Form 8300, Cryptocurrency, and Gambling

August 9th, 2023

A Twitter/X post from John Reed Stark reminded me about an issue that may soon impact you if you are a professional gambler playing on one of the current US-facing sites such as Ignition or America’s Card Room (ACR).  FINCEN (the Financial Crimes Enforcement Network) Form 8300 requires anyone in business–this includes individuals (sole proprietors), partnerships, LLCs, and corporations–to report cash transactions of more than $10,000.  This law isn’t new, and like almost anything related to money laundering/FINCEN there are draconian penalties for not complying.  What is new is that cryptocurrency is considered “cash” for this purpose under Section 6050I of the Infrastructure Act (which passed in November 2021).  This section of the law takes effect on January 1, 2024.

Form 8300 requires you to inform FINCEN (or the IRS if you’re not subject to electronic filing rules) within 15 days of any transaction of more than $10,000:

Who must file. Each person engaged in a trade or business who, in the course of that trade or business, receives more than $10,000 in cash in one transaction or in two or more related transactions, must file Form 8300. Any transactions conducted between a payer (or its agent) and the recipient in a 24-hour period are related transactions. Transactions are considered related even if they occur over a period of more than 24 hours if the recipient knows, or has reason to know, that each transaction is one of a series of connected transactions.

This would include deposits onto gambling websites and withdrawals.  It would include two $5,500 transactions if you deliberately split your withdrawal into two transactions or if the gambling website splits the transaction into two.  (If you are outside of the United States when the entirety of the transaction occurs you are generally exempt.)

Today’s form doesn’t have a place for cryptocurrency, but I would expect that to be remedied by the end of the year (the last version of the form is dated August of 2014).  Form 8300 can be paper-filed or electronically filed on the BSA efile system.  (NOTE: Beginning January 1, 2024, if you are required to efile other information returns such as W-2s or 1099s, you will be required to efile Form 8300.)

While efforts exist in Congress to repeal the new Section 6050I, it’s highly unlikely these efforts will come to fruition.  Indeed, very little of substance has come out of this Congress; given the political divide in the country, expect this law to be in force in five months.  If you’re a professional gambler doing large cryptocurrency transactions (or, for that matter any business that accepts cryptocurrency) you will have more work ahead of you in the new year.


Unshocking News from the IRS: Staking Income Is Taxable

August 1st, 2023

In what shouldn’t be a surprise to anyone, the IRS announced yesterday in Revenue Ruling 2023-14 that staking income, when received, is taxable income based on the fair market value when constructively received.  This should be a surprise to no one–if you receive something with a value it’s an accession to wealth and that’s the definition of income.  For myself and our clients, this has been how we’ve treated staking income because the answer of whether or not this was taxable was so obvious.

The Real Winners of the 2023 World Series of Poker

July 18th, 2023

Yesterday afternoon, the 2023 Main Event of the World Series of Poker concluded. A record 10,043 entrants ponied up the $10,000 buy-in to the event leading to a prize pool of $93,399,900 (the $7,030,100 difference is the funds kept by Caesars for running the event). We focus on the nine-handed final table, but 1,507 received winnings from the prize pool; a minimum cash was worth $15,000. The winner received a whopping $12.1 million; however, did he get to keep it all?

One important 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 (and/or “swap” action with other entrants). It is quite likely that most (if not all) of the winners were backed (or had swaps) and will, in the end, only enjoy a portion of their winnings. I ignore backing and swaps in this analysis (because the full details are rarely publicized). Now, on to the winners.

Congratulations to Daniel Weinman, a professional poker player from Atlanta. On the final hand, Steven Jones, the runner-up, raised and Mr. Weinman called. On the flop of J-5-2, Mr. Weinman checked, Mr. Jones made a continuation bet, and Mr. Weinman raised with Mr. Jones calling. The turn came a 4, Mr. Weinman bet again, Mr. Jones raised all-in (after a four minute deliberation), and Mr. Weinman called in less than 30 seconds. Both players had a pair of Jacks (Mr. Weinman held K-J while Mr. Jones held J-8). Mr. Jones needed an eight on the river to win the hand, but the river was an Ace giving Mr. Weinman the championship. First place was a cool $12.1 Million. Mr. Weinman owes federal and state income tax and self-employment tax on his winnings. I estimate he will pay $4,831,195 to the IRS and $690,777 to the Georgia Department of Revenue (45.64% lost to taxes).

