Archive for the ‘Gambling’ Category

Casinos and ITINs: IRS Confirms Cease and Desist Letters Sent to “Several Large Casinos” (Update #2)

Friday, March 3rd, 2017

My stakeholder liaison at the IRS got back to me this morning and told me that the IRS has indeed sent letters to “several large casinos” ordering them to cease and desist issuing Individual Taxpayer Identification Numbers (ITINs). She was told by an IRS Attorney involved in this issue that:

Language in the PATH Act states that, “ITIN applicants residing outside of the United States must submit an application by mail or in person to the IRS (or to a consular officer). [emphasis added]”

This left no wiggle room for the IRS (in their view); thus, the letters to the casinos. Although no specific casinos were identified to me, the implication is that all casinos that had been authorized to issue ITINs have received the letter. It is a certainty that impacted casinos have either stopped issuing ITINs or will soon cease doing so.

The liaison also confirmed that a technical corrections bill is somewhere in the Congressional stream. This could mitigate this issue if it’s signed into law in the next couple of months. However, given the acrimony we’re seeing out of Washington I’m not holding my breath on that happening anytime soon.

This means it is close to a certainty that non-Americans who do not have an ITIN and are from tax treaty countries [1] will face 30% withholding on tournament winnings of more than $5,000, including at this summer’s World Series of Poker (WSOP). The earlier Twitter comments from the WSOP are simply wrong. Impacted individuals can eventually get their money back (by filing a Form 1040NR after year-end along with an application for an ITIN); however, any impacted players will wait months to get money back that they should not have had withheld in the first place.

Should a technical corrections bill show some progress I will post on it.

Prior Coverage: Original Post, Update #1

[1] As noted in Publication 515, “Gambling income of residents (as defined by treaty) of the following foreign countries is not taxable by the United States: Austria, Belgium, Bulgaria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Tunisia, Turkey, Ukraine, and the United Kingdom.”

Online Gambling Addresses for 2017

Monday, February 20th, 2017

With the United States v. Hom decision, we must again file an FBAR for foreign online gambling sites. An FBAR (Form 114) is required if your aggregate balance exceeds $10,000 at any time during the year. (The IRS and FINCEN now allege that foreign online poker accounts are “casino” accounts that must be reported as foreign financial accounts. The rule of thumb, when in doubt report, applies—especially given the extreme penalties.)

There’s a problem, though. Most of these entities don’t broadcast their addresses. Some individuals sent email inquiries to one of these gambling sites and received politely worded responses (or not so politely worded) that said that it’s none of your business.

Well, not fully completing the Form 114 can subject you to a substantial penalty. I’ve been compiling a list of the addresses of the online gambling sites. It’s presented below.

FINCEN does not want dba’s; however, they’re required for Form 8938. One would think that two different agencies of the Department of the Treasury would speak the same language…but one would be wrong.

You will see the entries do include the dba’s. Let’s say you’re reporting an account on PokerStars. On the FBAR, you would enter the address as follows:

Rational Entertainment Enterprises Limited
Douglas Bay Complex, King Edward Rd
Onchan, IM31DZ Isle of Man

Here’s how you would enter it for Form 8938:

Rational Entertainment Enterprises Limited dba PokerStars
Douglas Bay Complex, King Edward Rd
Onchan, IM3 1DZ Isle of Man

You will also see that on the FBAR spaces in a postal code are removed; they’re entered on Form 8938. You can’t make this stuff up….

Finally, I no longer have addresses for Bodog or Bovada. If anyone has a current mailing address, please leave it in the comments or email me with it.

Note: This list is presented for informational purposes only. It is believed accurate as of February 20, 2017. However, I do not take responsibility for your use of this list or for the accuracy of any of the addresses presented on the list.

The list is in the cut text below.

If anyone has additions or corrections to the list feel free to email them to me.

Casinos and ITINs: Update #1

Sunday, February 19th, 2017

On Monday I wrote about Las Vegas casinos receiving letters ordering them not to issue ITINs (Individual Taxpayer Identification Numbers). When I wrote the post, I knew of one major Las Vegas casino that had received this letter; I assumed the letter was sent to all casinos that had been authorized to issue ITINs. I noted that this could have a major impact on the World Series of Poker (WSOP); the WSOP posted on their Twitter account that everything was currently the same as it had been (they were still issuing ITINs).

Since I wrote that post:

1. I have confirmed that a letter was sent to a second Las Vegas casino. I still assume that all casinos that have been authorized to issue ITINs received this letter.

