US Poker Players have to Pay Tax on Full Tilt Poker “Wins”

Four months on from “Black Friday”, and two months since Full Tilt Poker had their operating license suspended by the Alderney Gambling Control Commission, poker players in the States are beginning to come to terms with the fact that they are never going to see their funds returned from Full Tilt Poker.

As revelations about payment processing errors and allegations concerning multi-million loans to sponsored players continue to surface, it would appear that Full Tilt Poker simply does not have the finances to repay players, yet the Internal Revenue Service (IRS) are still going to be looking for their piece of the action!

The Basics of Constructive Receipt

The reason for this is that under American Treasury regulations (specifically 1.451-2), players who have had funds credited to their accounts after a successful ring game session or tournament cash “which the taxpayer could have access to if notice to withdraw had been given” are considered to be “constructive” receipts – and are taxable.

There is a counter argument being advocated that, because Full Tilt Poker balances were not continuously available for withdraw (because the company allegedly did not have the money to pay everybody), the italicised conditions of the Treasury regulations cannot be applied. However, as it would be difficult to prove that the winnings could not have been withdrawn from Full Tilt Poker accounts prior to April 15, it is going to take an IRS inspection of the Full Tilt Poker accounts before this argument becomes solid.

What About Constructive Loss?

Constructive loss or, as the IRS refer to it “Casualty Loss”, would apply only if Full Tilt Poker made an official announcement stating that they were not going to pay back funds to American poker players. As Full Tilt Poker still has a secondary operating license from the Kahnawake Gaming Commission and has made no indication that they are not going to pay players, the IRS is not going to allow “Casualty Loss” deductions against players´ profits on the site (or any other poker site) – at least not in 2011!

The Significance for the Future

New regulations being debated on Capitol Hill include proposals that licensed online poker sites will be required to make individual taxpayer reports to the IRS each year. If players who, up until April 15th, were playing poker online and not declaring their revenue to the IRS (shock!), they will be unable to write off funds that Full Tilt Poker fail to return to them without refiling tax returns from all the years they have been receiving constructive receipts.

With the fines, interest and additional taxes that players who take this course of action will face, it is likely that most will forgo their Full Tilt balances, and the only winners in this fiasco will be the American government.