Caesars has confirmed that it will not accept Form 5754 at the WSOP – affecting the tax liabilities of staked players who cash in this year´s events.
Form 5754 is a tax form that should be submitted to a casino when a player has made a net profit in excess of $5,000 after being staked (partially or completely) by one of more investors. The casino issues the player with a W2-G for his or her percentage of the winnings and mails W2-G forms to all the investors who have staked the player.
The purpose of the form is to distribute the tax liabilities of a player who has won a substantial tournament among those who contributed to his or her buy-in – for example: A player take down a $1 million guaranteed tournament for $150,000 after having 50% of their buy-in funded by investors. Without Form 5754, the player would be liable for (say) 20% tax on $150,000 ($30,000) even though their cut of the winnings is only $75,000.
According to the IRS´ Specific Instructions for Form 5754, when the winner of a poker tournament
is a member of a group of two or more people sharing the winnings the person receiving the winnings must provide information about each of the other winners as a matter of law. However, Caesars introduced a policy in 2007 in which it only recognizes one winner per event and has confirmed that it will maintain that policy during this year´s WSOP.
Discussion Kicks Off on 2+2
Although the WSOP´s policy has been in place for almost a decade, the issue was raised recently on the popular 2+2 poker forum by “hoodskier”. The contributor had written to the IRS wishing to confirm the legal position of Form 5754, and he started the thread to raise attention to the IRS´ response – that Form 5754 definitely applies to winnings in a poker tournament.
The thread was joined by tax professional “Russ Fox”, who had brought the WSOP´s policy to the attention of the IRS in 2008, but the IRS had failed to act on it. Fox believes that the WSOP´s reluctance to accept Form 5754 originates from the volume of work it would entail; and he gave the scenario of multiple winners each having ten different investors – whose details would all have to be entered in Caesars´ systems before W2-Gs could be sent out.
Another contributor – “AHanrath” – approached the Nevada Gaming Commission, asking their opinion on whether Caesars should accept a properly completed Form 5754. The contributor received a quick response stating that it was neither a procedure that they required Caesars to complete nor one they restricted Caesars from complying with. The issue – according to the NVG – is in the hands of the IRS.
WSOP Confirms Position on Form 5754
In response to the discussion on 2+2, the WSOP issued a statement on its blog in which it acknowledged that players get staked to enter WSOP tournaments, but considered this to be a
speculative financing arrangement which had different filing arrangements with the IRS. The blog concluded that there are a variety of ways in which taxable income can be reported to the IRS, and that staked players should consult with tax advisors to discuss means of reporting relevant to their individual circumstances.
One particular passage of the blog response will add to the general confusion about staking players at this year´s WSOP. The passage read:
Our terms and conditions provide that (1) no teams, substitutes, transfers, or assisted play will be permitted and (2) prizes are non-transferable. Accordingly, our terms and conditions specifically prohibit the hypothetical of more than one individual being designated as the “winner” of a single poker payout.
Furthermore, it should not be forgotten that earlier this year Nevada passed a law (SB 40) making it technically illegal to for third parties
to receive, directly or indirectly, any compensation or reward, or any percentage or share of the money or property played … … without having first procured and thereafter maintaining all required gambling licenses.
Although AG Burnett – Head of the Nevada Gaming Control Board – went on record to say that the new anti-money laundering legislation would not be applied to poker players and their backers, the language of the bill was never changed to confirm this. Furthermore, it was revealed today by PokerRealMoney.com that Caesars themselves are being investigated by FinCEN for violations of anti-money laundering legislation.
Maybe the Financial Crimes Enforcement Network can include in their settlement deal with Caesars that players can complete Form 5754, and not be lumped with a massive tax bill to take the shine off their WSOP bracelets.