Second place went to the aforementioned Steven Jones. Mr. Jones, a real estate broker from Scottsdale, Arizona, earned $6.5 million for finishing second. An amateur gambler, Mr. Jones avoids self-employment tax but does owe income tax to Arizona. I estimate he will owe $2,364,616 to the IRS and $193,700 to the Arizona Department of Revenue (taxes took 39.36% of his winnings).

In third place was Adam Walton of nearby Henderson. Mr. Walton was eliminated when his pair of eights ran into Daniel Weinman’s pair of aces. Mr. Walton, a professional poker player, earned $4 million for his finish. As a Nevada resident, he avoids state income tax. However, he does owe federal income tax and self-employment tax. I estimate he will pay $1,557,986 (38.95%) in tax to the IRS.

Jan-Peter Jachtmann, a marketing manager and publisher of PokerBlatt in Germany, finished fourth for $3,000,000. Formerly a pot-limit Omaha specialist (Mr. Jachtmann won a WSOP event in that game in 2012), he’s likely to play quite a bit more no-limit hold’em in the future. On his final hand, his King-Queen ran into the pocket Aces of Adam Walton; the board gave Mr. Jachtmann no help and he was eliminated. The US-Germany Tax Treaty exempts gambling from withholding. Fortunately for Mr. Jachtmann, Germany taxes only professional poker players. Germany’s Rennwett und Lotteriesteuer (which dates to 1922!) exempts winnings of players (except for professionals). So as long as Mr. Jachtmann keeps his gambling as a hobby he won’t have to pay tax on it to Germany.

Finishing in fifth place for $2,400,000 was Ruslan Prydryk of Lungansk, Ukraine. Mr. Prydryk, a lawyer by training, plays poker part-time. He moved all-in with Queen-Ten, but ran into an Ace-Jack from his opponent. It didn’t help that the opponent also flopped two-pair. The US and Ukraine do have a tax treaty, and it exempts gambling so the IRS gets nothing. Ukraine does tax gambling, though; he faces a 19.5% flat tax rate. He ends up owing an estimated $456,000 (or 16,751,816 hryvnia) to the State Tax Service of Ukraine.

The sixth place finisher was Dean Hutchison, a professional poker player from Glasgow, Scotland. Mr. Hutchison’s long run in the main event ended when his pocket fives ran into the pocket sevens of Jan-Peter Jachtmann (and he received no help from the community cards). Mr. Hutchison earned $1,850,000 for his deep run in the event. Better still, he benefits from two quite favorable tax situations. First, the tax treaty between the United States and the United Kingdom exempts gambling from withholding. Second, the United Kingdom doesn’t tax gambling–even for professional gamblers. It’s always nice when your after-tax income is legally the same as your pre-tax income.

Toby Lewis, a professional poker player from Southampton, England finished in seventh place. Mr. Lewis was perhaps the most accomplished tournament player (along with Daniel Weinman) who made the final table. He maneuvered his short starting stack up two places to finish in seventh for $1,425,000. Like the aforementioned Mr. Hutchison, Mr. Lewis gets to keep all of his winnings thanks to the US-UK Tax Treaty and UK law.

In eighth place was Juan Maceiras of La Caruna, Spain. The Spanish poker professional entered the final table in fifth place but could never get anything going. Still, $1,125,000 is a good consolation prize. The US-Spain Tax Treaty exempts his winnings from withholding by the IRS. However, Spain does tax gambling. Indeed, Spain’s Agencia Tributeria is well known in poker circles as looking for every penny it can find (it has gone after winnings of non-Spaniards who cashed in poker tournaments held in Spain). Earlier this year, the Agencia Tributeria ruled that professional poker players are professional sportsmen; that means Spain gets to withhold tax on non-Spaniards winnings in Spain. For Mr. Maceiras, he will be in Spain’s top tax bracket of 47% (on income of €300,000 or more). Overall, I estimate Mr. Maceiras will owe $528,750 (€523,400) to Agencia Tributeria; he pays the highest percentage of tax of any of the final table participants.