2. What I don’t know is how fast the IRS ordered casinos to cease and desist from issuing ITINs. The IRS would certainly give casinos some time to implement the new policy; I would think it’s somewhere between 30 and 90 days in the future (from the date of the letter). Unfortunately, I do not know what the deadline is. It’s possible that the deadline is, say, July 31st (conveniently after the end of the WSOP) but I think that’s unlikely.

3. I made an inquiry to my IRS Stakeholder Liaison to obtain the information from the IRS. Tax professionals have stakeholder liaisons at most tax agencies to help with systemic issues (and some other items). My liaison is looking into this, but has yet to give me any answers.

4. I also made an inquiry to the National Association of Enrolled Agents (NAEA), my professional society. They have contacts at IRS headquarters that may be able to get an answer faster than I can through the liaison.

5. The WSOP tweeted that this won’t impact them. If this IRS policy goes into effect before the WSOP, it will impact them. As I wrote earlier, there’s no way that Caesars Entertainment will be allowed to issue ITINs and all other casinos won’t be; that fails the smell test. That the Rio can issue an ITIN today is meaningless; the question is will they be able to do so in the future.

Like many policies that the IRS has implemented, this makes little sense. Unfortunately, the IRS is interpreting a law passed by Congress. While a ‘technical corrections’ bill is somewhere in the Congressional stream, it’s not likely to be enacted that quickly given the partisan bickering we’re seeing in Washington. I also believe that member casinos will complain to the American Gaming Association once the impact of this is realized.

The reason I made my initial post (and will continue to post on this issue) is to alert poker media, with the hope that this issue will get resolved favorably: either the IRS relents on their new dictum due to pressure from the casinos, a technical corrections bill passes, or some other action that results in a solution to this issue. We shall see.

Casinos Can No Longer Issue ITINs

Monday, February 13th, 2017

Suppose you’re a resident of the United Kingdom and you come to Las Vegas to play in the World Series of Poker (WSOP) or just try your luck at a slot machine here. You have good luck and manage to win $10,000. Even better, given that the United States and the United Kingdom have a tax treaty you know you won’t owe any tax to the IRS. Imagine your surprise when the casino hands you $7,000 rather than $10,000. You’re informed that casinos are no longer allowed to issue Individual Taxpayer Identification Numbers (ITINs) by the IRS; unless you have a valid ITIN the casino must withhold 30% of your winnings.

On Friday, the IRS sent a major casino here in Las Vegas a letter informing them that because of a provision in the PATH Act no one but the IRS can issue ITINs. I assume all casinos that had been authorized by the IRS to issue ITINs have received this letter and are implementing this policy.

If you have a valid ITIN (and have renewed it, if applicable), this new policy won’t matter to you. For all other non-Americans who would normally not be subject to withholding you need to obtain an ITIN. Unfortunately, this is anything but easy.

You used to be able to use a Certified Acceptance Agent (CAA). CAAs were in numerous countries and would be able to obtain an ITIN for those who could show a Tax Treaty reason for doing so. The PATH Act ended CAAs so that’s gone.

There used to be a few IRS employees outside the United States. You could make an appointment to see one of these individuals, show him or her the required documents, and you would have an ITIN issued. Unfortunately, there no longer are IRS employees abroad.

You can, of course, send in Form W-7 and all required attachments (this includes your passport) to the IRS. Given you just might need that passport this doesn’t look like a good solution.

That leaves just one method that I know of: Going to an IRS office, proving a Tax Treaty reason, and submitting the required documents. An IRS employee will make a copy of your passport. While you will not get the ITIN immediately (the paperwork is still sent to the ITIN office in Austin, Texas) you will still have your passport. In eight to sixteen weeks you will receive your ITIN in the mail.

But what about those winnings? If you take that money now, the casino will give you a Form 1042-S and withhold the 30%. You can then file a US tax return the following year, attaching a copy of the 1042-S, and six or so months later you will receive your withholding back. (This assumes you reside in a country that has a Tax Treaty with the US that exempts gambling winnings from taxation.)

The poker room manager I spoke with noted that you could leave the money with the casino and come back when you have your ITIN. That may work if you don’t need that money and the casino will allow that. Otherwise, you will likely be without the withheld funds for some time.

