Taxable Talk

What happens when you make a few bets and win? Well, besides ending up with more money in your pocket, you have something else to put on your tax return; gambling winnings are taxable in the United States and go on line 21 (Other Income) of Form 1040.

Many gamblers forget to tell their accountant about their winnings. The problems begin when you get caught as you can find yourself facing tax evasion charges. Cyrus Bland, of Campbellsville, KY was convicted on Thursday of filing false income tax returns. He played craps on riverboats in Indiana and came up a big winner -- to the tune of nearly $500,000 in 1998 and almost $450,000 in 1999.

But he didn't include his winnings on his tax return. And the IRS found out, and he's looking at a possible six years in prison and a fine of $500,000. Oh, he has to pay the back taxes, interest, and penalties, too.

Sure, the tax code isn't fair for gamblers. But I bet Mr. Bland is wishing he had paid the taxes on his winnings.


News Story: Central Kentucky News-Journal

The TaxProf Blog links to an extremely interesting article by Julian Dibbell on whether virtual profits in online multi-player games are taxable under the Internal Revenue Code. There's also a link to a second article on CNET titled "The Tax Man Cometh, Online."

So, let's assume you exchange your spells for 100 Gold Pieces. Is there any tax due? Well, since it's in a game, I'd assume not. But if you sell your spells for $100, haven't you made $100 in income and owe tax? Luckily for online gamers, the IRS' response was "That's so wierd."

I think it would be humorous if every time there were an online transaction in one of these games, a virtual IRS agent appeared and demanded his cut. Actually, this isn't as far-fetched an idea as you might think.

The people playing these games pay a subscription price to the companies running the games. Aren't taxes a fair way for the gaming companies to earn their incomes?


Hat Tip: TaxProf Blog