Taxable Talk

In March 2006, I wrote about Renato Medina, the principal owner of Lucky Chance's. Lucky Chance's is a cardroom located in Colma, just south of San Francisco. Mr. Medina and his niece and nephew were accused of tax evasion and conspiracy. At the time, they all stated their innocence. Mr. Medina's attorney (then) said, "This is a simple tax case...[and Mr. Medina] asserts his innocence."

Not anymore. As part of a plea agreement, Mr. Medina pleaded guilty to three counts of tax evasion (the remaining charges were dropped). He agreed to pay back the back taxes, penalties, and interest, which will likely total about $1 million.

Mr. Medina's arrest and the charges stem from a corruption probe of the small town of Colma. The first victims were two former mayors of Colma, Philip Lum and Ronald Maldonado. Both were accused of accepting free airline trips to the Philippines from Mr. Medina but not disclosing the gifts on required disclosure forms.

Mr. Medina has also agreed, as part of his plea deal, to serve between 15 and 21 months at ClubFed. Additionally, under California law he must give up his 100% ownership of Lucky Chance's. That had already been in the works, ostensibly for estate planning reasons, with the ownership transfer to his sons approved by both Colma and the California Gambling Control Commission.

Finally, Mr. Medina asked the government to drop the charges against his niece and nephew. The Department of Justice has yet to decide whether or not to do so.

News Story Here

As I reported earlier, the IRS has revisited Revenue Procedure 2007-57, which would have required withholding on all poker tournament payouts of more than $5,000. I had been told by someone at the IRS that the IRS was going to try to put into place the Binion's closing agreement ($600), which would have sent lots of paper to the IRS.

Apparently, the American Gaming Association has some good negotiators. This IRS Press Release states that reporting will be required on, "...tournament winnings of more than $5,000, usually on an IRS Form W-2G."

So instead of more reporting and withholding, there will actually be no change in withholding and less reporting of winnings! Casinos that currently follow the Binion's Closing Agreement will now only have to issue W-2Gs if a poker tournament winner receives more than $5,000 rather than $600.

The only caveat I'll place on all this is that the IRS still must re-release the Revenue Procedure. But it really appears that this is very good news for both poker tournament organizers and for poker players.

News Story: Reuters

The Las Vegas Sun reports today that the American Gaming Association and the IRS reached agreement that for poker tournaments if a casino/cardroom issues W-2Gs, then withholding at 25% will not be required on wins above $5,000.

From the IRS's point of view, poker tournaments have been seen as a part of the "Tax Gap." Players win, but because few W-2Gs are issued, the IRS hasn't been collecting its fair share. The goal in writing Revenue Procedure 2007-57 was to increase reporting.

It is my understanding that for a casino to not have to withhold, they will have to agree to abide by the Binion's closing agreement. (Many years ago, Binion's Horseshoe Casino and the IRS reached an agreement stating that they would issue W-2Gs on all gross wins of $600 or more, and that the IRS agreed not to require withholding except where the win was at least 300 times the buy-in.) However, casinos that do not agree to this rule will have to withhold 25% of payouts on wins of $5,000 or more.

Withholding will still be required on wins where the payout is 300 times (or more) of the buy-in (this impacts very few poker tournaments), and for non-US citizens where withholding is required either by tax treaty or by other regulations/rules.

While I still think that no withholding is required, and that Revenue Procedure 2007-57 is wrong, I do understand the IRS' motivation. It is very clear that many poker players do not report gambling winnings correctly. (Of course, the fact that gamblers are not well treated under the US Tax Code has something to do with that, too.) Given that no casino wants to get into a battle with the IRS, this outcome was probably the best that could be hoped for.