The National Association of Enrolled Agents (NAEA) sent a letter to the IRS requesting that CAAs continue to be allowed to issue ITINs. The IRS responded by saying “blame Congress, not us.” I expect the American Gaming Association to complain to both the IRS and Congress about the inability of casinos to issue ITINs.

There’s one last issue: You can no longer just walk into an IRS office and get assistance; you must make an appointment. You have to call the IRS (at 844-545-5640; this phone number works for making an appointment at any IRS office) to make an appointment at the IRS office in downtown Las Vegas. The last time I checked if you called today the earliest you would have your appointment is two weeks from today. If you don’t have an ITIN, reside in a Tax Treaty country, and plan on playing in the World Series of Poker this summer, you may want to make an appointment with the IRS so that you can start the process of obtaining your ITIN prior to playing.

Hopefully, the IRS and/or Congress will reconsider this policy. Until then, the IRS is playing the role of the Grinch for many gambling winners.

UPDATE: The World Series of poker tweeted that they will still be able to issue ITINs:

While I hope that @WSOP is correct, based on what I’ve been told they’re wrong (unless Congress changes the law or the IRS changes their mind). The problem is that the IRS has interpreted the PATH Act that only they can issue ITINs. The individual I spoke with is certainly in the know, and the casino he works act has issued ITINs in the past and would like to continue issuing ITINs. The IRS can’t discriminate and allow Caesars Entertainment’s casinos to issue ITINs while MGM/Mirage, Venetian, and Wynn/Encore cannot.

My hope in publicizing this decision is that the policy will change, either by Congress acting or groups such as the American Gaming Association pressuring the IRS.

Consulting, Gambling; There’s No Difference, Right?

Monday, February 6th, 2017

The Tax Court looked at an individual (call him “Mr. A.”) who looked like a professional poker player, appeared to have an income from poker, but was described on his tax return as a “consultant.” His tax return showed less than half the income that his W-2Gs totaled. The IRS added in a negligence penalty, and the whole dispute ended up in Tax Court.

Before I get into the meat of the case, a comment about gambling and the IRS (and the Tax Court). The IRS does not have a good understanding of the mechanics of poker tournaments. The petitioner today lost some deductions because of this (and that they didn’t explain things point by point). For example, the Court stated (in footnote 4):

The parties also stipulated the authenticity of two receipts showing that Mr. A had paid buy-ins as an “alternate” to participate in “$540 No Limit Hold’em” contests at the Bellagio on July 11 and 17, 2009. As the record does not disclose whether Mr. A in fact played–and if he did not, whether his buy-in was refunded–we conclude that petitioners have not shown that Mr. A paid these buy-ins.

That’s not how alternates in a poker tournament work. Alternates are just the people who get seated when original entrants are eliminated from the tournament. I’ve never seen or heard of an alternate not being seated. But the petitioners didn’t mention this in their briefs or testimony, so the Court used what they thought the term meant, not what really happens in poker tournaments. But I digress….

The problems began with the preparing of their 2009 return.

The return was prepared by petitioners’ accountant…who has a master’s degree in accounting and had previously prepared tax returns for professional poker players. For purposes of preparing the return, Mr. A advised the preparer that his exclusive source of income in 2009 was his poker tournament winnings. He further advised the preparer that he did not have records of the expenses he incurred in order to play in poker tournaments. The preparer concluded that Mr. A was a professional poker player on the basis that poker was his exclusive source of income. Given the absence of expense records, the preparer advised petitioners to report the net income from the gambling activity on Schedule C as gross receipts but not to report any offsetting business expenses.

Let’s look at the problems here. First, the IRS computer system was almost certain to hiccup on this return. If the W-2Gs totaled $42,000 and you report $21,000, there’s a problem. I’m certain that the petitioner received an IRS automated underreporting unit notice on this issue. The second problem deals with the preparer. Tax returns have places for expenses; they aren’t supposed to be lumped with gross receipts. Additionally, there are basic standards in preparing a return. The idea of a preparer putting down, say, $10,000 for expenses when a client says he has no records of those expenses makes no sense.

The taxpayers return showed a Schedule C—the only source of income—with $20,045 of net and gross income. The Schedule C was listed Mr. A’s occupation as “Consultant.” The IRS assumed that was the case, and saw $40,395 of wagering income to be added to the return. That was the first issue. This they won:

On the basis of Mr. A’s and his accountant’s testimony and the entire record, we agree with petitioners. Other than the reference on the Schedule C to Mr. A’s business as a “consultant”, there is no evidence that Mr. A engaged in any consulting activities for compensation during 2009. He denied doing so. When called upon to explain why Mr. A’s business was described as that of a “consultant” on the Schedule C, both he and his accountant dissembled. In the circumstances, we conclude that the business was described this way in a misguided attempt to head off the closer scrutiny of the return that would likely be triggered by a description of Mr. A’s business as “poker” or “gambling”–scrutiny that would likely unearth the inadequacies in the substantiation of Mr. A’s expenses.

