Thousands of U.S. poker players have funds that are currently frozen in Full Tilt Poker accounts. Although these funds have been inaccessible for nearly three years, the Department of Justice announced that payments to players who filed petitions for remittance, before the deadline on November 16th, are expected to be made no later than March 31, 2014. This means those players who appropriately filed and met the deadline will be receiving a check in 2014, but many players are unsure of the tax implications associated with the funds once they are received.
The IRS requires income from all sources to be reported in the year of occurrence. This means players who were active on Full Tilt, or other online poker sites, should have reported any income in the appropriate tax year. If the player maintained accurate records and accounted for poker income during the appropriate period, the gain or loss incurred as a result of the money received is not a taxable event, in my opinion. Since the money was already reported as income and taxed in a previous year, any money returned to the player should not constitute payment of additional taxes.
However, if a player did not report their income or loss in the year of occurrence, the gain or loss incurred as a result of the money received is a taxable event, in my opinion. For example, if a player receives a remittance check for $1,000, but can show initial deposits of $800, the player is only responsible to report $200 in poker income. In this situation, the player did not report the income or loss in the appropriate period and is now responsible to claim the income with the remittance of their money. Although the player is claiming the income when the money was received, the IRS may have an issue since the activity was not claimed during the appropriate year.
As a taxpayer, it is the player’s responsibility to pay the appropriate taxes on all forms of income. Since online gambling is an unregulated industry, it falls on the player to claim the proper amount of income derived from these activities. Some players filed yearly returns, but did not claim gambling income, whereas other players did not file tax returns for any source of income. For those who filed and did not claim gambling income, it is best to claim that income in the current year. For those that did not file tax returns, it is recommended to go back and file returns for any year in which tax returns were not completed.
Many players have also expressed concern that their chances of being audited will increase since the government will now know the names and addresses of those people receiving remittance checks from Full Tilt. Although this will put more people on the map, it does not necessarily correlate to an increased chance of being audited. If players track their normal expenses and properly report their income, it should not alter the chance of being audited.