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Location, Location, Location: The Real Winners of the 2019 World Series of Poker

Wednesday, July 17th, 2019

This year was the 50th anniversary of the World Series of Poker (WSOP). And by all accounts, this year’s series of tournaments was highly successful. Attendance was up across the board. The Main Event, which concluded early this morning, was no exception. 8,569 entrants paid $10,000 each for their chance to win $10 million, the second-most entrants all time.

One important note: I do need to point out that many of the players in the tournament were “backed.” Poker tournaments have a high variance (luck factor). Thus, many tournament players sell portions of their action to investors to lower their risk (and/or “swap” action with other entrants). It is quite likely that most (if not all) of the winners were backed (or had swaps) and will, in the end, only enjoy a portion of their winnings. I ignore backing and swaps in this analysis (because the full details are rarely publicized). Now, on to the winners.

Congratulations to Hossein Ensan of Munster, Germany. Mr. Ensan beat second place winner Dario Sammartino when Mr. Sammartino’s two-way draw (he had both a flush and straight draw) did not catch up to Mr. Ensan’s pocket kings. Mr. Ensan’s German Wikipedia page notes that he emigrated from Iran in 1990 and is listed as a professional poker player. Whether he’s a professional or an amateur makes a huge difference for taxes. In 2017, the Federal Fiscal Court (Germany’s highest court dealing with tax issues) ruled that professional gamblers must pay income tax on their net gambling winnings (less expenses); amateur gamblers do not have to pay income tax on gambling winnings. The US-Germany Tax Treaty exempts his winnings from US taxation.

This is a huge issue for Mr. Ensan; the classification is the difference between earning $10 million and earning $5,393,531. Assuming Mr. Ensan is subject to income tax, he’ll lose $4,606,469 to the Bundeszentralamt für Steuern (BZSt). That’s a reason why many German professional poker players reside in the United Kingdom: They avoid the high German taxes.

Finishing in second place and winning $6,000,000 was the aforementioned Dario Sammartino. The native of Naples, Italy now resides in Florence, Italy after a stay in Slovenia. Italy does tax gambling winnings: Mr. Sammartino will owe an estimated $2,572,350 to Italy’s Agenzia delle Entrate (42.87%)

In third place was Alex Livingston. The resident of Halifax, Nova Scotia, Canada benefits from Canadian law on gambling: His winnings will not be subject to tax in Canada. However, he will lose a flat 30% of his $4,000,000 ($1,200,000) to the IRS per the US-Canada Tax Treaty. (He can file a Form 1040NR return for the 2019 tax year to recover a portion of his tax based on any taxes US gambling losses he had during the year.)

Garry Gates of nearby Henderson ended in fourth place. Mr. Gates, who has worked in the poker industry for years, earned $3,000,000 for his finish. An amateur gambler, he avoids self-employment tax. As a Nevada resident, he also avoids state income tax. I estimate he will owe $1,050,813 (35.03%) of his income to tax.

Another amateur gambler, Kevin Maahs of Chicago, finished in fifth place. Mr. Maahs won $2,200,000 before taxes for his finish. He owes both federal and Illinois income taxes on his winnings; he’ll likely lose $870,729 (39.58%) to tax.

Finishing in sixth place was Zhen Cai. Mr. Cai, a professional gambler residing in Lake Worth, Florida earned $1,850,000 for his efforts. One of two American professional gamblers at the final table, he must pay self-employment tax and federal income tax (as a Floridian, he avoids state income tax). I estimate he will lose $706,679 (38.20%) to tax.

Nick Marchington from London, England finished in seventh place for $1,525,000. Mr. Marchington, a professional gambler, gets to keep all of his winnings. The US-UK Tax Treaty exempts gambling winnings of UK residents from tax. And the United Kingdom doesn’t tax gambling winnings. As my mother says, location, location, location.