The Court included gambling winnings that weren’t on W-2Gs. Yes, all income is taxable no matter if you receive a piece of paper or not. The Court noted, “On this record we find that Mr. A had poker tournament winnings of $48,686 for 2009. Given our conclusion that petitioners reported $20,045 of Mr. A’s gambling income on their return, it follows that they had unreported gains from wagering transactions of $28,641 for 2009.”

The IRS contended that the petitioner wasn’t a professional gambler. Given that the only source of income for the petitioner and his wife was his gambling, the petitioner won this argument. He also was able to deduct his losing poker tournament entries (save the “alternate” entries that the court got wrong).

The taxpayer ran into trouble with his business expenses. “Deductions are a matter of legislative grace, and the taxpayer bears the burden of proving entitlement to any deduction claimed on a return.” Mr. A. was allowed to deduct those items that he had receipts for. There were almost certainly more expenses, but a line from Tom Clancy comes to mind: If you don’t write it down it never even happened. That’s definitely the case for business expenses: Keep receipts and good records!

The IRS also asserted an accuracy-related penalty for negligence or disregarding IRS rules and regulations.

“‘[N]egligence’ includes any failure to make a reasonable attempt to comply” with the internal revenue laws. Sec. 6662(c). It connotates “a lack of due care or the failure to do what a reasonable and ordinarily prudent person would do under the
circumstances…This includes “any failure by the taxpayer to keep adequate books and records or to substantiate items properly.” Sec. 1.6662-3(b)(1), Income Tax Regs. Disregard of rules or regulations includes any careless, reckless, or intentional disregard of the Internal Revenue Code, the regulations, or certain Internal Revenue Service administrative guidance.”

Respondent contends that petitioners are liable for an accuracy-related penalty on the basis of negligence. We agree. They failed to maintain records of Mr. A’s gambling activities, including the related expenses. Lacking adequate records, they filed a return that reported an estimate of their net income as if it were gross receipts. As a consequence, they significantly understated both gross receipts and net income. They also participated in a misrepresentation of Mr. A’s business as being that of a consultant rather than a professional poker player. The failure to keep records is prima facie evidence of negligence, and the misrepresentation of the nature of Mr. A’s business falls short of a reasonable effort to comply with the internal revenue laws…

Petitioners have not shown reasonable cause and good faith with regard to any portion of the underpayment. While they were advised in the preparation of their return by an accountant, the return as prepared stated a gross receipts figure that Mr. A certainly knew to be inaccurate and further identified the nature of his business in a way that both petitioners knew to be inaccurate. Petitioners have not shown that they acted with reasonable cause and in good faith with respect to any portion of the underpayment. They are liable for the negligence penalty under section 6662(a).

Some helpful hints if you want to fade into the crowd: Accurately report your gross receipts. The IRS matches things reasonably well, and if they have records that show you have $50,000 of income and your report $20,000, there’s going to be a notice sent to you. If you’re a consultant, would you note your occupation as “professional gambler?” I assume not. The converse is also true; if you’re a professional gambler, you’re not a consultant.

Second, you sign your return, and you’re expected to review it. If you’re gross income is $50,000 and you report $20,000, that you used a tax professional will not absolve you from the accuracy-related penalty.

Finally, keep good records! Every time I get a new client I emphasize with them the importance of keeping good records. An audit is an inconvenience if you have records that substantiate what’s on your tax return. If you don’t, it will be a very painful, very expensive inconvenience.

Case: Alabsi v. Commissioner, T.C. Summary Opinion 2017-5

Gambling With an Edge Podcast

Sunday, November 20th, 2016

I am the guest on this week’s Gambling With an Edge Podcast. We discuss year-end tax planning, Caesars’ bankruptcy, tax deadline changes for 2016 returns, and how the final table players of the main event of the World Series of Poker made out with taxes. This was my third appearance on Gambling With an Edge; my other appearances are available on their website or iTunes.

No Gambling Log, No Problem, Right?

