The poker world is about to descend on Las Vegas. Over the next several weeks, many players who enter the myriad of poker tournaments from expensive tournaments at the World Series of Poker to more affordable tournaments at Binion’s and the Venetian will be “staked.” Instead of the player putting up 100% of his or her buy-in, he or she will have backers who have put up part of the entry fees. Since some tournaments will cost upwards of $10,000 (there are $25,000, $50,000 and a $1 million buy-in this summer), staking is commonplace.
There are rules you must follow when you’re staked. You must make sure proper IRS paperwork gets to your backers. A lot depends on where you will be playing. If you’re at the Venetian playing in their Deep Stack Extravaganza, you’ll find a cooperative cage ready and willing to accept Form 5754. (Form 5754 is used when you have backers). The same is true for Binion’s. However, if you are playing at a Caesars property–and this includes the Rio Hotel & Casino, where the World Series of Poker takes place–you are on your own; Caesars will issue one W-2G (or Form 1042-S) to the winner. This is a decidedly player-unfriendly attitude; it also violates IRS rules. What does this mean for the player?
Back in 2007 I wrote about this situation. It has now been seven years and nothing has changed. If you’re backed, you have to send out 1099-MISC’s or 1042-S’s for your backers:
- If you’re backed by an American get a signed and completed Form W-9 from him before you pay him. If someone refuses to complete a Form W-9, you are required to withhold.
- The issuance of 1099s is based on you backer profiting $600 or more for the entire year. So realize that if you have backers who profit $600 or more, the onus is on you for sending out Form 1099-MISC’s. (The 1099s are not sent until year-end.)
- If you’re backed by a non-American, the situation is far more complex. You will need to obtain a Form W-8BEN; make sure it’s the new version that was released this year. The form must be complete in order for you not to withhold. It must have an ITIN, a Tax Treaty Article noted, with reasoning why there is no withholding, and it must be signed and dated. If you don’t have the complete paperwork, you must withhold even if your backer is from a Tax Treaty friendly (for gambling) country. If you don’t, you could be held liable for the tax plus penalties and interest! For specific scenarios, see this article I wrote in 2011.
As I’ve said before, eventually Caesars will be called on the carpet for their policy. Until they are the onus is on you to obey the law. When the casino ignores the rules, you effectively become the casino for your backers.
Tags: WSOP
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In reading through forms 5754 & W-2G, this is what I believe is the proper way to complete the paperwork.
I win at the WSOP $10,000 in a $1000 event. Caesar’s will issue me a W2-G for $9,000. I then will take form 5754 to people who backed me into the event. (I put up $500, and two other people put up $250 – straight percentages). On the form 5754 part 1 will be completed with reportable winnings of $9,000 and part 2 will be completed with me reporting $4,500 and the two backers reporting $2,250, even though we are all actually receiving more than the amounts we are reporting. I would then need to complete W-2G’s for the backers and file the forms with the IRS and furnish the backers with the W-2G’s.
When I complete my taxes, will I reduce the W-2G that I received from Caesar’s ($9,000) by the amounts that I completed W-2G’s for my backers ($4,500)? Would this open things up for an audit by IRS because I am not reporting on my taxes what Caesar’s says I cashed for? Have I analyzed this completely wrong?
I appreciate any type of feedback that you can give me.
Thank you!
See this article I wrote back in 2007. You will need to have each backer complete a Form W-9; you will then issue Form 1099-MISC’s to each backer at year-end (not form W-2Gs).