The ninth place finisher was Daniel Holzner. Mr. Holzner is an apple farmer in Italy (yes, he really is) and received the entry as a birthday present for turning 30. He is quoted by PokerNews, “…I guess I have to make a really big, big, big party for them, all of them.” He’ll have plenty of funds for that party. His ninth place finished earned him $900,000. The US-Italy Tax Treaty exempts Italians from withholding. However, he will be taxed in Italy. (Gambling winnings in Italy and the European Union are exempt from Italian tax.) I estimate he will owe $387,000 to Italy’s Agenzia delle Entrate (a high 43% tax rate).

Here’s a table summarizing the tax bite:

Amount won at Final Table $33,300,000
Tax to IRS $8.753.797
Tax to Georgia Department of Revenue $690,777
Tax to Agencia Tributeria (Spain) $528,750
Tax to State Tax Service (Ukraine) $456,000
Tax to Agenzia delle Entrate (Italy) $387,000
Tax to Arizona Department of Revenue $193,700
Total Tax $11,010,024

That means 33.06% of the winnings at the final table goes toward taxes.

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

Winner Before-Tax Prize After-Tax Prize
1. Daniel Weinman $12,100,000 $6,578,028
2. Steven Jones $6,500,000 $3,941,684
4. Jan-Peter Jachmann $3,000,000 $3,000,000
3. Adam Walton $4,000,000 $2,442,014
5. Ruslan Prydryk $2,400,000 $1,944,000
6. Dean Hutchison $1,850,000 $1,850,000
7. Toby Lewis $1,425,000 $1,425,000
8. Juan Maceiras $1,125,000 $596,250
9. Daniel Holzner $900,000 $513,000
Totals $33,300,000 $22,289,976

Once again, a player ended up placing higher than his actual finish based on after-tax results. This year, Mr. Jachmann of Germany was the beneficiary of being an amateur gambler. Do note that German professional gamblers don’t get such a good tax result. Indeed, many German professional poker players have moved to Austria (a much more favorable tax situation).

The Internal Revenue Service did not end up with taxes that exceeded the first place winnings; the agency will have to be content with finishing in second place (based on pre-tax prizes) with a haul of just $8,753,797. Still, you can’t say that the IRS didn’t do poorly because the house always wins.

Vermont Flood Victims Get an Extra Month to File their Returns

July 13th, 2023

Many areas of Vermont have seen severe flooding over the past couple of weeks.  The area has been declared a federal disaster area.  The IRS announced today that impacted individuals have an extra month to file returns on extension (until November 15th); business returns on extension are also now due on November 15th.  Unfortunately, today’s weather forecast for Vermont includes more thunderstorms and possible severe weather that might exacerbate an already bad situation.

The Supreme Court Takes Up a Wealth Tax; You May Need to File a Protective Claim for Refund

June 26th, 2023

At the end of 2017, Congress passed the Tax Cuts and Jobs Act (TCJA).  This complex measure added some deductions (such as the Deduction for Qualified Business Income), added restrictions on other deductions (such as the $10,000 limit on taxes as an itemized deduction), and added a few taxes.  One of the taxes added was the Section 965 Repatriation Tax.

Charles & Kathleen Moore invested in 2006 in an Indian company that was profitable. Under this tax, they had to pay (in 2017) tax on all the accumulated income even though they had never received any of the income.  They owed about $14,729 in tax.  They paid the tax, but then filed a Claim for refund (which was denied).  They then filed a lawsuit in federal district court in Washington to recover the tax.  The district court dismissed the case; the 9th Circuit Court of Appeals affirmed the dismissal on appeal.  You can read the Moore’s petition here; you can read the United States’s brief in opposition here; and you can read the Moore’s reply here.

If you were impacted by the Section 965 tax, you may have only until July 15, 2023 to file a “Protective Claim for Refund” for the 2019 tax year.  Two of our clients are impacted by this, and we notified both of them today.  (An option available with the tax was to pay this over an eight-year period; both of our impacted clients chose this option so they can still file a protective claim for 2019.)

I’ll have more on this case in the next few weeks, as it impacts the idea of wealth taxes (something that Senator Sanders, among others, likes the idea of).