Tuesday, November 8th, 2016

Two married poker players worked as house players (commonly called “proposition players” or “props”) in California. They were paid wages for their work, but they had gambling winnings that they didn’t include on their tax return. They state they lost money (more than their winnings) each month with their poker playing so the winnings needn’t be included on their returns. The IRS disagreed. The dispute made its way to Tax Court.

The petitioners worked at the Hustler Casino in Gardena, California (south of downtown Los Angeles), one of the card rooms (poker clubs) in the Los Angeles metropolitan region. They were hired by the Hustler to start poker games, and fill those games until other customers came. Such house players are common, and are used at off hours or to start games.

One of the petitioners happened to be at the right place at the right time and shared in a “Bad Beat” jackpot worth $16,800 (noted on a W-2G). Because their losses exceeded their wins, the petitioners simply ignored the W-2G. Although not specified in the Tax Court’s opinion, petitioners likely received an Automated Underreporting Unit Notice (probably a CP2000) noting the missing income. Eventually a Notice of Deficiency was issued, and the case made it to Tax Court.

Petitioners didn’t note what they won or lost. From the Opinion:

Petitioners assert that initially they tried to keep track of their poker winnings and losses by writing down the amount won or lost at the end of each day, but after a while they gave up that practice because it is “bad for your psyche * * * you need to be strong mentally” when playing cards.

The Opinion goes into how gambling losses for a proposition player should be noted (whether it’s an unreimbursed employee expense or a gambling loss), but the Court first had to determine the losses.

Regardless of whether petitioners were employees or independent contractors, they were engaged in a gambling activity and are required to substantiate their reported gambling losses. Accordingly we first look to the issue of whether petitioners substantiated their reported gambling losses.

Deductions and credits are a matter of legislative grace, and taxpayers must prove entitlement to the deductions and credits claimed. Taxpayers are required to identify each deduction, show that they have met all requirements, and keep books or records to substantiate items underlying all claimed deductions. To establish entitlement to a deduction for gambling losses the taxpayer must prove the losses sustained during the taxable year. The Commissioner has suggested that gamblers regularly maintain a diary, supplemented by verifiable documentation, of gambling winnings and losses. A taxpayer’s “contention that it was too difficult for him to maintain contemporaneous records of his gambling activities is without merit.”[citations omitted]

The “bad for your psyche” defense isn’t a good one at Tax Court. The petitioners didn’t provide any evidence of their losses. They could have used a phone app to note their gambling results or pen and paper. They provided no confirmation to the Court, so the Court was left with little choice but to affirm the Notice of Deficiency.

A helpful hint for props: Keep a gambling log! It’s not hard (there are even phone apps you can use). Yes, your psyche may be damaged by a bad day at the poker table but you won’t suffer a second loss in Tax Court if you keep that log.

Case: Pham v. Commissioner, T.C. Summary 216-73

The 2016 Real Winners of the World Series of Poker

Wednesday, November 2nd, 2016

Nine individuals came to Las Vegas over the last three days to compete for the championship at the World Series of Poker (WSOP). Who would be the lucky winner? And who really got to keep the money?

This year’s winner’s tax burden was nearly ten percent less than the second place finisher. Why? As my mother would say, “Location, location, location.” There are good tax states and bad tax states. Las Vegas may not have the beauty of the San Francisco Bay Area, but you sure do pay a lot in state taxes for living in California.

One other note: I do need to point out that many of the players in the tournament were “backed.” Poker tournaments have a high variance (luck factor). Thus, many tournament players sell portions of their action to investors to lower their risk. It is quite likely that most (if not all) of the winners were backed and will, in the end, only enjoy a portion of their winnings. I ignore backing in this analysis. Now, on to the winners.

Congratulations to Qui Nguyen of Las Vegas for winning the 2016 World Series of Poker Main Event. Mr. Nguyen won $8,005,310 for the victory. Mr. Nguyen defeated second place finisher Gordon Vayo after a grueling eight hour heads-up battle. Mr. Nguyen is a professional gambler, combining poker playing with baccarat; he’ll owe self-employment tax and federal income tax; because Mr. Nguyen resides in Nevada he doesn’t have to pay state income tax. I estimate Mr. Nguyen will lose only 41.51% of his win ($3,323,157) to tax. That’s the second-lowest tax hit of any of the Americans at the final table.