In eighth place was Timothy Su of Boston. Mr. Su, a software engineer, does avoid self-employment tax. He does have to pay federal and Massachusetts income taxes. There’s a slight bit of good news for Mr. Su: Massachusetts’s income tax rate dropped for 2019 from 5.15% to 5.05%. That’s not a huge change, but when you win $1,250,000 and will have to pay an estimated $491,150 in tax, saving $1,250 is still better than nothing.

The ninth place finisher was Milos Skrbtic. Mr. Skrbtic, a professional gambler, was born and raised in Serbia, but currently resides in San Diego. Had he remained in Serbia he would lose 50% of the $1,000,000 he won to tax. The US and Serbia don’t have a Tax Treaty, so 30% would be withheld by the IRS. Serbia does give a tax credit on their income tax, but only for taxes paid to a country which Serbia has an income tax treaty for. Since the US and Serbia do not have such a treaty, he would have been liable for Serbia’s 20% tax on gambling winnings. Unfortunately, Mr. Skrbtic lives in California; the Golden State is anything but a low tax environment. I estimate he faces the highest tax burden of any of the final table participants: He will owe an estimated $474,463 in tax (47.45%).

Here’s a table summarizing the tax bite:

Amount won at Final Table $30,825,000
Tax to BZSt (Germany) $4,606,469
Tax to IRS $3,313,395
Tax to Agenzia delle Entrate (Italy) $2,572,350
Tax to Illinois Department of Revenue $108,900
Tax To Franchise Tax Board (California) $108,414
Tax to Massachusetts Dept. of Revenue $63,125
Total Tax $11,972,653

That means 38.84% of the winnings at the final table goes toward taxes.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Winner Before-Tax Prize After-Tax Prize
1. Hossein Ensan $10,000,000 $5,393,531
2. Dario Sammartino $6,000,000 $3,427,650
3. Alex Livingston $4,000,000 $2,800,000
4. Garry Gates $3,000,000 $1,949,187
7. Nick Marchington $1,525,000 $1,525,000
5. Kevin Maahs $2,200,000 $1,329,271
6. Zhen Cai $1,850,000 $1,143,321
8. Timothy Su $1,250,000 $758,850
9. Milos Skrbtic $1,000,000 $525,537
Totals $30,825,000 $18,852,347

Mr. Marchington finished in seventh place but ended up in fifth based on after-tax income. As my mother says, it’s location, location, location.

The Internal Revenue Service didn’t end up as the biggest winner at the final table this year. Thanks to two of the top three winners being exempt from US taxation, the IRS had to be content with earning just a bit more than fourth place money. The German Tax Agency, Bundeszentralamt für Steuern, is the biggest winner among tax agencies. As usual, the house–the tax agencies–ended up with more than first place money. The house always wins.

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WSOP and Taxes: 2019 Non-Update

Tuesday, May 28th, 2019

The 50th World Series of Poker begins today at the Rio Hotel and Casino here in Las Vegas. Good luck to all those who are participating this year.

Regarding taxes and the WSOP, nothing has changed from 2018. Thus, you can look at this post from last year to see how taxes will impact you.

Last week, I watched an excellent presentation from CNBC on commercial backing of poker tournament players. If you’re considering backing or being backed, I strongly suggest you watch the presentation. If you use one of the two current major commercial companies that back (YouStake and StakeKings), I would make sure you and them are aware of who is responsible for sending out tax paperwork and withholding from winnings if you are lucky enough to cash. As my mother likes to say, an ounce of prevention is a worth a pound of cure.

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Oklahoma Limits Itemized Deductions; Big Hit for Amateur Gamblers

Saturday, March 30th, 2019

Suppose you’re an Oklahoma resident and enjoy gambling one of the many casinos in the Sooner State. You have $100,000 of gambling winnings and $100,000 of gambling losses. You itemize on your federal return anyway (you have mortgage interest, state taxes, and charitable donations), and the wash is just fine. On your Oklahoma return, you’re surprised to find your Oklahoma charitable donations are limited to $17,000 (plus the amount of medical and charitable donations).

