From the standpoint of taxes, if I you win a poker tournament and I pay you in cash, a check, or casino chips, there’s no difference. All are negotiable (or fungible) monetary instruments. That’s basic. But what happens when you win a satellite tournament?
Satellite tournaments award entries in a larger buy-in tournament. Say that a casino is running a $10,000 buy-in tournament; they may have satellites for $1000+$60 (with $1000 going into the prize pool and $60 going to the casino for running the tournament). When ten players enter the satellite, the tournament begins. The winner of the tournament receives entry into the $10,000 buy-in tournament: He receives a piece of paper allowing him to enter the tournament.
For tax purposes, the normal way of treating this–and this has been done for as long as I’ve been involved in poker–is to treat the winning of a satellite as the first part of a parlay bet. All you’ve won is entry in a tournament (the ability to spend more money, so to speak). No W-2G is issued as you’ve won a piece of paper. This is how satellites are handled everywhere in the United States.
Well, almost everywhere.
One casino is apparently going to take a different path. In late April, the Seminole Hard Rock Casino in Hollywood, Florida will host a $10,000 buy-in World Poker Tour tournament. This afternoon, I received a call and was told that the Seminole is planning on issuing W-2Gs for satellite wins and withholding 30% from non-Americans (presumably, from non-tax treaty countries) who cash in satellites.
As long as the casino isn’t awarding cash (and is just awarding entries into the tournament), there is no need to do this. Nothing fungible is being awarded.
Let’s look at the Revenue Ruling that requires the issuance of W-2Gs for Poker Tournaments, Revenue Ruling 2007-57. Here’s Section 2, Factual Background:
In exchange for the fees, each participant receives a set of poker chips with a nominal face value for use in the specific poker tournament. The poker tournament sponsor pays amounts, which exceed a participant’s fees by $5,000, to a certain number of tournament winner(s), out of a pool comprised of all the participants’ fees.
In a satellite, winners do not receive payments of any prizes; they just receive entry into another tournament. But there’s more in Section 4, Application:
A poker tournament sponsor is required to withhold and report on payments of more than $5,000 made to a winning payee in a taxable year by filing an information return with the IRS as prescribed by section 3402(q).
Winners do not receive cash in a satellite, and, thus, no reporting is required. (I should point out that if the Seminole Hard Rock Casino is offering satellite winners the option of taking cash, then W-2Gs are required along with withholding for non-tax treaty participants.)
The net impact of this is annoyance for professional poker players, but it’s much more for both amateurs and non-Americans. How would you like to be a poker player from, say, Australia, enter a satellite for a $10,000 buy-in seat and find that all you won was 7/10 of the buy-in? I’m sure you might find that you had better use for your money. For amateurs, the tax code will cause some to now have far higher gross income (because amateur gamblers cannot net their wins and losses); this will lead to decreased participation in the tournament.
Hopefully, the people responsible for the tournament in Florida will decide to use some common sense here and the idea of issuing W-2Gs for poker satellite winners will be a thing of the past.