporting requirement goes into effect.

Related Item: Revenue Procedure 2007-57 in Internal Revenue Bulletin 2007-36.

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This entry was posted on Friday, December 14th, 2007 at 2:08 am and is filed under poker. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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