The Flu Strikes

June 15th, 2023

On Monday, I went home around 1pm.  I felt awful.  When I got home I discovered why: I had a fever of 100.  It peaked at 103, but I’m still in triple digit land.  Worse, I appear to be a generous soul: I gave it to everyone in our office.  Thus, our office is closed until someone recovers.  (And yes, everyone in our office got flu shots this past winter.)  Given the flu normally is a one to two week illness, it’s likely to be sometime next week.

When the IRS Computer Sends Out Lots of Bad Notices…

June 7th, 2023

Almost everyone in California has an extension for filing and paying their taxes until October 16th (a result of the flooding in the state in January).  The IRS certainly know about this: they issued multiple announcements on the extensions.  Thus, a California taxpayer could file his or her return today and pay in October without any late payment penalties, late filing penalties, or interest (from April 15th onward).  This is absolutely, positively correct.


Yes, there’s a but.  The wonderful IRS computer is sending out balance due notices to California clients (including one of ours).  John Smith (not his real name) owes the IRS about $30,000 for his 2022 tax (the return was filed in mid-May); he’s already set up a payment on IRS Direct Pay for October 16th.  Earlier this week he received a CP14 notice showing his balance due with penalties and interest.  This caused him to call me, where I confirmed that he didn’t have to pay the IRS until October and that the IRS notice was erroneous, and:

  • Mr. Smith previously called the normal IRS telephone line (800-829-1040), and the agent he spoke to wasn’t aware of the extension for Californians and told him that he did need to pay now or penalties or interest would be charged.  He also waited on hold for over two hours before speaking with someone;
  • I called the Practitioner Priority Service and discovered that (a) calls regarding these notices are heavy, (b) the IRS is apparently looking at stopping sending out the CP14 notices to Californians, and (c) yes, almost everyone in California doesn’t have to pay until October 16th.

The agent I worked with did put a freeze on notices to Mr. Smith, so his situation should be fine.  (It’s possible he’ll receive another notice in early October, but given his payment will be made in mid-October that’s not a big deal.)  But this is a result of not thinking things through completely.  These notices should never have been sent.  California’s Franchise Tax Board (California’s state tax agency) did not send Mr. Smith a notice regarding his California balance due (about $5,000).  That payment, too, is scheduled to be made on October 16th.  It shouldn’t have been a big deal for the IRS to correctly program its computers.

Of course, the IRS is dealing with technology that’s older than I am.  Yes, the main IRS computer system dates back to 1959.  Think punch cards and a computer that takes up a huge room.  (An aside: Are you a COBOL programmer?  If you are, the IRS wants to hire you!)  Making programming changes is very difficult.  The money going to the IRS to upgrade technology is really needed.  (Yes, there’s no guarantee that it will be spent wisely but the IRS definitely needs to update its computer systems.)

If you are a California resident and receive a CP14 notice, let your tax professional know.  At this point, it may be that a call to the IRS is necessary (unfortunately), but you really don’t have to pay until October 16th (unless you live in one of the three California counties that weren’t extended).

WSOP and Taxes: 2023 Update

May 31st, 2023

The 2023 World Series of Poker (WSOP) began yesterday here in Las Vegas at the Paris and Horseshoe hotels (the hotels are linked). There are also several other tournament series that have either begun or will soon begin at the Venetian, Wynn/Encore, Aria, MGM Grand, Golden Nugget, and Orleans hotels. Very little has changed from 2018, but I am updating the post I did then with some new information.

In 2022, the WSOP was unable to issue Individual Taxpayer Identification Numbers (ITINs).  The WSOP believes they will soon be able to issue ITINs.  This is a key issue for non-Americans from Tax Treaty countries who don’t already have an ITIN.  Impacted individuals who cash early in the series may want to wait before receiving their winnings until the WSOP officially can issue ITINs.

Good luck to those participating in this year’s WSOP!

And now on to the meat of the post: I’m covering the basics of the tax situation, backing, foreign (non-US) backing, and non-American winners and what they will face with taxes. This post will be somewhat long, so I’m going to break this into sections that you can click on to open. The focus is on tournaments where tax paperwork is issued. I’ve also added a section relating to anti-money laundering (AML) rules.