Gordon Vayo of San Francisco was in some ways the biggest loser. Yes, he finished in second place and earned $4,661,228. However, that was before taxes. Mr. Vayo may have left his heart in San Francisco, but because he resides there he’s leaving a lot of money to California’s Franchise Tax Board. Indeed, Mr. Vayo is losing an estimated 51.46% of his winnings to federal and state tax ($2,398,800); his net winnings are just $2,262,428. He will pay California’s top tax rate of 13.30%, on top of self-employment tax and federal income tax. Mr. Vayo is only the second individual since I’ve been writing these summaries to lose over half his winnings to taxes.

In third place was Cliff Josephy of Syosset, Long Island, New York. Mr. Josephy came into the final table with the chip lead, but fell to third place. Still, he takes home $3,453,035 before taxes. Unfortunately, New York is not a low-tax state; Mr. Josephy loses an estimated 48.50% of his winnings ($1,674,568) to federal and state tax. This isn’t as bad as California, but it’s certainly not as pleasant as here in Nevada.

Finishing in fourth place was Michael Ruane of Maywood, New Jersey. Mr. Ruane earned $2,576,003 for his placing fourth; however, that was before federal and New Jersey income tax. The professional poker player loses an estimated 45.75% of his winnings ($1,178,525) to tax. Because of the impact of taxes, Mr. Ruane finished in sixth place based on after-tax winnings.

Vojtech Ruzicka of Prague (Czech Republic) finished in fifth place. Mr. Ruzicka was one of the two luckiest players from a tax perspective: the US and the Czech Republic have a tax treaty exempting his winnings from withholding by the IRS and the Czech Republic has a flat 15% income tax. Only $290,293 of Mr. Ruzicka’s $1,935,288 in winnings will go toward taxes. While Mr. Ruzicka finished in fifth place based on pre-tax winnings, he ends up in fourth place based on after-tax winnings.

Kenny Hallaert of Hansbeke, Belgium was a big winner in spite of finishing in sixth place. Mr. Hallaert is a poker tournament director in Belgium. Belgium does not tax gambling winnings of non-professional gamblers, so Mr. Hallaert’s pre-tax winnings of $1,464,258 are also his after-tax winnings! Even better, the US-Belgium Tax Treaty exempts gambling winnings, so Mr. Hallaert doesn’t owe any US income tax. Even though he finished in sixth place, his after-tax winnings put him in fifth place.

Griffin Benger, a professional poker player from Toronto, Ontario, Canada, finished in seventh place. The tax situation in Canada for gambling remains fluid. The Canada Revenue Agency (the Canadian equivalent of the IRS) believes that gambling winnings for professional gamblers should be taxed. However, Canadian courts have generally disagreed; thus, today Mr. Benger does not owe any tax to Canada. However, 30% of his $1,250,190 in winnings ($375,057) were withheld for US income tax. Mr. Benger can file a US income tax return (Form 1040NR) to recover gambling losses up to the amount of his gambling winnings.

In eighth place was Jerry Wong of South Florida. The Brooklyn native earned $1,100,076, but that’s before taxes. He’s a professional gambler, so he will owe self-employment tax along with income tax. However, as a Floridian he avoids state income tax. I estimate he will lose $419,776 (38.16%) to tax.

Fernando Pons, an account executive who resides in Palma, Spain, finished in ninth place. Spain taxes its residents on their gambling winnings no matter where the winnings are won. And Spanish tax rates make the US look good: Mr. Pons will lose nearly 45% of his $1,000,000 of gross winnings to tax.

Here’s a table summarizing the tax bite:

Amount won at Final Table $25,445,388
Tax to IRS $8,108,024
Tax to Franchise Tax Board (California) $623,262
Tax to Agencia Tributeria (Spain) $449,584
Tax to New York Dept. of Taxation and Finance $422,752
Tax To Finanční Správa (Czech Republic) $290,293
Tax to New Jersey Division of Taxation $215,845
Total Tax $10,109,760

That’s a total tax bite of 39.73%.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Winner Before-Tax Prize After-Tax Prize
1. Qui Nguyen $8,005,310 $4,682,153
2. Gordon Vayo $4,661,228 $2,262,428
3. Cliff Josephy $3,453,035 $1,778,467
5. Vojtech Ruzicka $1,935,288 $1,644,995
6. Kenny Hallaert $1,464,258 $1,464,258
4. Michael Ruane $2,576,003 $1,397,478
7. Griffin Benger $1,250,190 $875,133
8. Jerry Wong $1,100,076 $680,300
9. Fernando Pons $1,000,000 $550,416
Totals $25,445,388 $15,335,628

While Michael Ruane finished in fourth place, he ends up in sixth place on an after-tax basis (passed by both the fifth and sixth place winners). While taxes may be the price of civilization, the price in the United States is high.

