This past week I received the following question:
I was playing in the daily Deep Stack tournament at the Rio during the World Series of Poker. With seven players left we decided to chop the prize pool, but Caesar’s [the owner of the Rio Hotel and the World Series of Poker] refused to facilitate the deal. In fact, they required players to take the posted prizes on their W-2Gs. What should we have done?
The World Series of Poker is not just the televised main event. There are 61 “bracelet” events, side tournaments, and cash games. Caesar’s is well known for their policy of not accepting Form 5754 even though IRS regulations require them to do so. Less well known is their policy of not doing anything to facilitate deals in the daily tournaments.
For the non-poker players who are reading this, here’s a very brief description of deals. Most poker tournaments takes a long time to complete. By the time the final table is reached there may not be much play left: None of the players may have many chips in comparison to the blinds and antes. That means that luck plays a preeminent role in deciding the winner. Players often desire to make a deal (change the prize pool) so that instead of, say, first place winning $20,000 and second place winning $10,000, both players receive $15,000. The casino doesn’t lose any money (it’s the same $30,000); the prize pool is just redistributed. All players involved in a deal must agree to it.
I was unaware that Caesar’s had this policy. I’m used to the policy at the Los Angeles cardrooms (Commerce Casino, Bicycle Casino, and Hollywood Park Casino) and at the Venetian here in Las Vegas where they facilitate deals and will adjust tax paperwork to match the deals. Caesar’s policy is decidedly player-unfriendly and there are definite tax ramifications to it.
First, a fundamental rule of US taxation is that you are taxed on your actual income, not someone else’s. Let’s assume you make $25,000 in a poker tournament but the W-2G you receive states you made $10,000. You owe tax based on the $25,000 you actually made. The converse is true, too: If your W-2G states you made $25,000 but you actually made $10,000 you owe tax based on $10,000, not $25,000.
Unfortunately, the latter situation is full of gotchas when you are dealing with the IRS. Suppose this happens, and you correctly complete your tax return showing $10,000 of income. You received a W-2G noting the $25,000 of income and the IRS automated underreporting unit (AUR) will send you a notice stating you left off $15,000 of income. You would respond back noting that the W-2G was wrong. I wish you the best of luck in getting the clerks at the AUR who in the best of situations have trouble understanding gambling issues to grasp this issue.
One way around the problem is for those who have paperwork issued for more than what they earned to issue Form 1099-MISCs to the other players. That means the players involved need to exchange social security numbers on Form W-9. Not many individuals carry this form with them for a daily poker tournament. And this issue gets further complex if one of the individuals in the deal is from Canada or a non-tax treaty country where withholding is required.
There are other means of dealing with this issue. You could get every other player involved in the deal to sign an affidavit (a swearing under oath in front of a Notary Public). That would likely be proof that the prize pool was adjusted. Unfortunately, the odds of poker players taking the time out for this is not high. Another possible means of dealing with this issue is to either add extra gambling losses so that the actual amount on the tax return matches the true prize won for those who won less money than shown on the W-2G. I can’t endorse that method as the return itself would not be completely accurate.
This entire situation could be prevented if Caesar’s would adopt a more player-friendly relationship in regards to deals. Unlike the Form 5754 issue, the number of tax forms required to be issued is unlikely to change because of a deal. It would make Caesars’ customers happy, and would not cost Caesar’s. It’s a win-win situation that Caesar’s refuses to implement.
Caesar’s is a casino chain that states:
Caesars Entertainment is focused on building loyalty and value with its customers through a unique combination of great service, excellent products, unsurpassed distribution, operational excellence and technology leadership. We concentrate on building loyalty and value for our customers, employees, business partners, and communities by being the most service-oriented, technology-driven, geographically-diversified company in gaming.
Caesars’ actions speak quite differently about providing great customer service and value for these customers.