The Tax Basics

If you win more than $5,000 net you will receive a W-2G (if you’re an American) or a Form 1042-S (if you’re a non-American). If you’re an American and you provide your social security number to the casino, there will be no withholding. If you’re a non-American and you have an ITIN (an Individual Taxpayer Identification Number) and you are from a Tax Treaty country, there will be no withholding. Otherwise there will be tax withheld: 24% for Americans and 30% for non-Americans.

So what are the Tax Treaty Countries? 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.”  (Residents of Malta have a 10% withholding rate.)

But if gambling winnings of a resident of the United Kingdom isn’t subject to tax, why would a casino withhold? Because if there’s no ITIN, a casino must withhold. Most (but not all) casinos still issue ITINs. I go over the ITIN situation below.

Backing by Americans of Americans

Suppose Russ plays in a WSOP event and is backed by Scott. Scott has provided half of Russ’s buyin and Russ has agreed to give Scott 50% of his net winnings. Russ is lucky enough to win $10,000 net, so he will receive tax paperwork from the Paris Hotel and Casino (where the WSOP is played). What should Russ do?

First, before the tournament Russ should collect social security numbers from his backers. The IRS has a form for this: Form W-9. The backer completes the form (including signing it) and provides it to the individual he’s backing (not the IRS). The IRS also has a form, Form 5754, designed specifically for the situation where you have backers. You include the names, addresses, and tax identification numbers (social security numbers or ITINs) of the backers along with their percentage winnings or the exact winnings. The casino is supposed to issue multiple W-2Gs. Unfortunately, the WSOP will not issue multiple W-2Gs even though the instructions to Form 5754 specify that the casino is supposed to follow the form. Indeed, I am unaware of any Las Vegas poker room currently accepting Form 5754. However, it’s still a good idea to have the form completed if you’re playing (it’s additional backup that the IRS could request).

So what should Russ do when he cashes at the WSOP? Russ becomes the casino for paperwork issuing; he must issue his backer(s) paperwork to show their winnings. It’s a fundamental principal of US tax law that everyone pays tax on their income, not anyone else’s. Russ should issue Form 1099-MISC(s) to his backers showing their shares of his winnings. A couple of comments about Form 1099-MISC. First, you issue one 1099-MISC to an individual per type of income per year. Thus, generally you will wait until the end of the year to send out your 1099s. Second, it’s far easier to obtain backers’ tax identification numbers before you pay them. You should make receiving appropriate tax paperwork (W-9 for Americans, W-8BEN for non-Americans) a requirement for your backers to receive their shares of your income. Third, note that Form 1099-MISC cannot be downloaded off the Internet. If you file paper Form 1099-MISCs with the IRS, you must order the forms from the IRS. If you are going to paper-file your Form 1099s, you must also order Form 1096 (this is the cover page that you use to send 1099s to the IRS).

One other key point: Russ needs to maintain a paper trail showing he sent the winnings to Scott.  This can be a cancelled check, wire transfer paperwork, etc.  But what if Russ pays Scott in cash or casino chips?  He needs a signed and dated receipt.

Backing: Non-Americans


What happens if an American is backed by an individual from a Tax Treaty country (such as Russia)? Under the US-Russia Tax Treaty, the gambling income of a Russian is not subject to US taxation. Second, what happens if an American is backed by an individual from a non-Tax Treaty country (such as Australia) or from Canada (the US-Canada Tax Treaty mandates withholding)? Finally, what happens if someone from a non-Tax Treaty country or Canada is backed by an American? For all three scenarios, let’s assume I’m entering the main event of the WSOP (the buy-in is $10,000); my backer is paying $5,000 and is receiving 50% of my winnings. I place in the event and win $20,000, so my backer is owed $10,000 (all numbers before withholding).

Scenario #1: US Player Backed by an Individual from a Tax Treaty Country. Let’s assume I’m playing and am backed by Ivan from Russia. I receive a W-2G for $10,000 (my net winnings). It would seem all I have to do is just pay Ivan his $10,000 share of my gross profit, right? Wrong. Even though Ivan is from a Tax Treaty country, paperwork is required or tax must be withheld. Ivan needs to provide you either a Form W-8BEN or a Form W-8ECI. The Form W-8BEN is used to note the benefits of a Tax Treaty. Ivan would complete the form, including his ITIN and note the Article of the Tax Treaty that specifies that there would be no withholding. As long as you receive the completed Form W-8BEN you can then pay Ivan his share. If you pay by cash or casino chips, make sure you get a signed receipt from Ivan acknowledging his receipt of the money.

