Don’t Mess With Taxes

Heard it again this morning on the radio. That same old cliché one always hears this time of year. “There are two things that are certain,” the saying goes. “Death and taxes.” Har har.

No arguments with the first part of that. No negotiatin’ with Mr. Reaper. Not so sure about taxes, though. I mean it is certain Uncle Sam is gonna try to grab what he can from us, we know that. Not so certain, though, how much he’s gonna get. At least with regard to taxes on online poker earnings.

About a month ago, the Ante Up! poker podcast had as a guest Russ Fox (episode #144). Fox is a tax agent who happens also to have authored three poker books. Amid an interesting discussion about what sort of obligations online poker players face with regard to filing taxes, Fox shared his thoughts regarding Neteller’s agreement with the Department of Justice last year to release details of its transactions with American customers.

For those who paid their taxes, the fact that Neteller gave up the goods to the DOJ shouldn’t amount to anything at all. But, as Fox pointed out on the show, very few online poker players actually report their winnings. On a post on his blog about the matter, Fox estimates the percentage of those who report online gambling winnings to be about 5% total. He also thinks those who didn’t report their winnings and who used Neteller potentially face a couple of issues.

According to Fox, for anyone who ever had at least $10,000 in his or her Neteller account -- at any given moment (i.e., even for just a few seconds) -- that person technically is considered as having had a foreign bank account and thus must file a particular form by June 30th of the following year or risk criminal prosecution. That means if you had $10K in there at any point last year, you’ve still got two-and-a-half months to file that report. Fox says he fully expects the Treasury Dept. to check those records and go after folks who fail to declare their Neteller accounts if they were required to.

Fox also believes the IRS will go after anyone who (1) received large amounts from Neteller; and (2) failed to declare any gambling winnings. He believes it is possible that the IRS will only go after the high rollers, but, as he says on his blog, “given the ability of the IRS to conduct computer matching, if you received funds from Neteller and didn’t declare any gambling winnings, you might receive a ‘letter audit’ from the IRS.” That would be a letter telling the individual how much he or she owes and letting the person go ahead and pay (plus interest & penalties) to avoid prosecution.

For folks who used Neteller for reasons other than online gambling, Fox says if they can prove that fact to the IRS they needn’t worry. Of course, no one who used Neteller for online poker would be able to do that since the transactions will all indicate the sites to which and from which money was sent.

For those who think they might be in trouble here, it isn’t too late. One can always amend one’s return (and pay the interest & penalties). Fox thinks doing so is a much better option than waiting for the IRS to come knockin’.

What did I do? Well, even though my winnings are a relative pittance, I still went ahead and paid what’s owed on ’em. Wrote a post last year right around tax day in which I talked about about how I report poker winnings (or “gambling” winnings, as the IRS puts it).

Don’t know one way or the other whether the fears expressed by Fox are legit or not (though I tend to think he knows his stuff). Like I say, there’s a lot that’s uncertain about taxes. Maybe I’m a sucker for paying -- I’m sure some think so. I know I don’t make nearly enough for it to matter a whole heck of lot to Uncle Sam. In fact, I see folks on the forums who (say they) make 20, 30, even 50 times what I do in a year proclaiming how they don’t report.

I guess for me it goes along with my generally risk-averse approach to the game. All things considered, it seems to me a small price to go ahead and declare now rather than have to endure the stress of a “letter audit” or some other hassle down the road.