Yes, Oklahoma has joined the states that are bad for gamblers. In my hypothetical, an amateur gambler would pay tax on $83,000 of phantom income. This change is the result of a law passed in April 2018.

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Can a California or Massachusetts Professional Gambler Take a Business Loss on His or Her State Tax Return?

Tuesday, March 19th, 2019

The Tax Cuts and Jobs Act (TCJA) eliminated the ability of a professional gambler to take a loss on his Schedule C based on his business expenses; Congress specifically overrode the Mayo v Commissioner decision. But what about state taxes? Can a professional gambler who had a losing year take a loss on those returns?

First, no professional gambler can take a loss based on his gambling results. Internal Revenue Code Section 165(d) prohibits gambling losses in excess of wins. Every state with a state income tax conforms to this.

But state conformity to the TCJA is decidedly mixed. California does not conform to almost any part of the TCJA. The Franchise Tax Board produced a publication showing each change in law and the impact to California. At the bottom of page 89 is the beginning of the discussion on Section 11050 of the TCJA (which changed the rules for professional gamblers). The FTB publication notes:

California conforms, under the PITL, to the federal rules relating to the deduction for losses from wagering transaction[s] under IRC section 165(d), as of the specified date of January 1, 2015, but does not conform to the federal limitation on the deduction.

Thus, a California professional gambler can take a loss based on his business expenses on his state tax return.

Massachusetts also doesn’t conform to federal law in this area. However, Massachusetts does not allow losses from any business to be reported on its tax returns. Thus, a Massachusetts professional gambler wasn’t able to take a loss based on his business expenses in the past and cannot today.

State conformity on the provisions of the TCJA will vary among the states. If you reside in or must pay state taxes, this is a key issue that you must discuss with your tax professional.

Posted in California, Gambling, Massachusetts | Comments Closed

Tax Help for Gamblers

Saturday, February 23rd, 2019

Jean Scott, the proprietor of the website “Frugal Vegas” (she’s also known as the “Queen of Comps”) called me last year and asked if I would be willing to assist her with the fourth edition of her book, Tax Help for Gamblers. I agreed to do so, and if you’re a gambler looking for information on taxes I think you will be pleased with the effort. The book is due out shortly, and you can pre-order it on sale for $15 (including shipping) rather than the retail price of $24.95. The book is available from Huntington Press at this link.

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Online Gambling and Offshore Cryptocurrency Exchange Mailing Addresses for 2019

Tuesday, February 5th, 2019

This list has been superceded by the 2020 list.

With the United States v. Hom decision, we must again file an FBAR for foreign online gambling sites. An FBAR (Form 114) is required if your aggregate balance exceeds $10,000 at any time during the year. (The IRS and FINCEN now allege that foreign online poker accounts are “casino” accounts that must be reported as foreign financial accounts. The rule of thumb, when in doubt report, applies—especially given the extreme penalties.) You also should consider filing an FBAR if you have $10,000 or more in a non-US Cryptocurrency Exchange.

There’s a problem, though. Most of these entities don’t broadcast their addresses. Some individuals sent email inquiries to one of these gambling sites and received politely worded responses (or not so politely worded) that said that it’s none of your business.

Well, not fully completing the Form 114 can subject you to a substantial penalty. I’ve been compiling a list of the addresses of the online gambling sites. It’s presented below.

I have made major updates on this list for 2019. Many, many addresses have changed. We went through the complete database and attempted to find new addresses for each entry.

FINCEN does not want dba’s; however, they’re required for Form 8938. One would think that two different agencies of the Department of the Treasury would speak the same language…but one would be wrong.