What if Ivan doesn’t have an ITIN? Then you must withhold at 30% even though he’s exempt from withholding. You would need to complete Form 1042-S and depending on the amount withheld very quickly remit that money using EFTPS to the IRS. (EFTPS is now the only method available for making withholding deposits to the IRS.) Ivan can get the money back by filing a Form 1040NR following year-end. If Ivan has a business operating in the US, he would provide Form W-8ECI with either his Employer Identification Number (EIN) or his ITIN. This will allow you not to withhold to Ivan. Note: Even if no withholding is required a Form 1042-S must be submitted to the IRS.

We can see that even the easy scenario isn’t necessarily that easy.

Scenario #2: US Player Backed by an Individual from a Non-Tax Treaty Country This case is relatively straightforward. Let’s say your backer is Jon from Canada or Australia. (Although Canadians can get some to all of their money back by filing Form 1040NR after year-end, you are required to withhold on their income per the US-Canada Tax Treaty.) You must withhold 30% of their winnings. You would pay him all of his $5,000 investment and 70% of his $5,000 winnings ($3,500) for a total of $8,500. You would complete Form 1042-S with his information and note that $1,500 of his $5,000 of income has been withheld. Depending on the amount withheld, there can be very quick deadlines for remitting that withholding to the IRS; that withheld funds must be remitted using EFTPS.

Scenario #3: Non Tax-Treaty Player Backed by an Individual from the US This is the ugly scenario. Suppose Jon is backed by Russ from the US. Russ isn’t subject to any withholding on his money (he’s a US citizen, after all) and is more than willing to provide a completed Form W-9. Unfortunately, because Caesars will not issue multiple W-2Gs/Form 1042-S’s, all of the $10,000 Jon wins will be subject to withholding. So Jon will receive $17,000 (his $10,000 entry plus $7,000 of his $10,000 in winnings). Jon is left with two bad options. He could pay Russ $3,500 (half of the amount he has won). Russ will rightly be annoyed as he should receive $5,000. Jon has no way of telling the IRS that $1,500 of his tax withheld is for Russ [See Note 1 below]. Alternatively, Jon can pay Russ $5,000 and now he only has $2,000 of his winnings (rather than the $3,500 he should have). That method probably doesn’t appeal to Jon at all. Unfortunately, neither option is palatable to both individuals and these are the only two options available.

There is a solution: Americans should not back individuals from non-Tax Treaty countries. (The better solution, Caesars issuing multiple W-2Gs/1042-S’s, will have to wait until the IRS goes after Caesars on their policy.)

There are some other things that need to be pointed out. The participant will likely have to issue 1099-MISC’s or 1042-S’s to individuals. You probably don’t want everyone to know your social security number. If you’re a professional gambler, there’s a solution: Apply for an EIN. You can do this at no charge online at the IRS website. You must have an EIN if you are going to have to withhold funds. Next, if there’s a possibility you are going to be a withholding agent, you must have both an EIN and an EFTPS account. After you get the EIN, immediately enroll in EFTPS. Your passwords are mailed to you; this takes about 10-21 days from the date you enroll, so get this going now if you are going to be playing in the 2023 WSOP and this applies to you. Third, you can give Caesars a piece of your mind (nicely, though) and let them know about the ridiculousness of their policy. That’s especially true if you’re from Australia and you would like to be backed by an American (or someone from a country with a favorable Tax Treaty with the US).

Non-Americans and ITINs


When I wrote this article in 2018, it was very uncertain whether or not casinos would be allowed to issue ITINs. As I noted in the introduction, the WSOP expects to be able to issue ITINs soon.  If you are from a country with a Tax Treaty with the US that covers gambling and are playing in a poker tournament at a different casino, you can (and likely should) check with the casino to see whether or not they issue ITINs. Let’s say you’re from the United Kingdom and are backing Russ. He wins $20,000 at the WSOP ($10,000 of it goes to you) and you don’t want him to withhold $3,000. If you wait to do something until Russ wins the money, he’s going to have to withhold. In that case, you will have to apply for an ITIN and file Form 1040-NR with the IRS the following year. It takes at least two months to receive an ITIN after applying. Form 1040-NR is released around February 1st (of the following year); it takes at least six months to receive a refund after filing Form 1040-NR. The refund is issued as a check mailed to the address on file.

