Online money: Crisis from a tax perspective

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Remember the tax deadline day of April 15 that comes every year? This is when my personal life comes back to me and I can breathe easier knowing another tax season has come to an end. Well, I will always remember April 15, 2011.

My tax season was extended to April 18 because April 15 was Emancipation Day in Washington D.C. That was the first blow, though it gave me a few more days until the deadline. But, by April 15 , I am beyond burnout and ready to get out of town.

I had finished Jeff Williams’ (yellowsub86) tax return several weeks before and on April 15 he called me. I can always rely on him to keep me in the loop. The first thing he said was, “Have you seen it?” Of course, the first thing I thought of was that there was something wrong with his tax return. Then, he told me. I could hardly believe it. Instead of working on taxes, I spent the next several hours reading what was going on and fielding calls from clients desperate to know what to do. One was practically in tears (can’t blame him with almost a million stuck online).

So here we are and as of this writing, I have my $5.32 from PokerStars and none of my $4,100 from Full Tilt. The most often asked question is “Do I have to pay tax on this?”

Well, I’ve written articles before that explained that even if you leave your money online, you still have to pay tax on it. You had to figure out your wins and losses for the year and claim that income in that particular year. Whether you take it off, it does not matter; it’s called “constructive receipt of income,” which means if you could get to it, then you have to pay taxes on it.

So, let’s imagine the worst case here. What if we never see our money again that is stuck online? Well, there is some speculation here. First, if you’ve paid tax on it, my guess is the IRS will say you could’ve taken it off but you chose not to. I’m afraid this is the way to look at the years before 2011.

Now, what is the right way to handle this for 2011? My argument would be you can’t get it off thanks to the Department if Justice, and that this is not income. The IRS could argue you could’ve taken it up to April 15, but we all know that even then, it was limited for most players on how much they let you take at one time. And, taking a loss on the money might be a little tough to do, but it is all based on each situation.

So, the bottom line is let’s keep hoping we all are made whole by the sites before the end of the year and all of this is a mute point. But, otherwise, I think each player needs to consider their individual situation and discuss it with their tax person. In the meantime, try to be patient at the brick-and-mortars and don’t punch the guy that keeps forgetting it’s his turn. God, I miss online.

— Ann-Margaret Johnston is a practicing CPA in North Georgia. She is the author of the book titled “How to Turn Your Poker Playing Into A Business”. Her website is pokerdeductions.com where you can find answers to commonly asked poker tax questions.