You will see the entries do include the dba’s. Let’s say you’re reporting an account on PokerStars. On the FBAR, you would enter the address as follows:

Rational Entertainment Enterprises Limited
Douglas Bay Complex, King Edward Rd
Onchan, IM31DZ Isle of Man

Here’s how you would enter it for Form 8938:

Rational Entertainment Enterprises Limited dba PokerStars
Douglas Bay Complex, King Edward Rd
Onchan, IM3 1DZ Isle of Man

You will also see that on the FBAR spaces in a postal code are removed; they’re entered on Form 8938. You can’t make this stuff up….

Finally, I no longer have an address for Bodog. If anyone has a current mailing address, please leave it in the comments or email me with it.

Note: This list is presented for informational purposes only. It is believed accurate as of February 5, 2019. However, I do not take responsibility for your use of this list or for the accuracy of any of the addresses presented on the list.

The list is in the cut text below.

If anyone has additions or corrections to the list feel free to email them to me.

Posted in Cryptocurrencies, FINCEN, Gambling | Comments Closed

A Dutch Lament: Where oh Where Is PokerStars Located?

Wednesday, January 9th, 2019

In a few weeks I’ll be publishing my list of where online gambling sites are located. A question that arose in the Netherlands is in regards to the location of PokerStars, the largest online poker site. An excerpt from my 2018 list shows:

PokerStars
Rational Entertainment Enterprises Limited dba PokerStars
Douglas Bay Complex, King Edward Rd
Onchan, IM3 1DZ Isle of Man

PokerStars.eu
Rational Gaming Europe Ltd dba PokerStars.eu
Villa Seminia, 8, Sir Temi Zammit Ave
Ta’Xbiex, XBX1011, Malta

Why is this a big deal? Taxes.

PokerStars.com is based on the Isle of Man. The Isle of Man is a self-governing British Crown Dependency. It is not part of the European Union. The Isle of Man is located in the Irish Sea. Malta is another island; it’s located near Sicily in the Mediterranean Sea. Malta is a member of the European Union. PokerStars.eu is based in Malta. This matters for taxes in the Netherlands. If you’re a resident of the Netherlands and you play on PokerStars.com, you owe 29% tax on your winnings; however, if you play on PokerStars.eu, you don’t. Needless to say, Dutch residents play on PokerStars.eu.

Except the Dutch Tax Office disagreed. They held that since PokerStars.eu is owned by the Rational Group (the parent of PokerStars), and the Rational Group is based on the Isle of Man, that playing on PokerStars.eu is still playing on a site outside the European Union and 29% tax is owed. A District Court agreed with the Dutch Tax Office. That decision was then appealed to the Court of Appeals in ‘s-Hertogenbosch.

That court reversed the ruling (link is in Dutch). The ruling, as best as I can determine, states that the place of establishment of the holder of internet poker (here, Malta) is decisive for the classification as domestic or foreign game of chance and, thus, taxation of play on PokerStars.eu violates the Treaty Establishing the European Union. The decision can be appealed to the Supreme Court of the Netherlands but for now, playing on PokerStars.eu is tax-free.

News Story (in English): Dutchnews.nl

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Gambling With an Edge Podcast

Tuesday, November 13th, 2018

I appear on this week’s episode of Gambling With an Edge. We discuss the new tax law, and tax topics of interest to gamblers, including how the new higher standard deduction will negatively impact gamblers.

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Here We Go Again…

Tuesday, October 30th, 2018

A few years ago I penned a post titled “Taxes and Daily Fantasy Sports: The Duck Test.” To remind everyone,

If it looks like a duck, walks like a duck and quacks like a duck, then it just may be a duck.

The duck test came up yet again yesterday in Albany, New York. The New York legislature passed a law legalizing Daily Fantasy Sports (DFS), even though the New York state constitution specifically prohibits gambling. The New York legislature statutorily said, “DFS isn’t gambling.” Yesterday, Judge Gerald Connolly said the legislature was wrong.

Last year a lawsuit was filed seeking a ruling on whether DFS is New York was legal. (The case is titled White, et. al., v. Cuomo, et. al.) Yesterday, the ruling came out. (My thanks to Legal Sports Report who published the ruling. LSR is a vital resource for anyone interested in sports betting in the United States. But I digress….) The issue is the same one I raised back in 2014.