There are three methods available to apply for an ITIN. No matter which method you use you will need to complete Form W-7 and have the required backup documents (generally, your original passport). You can apply by mailing your Form W-7 with backup documents to the IRS. This is generally done with the filing of a tax return. You can provide a prepaid courier envelope to receive back your passport. Your ITIN will be issued in about four to six months. You can also make an appointment at an IRS office. The IRS will review your backup documents for your W-7 and make “certified copies” and forward the W-7 to Austin, Texas (where ITINs are issued). If you have a Tax Treaty reason, you can obtain an ITIN. The last time I checked the wait time to get an appointment here in Las Vegas is six weeks. I was also informed by a local IRS Certified Acceptance Agent that the IRS has not cut them off (yet) from reviewing W-7 paperwork and forwarding paperwork and “certified copies” to Austin. This may be a good method for someone who is in Las Vegas to apply for an ITIN and has a tax treaty reason to obtain an ITIN. Also, if you use a local Certified Acceptance Agent you will not obtain an ITIN immediately; your ITIN will still be mailed to you in a few months. Thus, my strong recommendation for such an individual backing an American is to get your ITIN now!

But what if you already have a valid ITIN and are from a Tax Treaty country? Then there are no issues. You will just let the casino know your ITIN number when you cash. (You may be asked to provide other documentation and/or be asked to complete a Form W-8BEN.)

Anti-Money Laundering Rules

In the United States, casinos are considered financial institutions and must obey anti-money laundering (AML) laws and regulations. These are mostly promulgated by the Financial Crimes Enforcement Network (FinCEN) but some are issued by other federal agencies and regulatory bodies. The basic idea of all these laws is to be able to trace the money. (Do note that I am not an attorney; I’m a tax professional. For those who need professional advice about AML laws, seek an attorney who specializes in this area. This is just a brief summary and absolutely not meant as legal advice.)

Let’s say you have an account at the WSOP, funded by a cash deposit or wire transfer, and you take out $12,000 in casino chips to play in a high-stakes cash game. The cage will file a Currency Transaction Report (CTR) on the transaction. These (generally) aren’t a big issue. You do want to avoid Structuring your transactions. Let’s say instead of taking out $12,000 in one transaction you elect to take out $6,000 in two transactions (separated by an hour). That’s structuring, and that’s a felony. Additionally, a Suspicious Activity Report (SAR) would be issued. At a continuing education seminar a couple of years ago we were told by the head of IRS Criminal Investigation in Las Vegas that they investigate few CTRs but all SARs issued. The solution: Just go big and take out all the money you need at once.

Another area where a poker player can run afoul of the AML rules is by (a) wiring money to one casino, (b) cashing out a significant amount from that casino as casino chips, and (c) going to a second casino and using those chips as a buy-in or for obtaining that casino’s chips. There are multiple issues here. Let’s look at a specific hypothetical example. Ivan wires $50,000 to the Paris casino for the WSOP. Ivan leaves $35,000 on his account at the WSOP, and cashes out $15,000 in chips telling the cage, “I’m going to use these for buying in to big events at the Wynn/Encore.” As far as I know, there’s nothing illegal in Ivan doing this (Ivan is not trying to evade AML rules); however, he’s likely running afoul of the AML policies of the WSOP (Paris Hotel). Casinos want their chips used at their casino, and taking those chips out for use elsewhere almost certainly is against the AML rules that the Paris Casino has adopted and must follow (or they will get in trouble win FINCEN). The solution to this is simple: Wire money to each casino.

[Note 1]: It is likely the IRS would reject a Form 1040NR filed by Jon noting his extra withholding. The IRS won’t understand the issue given that there is no tax treaty issue (say, Jon is from Australia) and say, “Take it up with Caesars.” It’s a classic Catch-22.

Colorado: Let’s Implement a 1207800% Marginal Tax Rate!

May 25th, 2023

Consider two taxpayers who enjoy gambling; both are single and residents of Colorado.  Both are amateur gamblers who earn $100,000 of wage income and rent.  Joe Unlucky broke dead even in his gambling, winning $299,000 (using the session method) and losing $299,000.  When he files his 2022 tax returns, he has a federal refund of $3,238 and a Colorado refund of $490.