As usual, the IRS finished in first place: The $8,108,024 that the IRS will receive exceeds the first place prize of $8,005,310. That’s because we all know that the house (the IRS) always wins.

As The Caesars Turns, Episode 2

Tuesday, September 27th, 2016

Caesars Entertainment Operating Company (CEOC) today announced that they reached a restructuring agreement with its major creditors. The deal will likely allow CEOC to emerge from bankruptcy early in 2017. The settlement must be finalized and will require approval of the bankruptcy court.

“It’s important to recognize that a lot of work needs to be done in the next few weeks. Will there be bumps along the road? Yes. Is this a durable deal? Yes,” said Bruce Bennett, a lawyer for Jones Day representing junior creditors.

The deal will have CEOC merge with Caesars Acquisition Company, with first tier lenders getting about 115 cents per dollar, first lien holders getting 109 cents, and junior debt holders getting between 66 cents to 83 cents on the dollar.

But not everyone is settling. Trilogy Capital Management has $22 million of CEOC’s unsecured bonds and will pursue its lawsuit against the casino giant. The next hearing in Trilogy’s lawsuit against CEOC is scheduled for October 6th in New York. Trilogy is asking for $160 million in the lawsuit. The lawsuit, if it goes to trial, would likely confirm or deny whether Caesars truly split into a “good” Caesars and a “bad” Caesars (as Trinity and others claimed).

Tune in next week to see what happens with Trinity’s lawsuit and whether any other obstacles appear for the closure of the bankruptcy of CEOC.

As the Caesars Turns

Thursday, September 22nd, 2016

There have been more developments in the Caesars bankruptcy. First, Caesars Entertainment said it is offering an additional $1.6 billion for junior creditors of Caesars Entertainment Operating Company (CEOC) in the contentious bankruptcy. The stock market reacted favorably to the news Caesars stock went up 21% today.

The underlying issue in the bankruptcy is whether Caesars management deliberately created a “bad” Caesars (CEOC) and a “good” Caesars (everything else). Junior creditors are accusing Caesars of exactly that. Lawsuits on this issue are on hold but unless a court extends an injunction they’ll start moving forward in October.

Earlier this month Judge Benjamin Goldgar ruled that junior creditors are within their rights to have top management at Caesars complete financial disclosure statements. As Bloomberg reported,

Apollo co-founder Marc Rowan, company principal David Sambur and TPG co-founder David Bonderman must provide the information to a committee of dissident creditors who are fighting a reorganization proposal for Caesars, U.S. Bankruptcy Judge A. Benjamin Goldgar ruled. That plan would release the men from any legal liability related to the Las Vegas-based gambling company’s bankruptcy. The bondholders say the men shouldn’t be shielded from lawsuits related to the bankruptcy.

But is $1.6 Billion more enough? Given that an independent examiner said Caesars could be liable for over $5 billion in damages, I suspect junior creditors may be thinking “no.” Caesars management is threatening to put all of Caesars in bankruptcy, with the obvious implication that you might get a lot less if the bankruptcy expands. Perhaps the junior creditors are thinking that this is a sign of desperation; that they’ll get 100% of their debt back by either lawsuits or a full bankruptcy; or that Caesars will increase their offer yet again in the future.

When the bankruptcy began I asked and answered some questions:

How long will the bankruptcy process take? A long time…

Who will profit from the bankruptcy? That’s a question with a sure answer: the lawyers…

Why aren’t all of Caesars’ hotels included in the bankruptcy? If you look at the list, some of the hotels are merely operated by Caesars and won’t be included in the bankruptcy even if the second-tier debtholders win. However, it is definitely possible that the bankruptcy could expand and take in more of Caesars than just CEOC…

Could some of Caesars’ properties be sold?
Definitely. If this does not end up being a prepackaged bankruptcy, then each tier of debtors will propose a plan. One plan could be to auction various properties, so it’s definitely possible.

Nothing has caused me to change my opinions on any of these answers. The soap opera, er, bankruptcy began in January 2015; if you placed a bet on it reaching two years without resolution, your bet looks like a winner to me.

So stay tuned soon for the next exciting episode of “As the Caesars Turns.”