Unfortunately, many states look at just an element of chance to determine if something is gambling. And there’s no doubt that daily fantasy sports have such an element. [emphasis in original.]

In this case, Judge Connolly ruled that based on the New York constitution if there’s a contest with an element of chance, a prize, and consideration and the constitution doesn’t state that activity isn’t gambling, it is gambling. Gambling is prohibited by the New York constitution, so the constitution will need to be amended in order for DFS to be legalized.

I expect this decision to be appealed, and a stay put on any adverse impacts for DFS in New York…for now. The problem is that the ruling seems right to me. If the New York prohibition against gambling was statutory, DFS could be legalized by statute. Since the New York prohibition is in the state’s constitution, a constitutional amendment appears to be necessary. This does not bode well for the future of DFS in New York.

Additionally, this ruling points out something that should be obvious regarding sportsbetting. The Supreme Court decision in Murphy v. NCAA allows sportsbetting to be legalized state-by-state. In some states, that just means passing a new law. In many states, though, that will mean amending the state’s constitution. Changing a state’s constitution takes a lot more time and effort.

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Can a Professional Gambler Take the Foreign Earned Income Exclusion?

Saturday, September 15th, 2018

I was asked that question this past week: Can a professional gambler take the Foreign Earned Income Exclusion? The Exclusion allows one to exclude about $100,000 of income from income tax.

The IRS website (which is quite good) has a page on the general rules for the Exclusion. The IRS notes,

Self-employment income: A qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income. The excluded amount will reduce the individual’s regular income tax, but will not reduce the individual’s self-employment tax. Also, the foreign housing deduction – instead of a foreign housing exclusion – may be claimed.

A professional gambler (unlike an amateur) will have self-employment income. A professional gambler files a Schedule C, and that qualifies as “earned income.” As the name implies, you must have earned income to take the Foreign Earned Income Exclusion.

But there are other requirements. Your “Tax Home” must be in a foreign country. Your Tax Home is where your main place of business, but there are other rules that influence the location of your Tax Home. One thing, though, is certain: If your Tax Home is in the United States you won’t qualify for the Exclusion.

Let’s assume your Tax Home is abroad. You also need to meet one of two other tests: The bona fide resident text or the physical presence test. A bona fide resident is an individual who, in the view of US tax law, resides in another country. Generally, you must be a citizen or official resident of another country (more than just being present in another country via a “tourist visa”). Additionally, you must be a bona fide resident for an entire calendar year to qualify under this test. If you’re residing in, say, the United Kingdom for the entire year and have a work permit for the U.K., you’re likely a bona fide resident of the United Kingdom.

The physical presence test is simpler. You must be outside of the United States for at least 330 days out of a 365-consective day period that includes part of the tax year involved. (If the 365-day period is split among two calendar years, the maximum exclusion is pro-rated based on the number of days in the tax year that fall in the 365-consecutive day period.) There are some other rules about this test: A day in (or above) international waters is considered a day in the United States; if you change planes in the United States (say you’re flying from Toronto to Mexico City), that does not count as a day in the United States; and any portion of a day in the United States (other than transit between foreign points) is considered a full day in the United States.

Finally, the Exclusion only covers foreign earned income. Let’s say a professional gambler qualifies for the Exclusion, earning $80,000 outside the United States. But he spent a week in the United States, and earned $20,000 while in the U.S. That $20,000 isn’t eligible for the Exclusion.

So let’s circle back to the original question: Can a professional gambler take the Foreign Earned Income Exclusion? Assuming he (a) is a professional gambler, (b) with foreign-source income, (c) has a Tax Home outside the United States, and (d) qualifies by either the bona fide resident or physical presence tests, he can take the Exclusion. Do note that while the Exclusion impacts income tax, it does not impact self-employment tax.

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Posted in Gambling, International | Comments Closed

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