Larry Lucky fared a little better: He had $301,000 of gambling winnings and $301,000 of gambling losses.  When he files his 2022 tax returns, he has the identical federal refund of $3,238.  However, he owes Colorado a whopping $11,632.  What caused Larry to have a ridiculous marginal tax rate of 606.1% on the additional $2,000 of gross winnings?

For 2022, Colorado implemented a $30,000 reduction in itemized deductions for taxpayers whose Adjusted Gross Income exceeds $400,000 and who itemize their deductions.  (The reduction is $60,000 if married filing jointly.)  Larry faced this; Joe didn’t.  Larry ends up with that 606.1% marginal tax rate on $2,000 of “winnings!”  Remember, Larry broke even so he really didn’t win anything.

I could have made this illustration even more ridiculous.  It truly is a hard cliff: If Joe had $300,000 of wins and losses he would have refunds of $3,238 from the IRS and $490 from Colorado; if Larry had $300,001 of wins and losses he would have the same federal refund of $3,238 but would owe Colorado $11,588.   That’s an insane marginal tax rate of 1,207,800% on the additional dollar of income!

Hard cliffs cause taxpayers to make decisions that are correct for themselves but bad for the economy.  Consider if Larry and Joe had their own businesses, each earning around $400,000 a year.  Assume both have net income of $399,000 right at year-end and have the opportunity for an additional $2,000 of net income.  There is no circumstance where it makes sense for them–if they reside in Colorado–to obtain that income in the year; they would be facing a tax rate of more than 100%.

Proposals like what passed in Colorado sound good, feel good (let’s tax the rich), but end up with perverse economic results.  Hopefully the Colorado legislature will fix this for the future.

Why Were California Returns Extended Again from May to October? (A Theory)

May 8th, 2023

Back in January, severe winter storms impacted California.  Much of the state was declared a federal disaster area; these declarations are always county-by-county.  As of today, only two counties in California (both in the northeastern corner of the state) are not federal disaster zones.  The IRS rightly extended tax filing deadlines from April 18th to May 15th.

But on February 24th the IRS announced that they were again extending California deadlines from May to October.  Why was this done?  The announcement doesn’t specify a reason, and almost all other disaster zones didn’t get this treatment.  For example, victims of the horrific tornadoes in Mississippi are looking at a July 31st deadline.  Indeed, Broward County (Florida) was just declared a federal disaster zone due to massive flooding in April; their tax deadline was extended only to August 15th.  I have a theory, and it has nothing to do with taxes and everything to do with politics.

President Biden recently formally announced he’s running for reelection.  (It’s been clear for a while he’s running.)  One of his biggest rivals in the Democratic Party is California Governor Gavin Newsom.  Governor Newsom recently toured other states and gave the impression (at least, to me) that he’s considering running for President.  Meanwhile, California faces a budget crisis–there’s at least a $22.5 billion deficit.  And that figure likely understates the problem: the tech industry is not doing well, and that (a) drives personal income tax collections in California (the top 1% of taxpayers pay about half the state’s personal income tax, and many of that 1% are technology industry executives) and (b) personal income tax collections make up about two-thirds of California tax collections.

Suppose you were running for reelection and you wanted to make sure a rival couldn’t run against you.  A budget crisis right at the time the rival would be announcing his candidacy would sure hurt him.  California was forced in January to extend its own deadlines for tax filing to May (state law mandates conformity to federal disaster extensions).  Delaying payments five more months would cause problems to California’s finances–and given the current state of the tech industry might kneecap a rival from running.  (When the IRS extended the deadline to October, California did conform.)  All good political reasons for delaying the deadline another five months.  Of course, the IRS is supposed to be an apolitical organization; however, one thing I’ve learned from the Lois Lerner scandal is that most political appointees within the IRS absolutely, positively look at the political spin on almost everything they do.

Now, I have no proof of what I’ve written.  It’s a theory (some might even call it a conspiracy theory).  It does, though, conform to the facts of the situation and there’s no evidence that I can find to refute my theory.  I hope I’m wrong about it, but like investigators looking at a troubling situation I suspect I’m correct.