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legal
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 Posted: Fri Jul 22, 2005 6:35 pm Post subject: Is there tax on Internet gaming winnings? |
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Does the U.S. tax residents' e-gaming winnings?
| Quote: | From: Dan
To: legal@pokerpulse.com
Sent: Tuesday, July 19, 2005 5:00 PM
Subject: Legality of playing online Texas Hold'em in Illinois, USA
I play online at Pokerroom.com and have won a fair sum of money but have yet to cash out.
1. Is playing online poker legal in Illinois?
2. If I cash out will this money be subject to taxation in the U.S. and Illinois and, if online poker is illegal in Illinois, is there a way to legally cash out and pay taxes in the U.S.?
Thanks,
Dan |
Our reply:
| Quote: | Hello Dan,
Please see our Caribbean forum for more on the dramatic effect of Antigua's WTO victory on U.S. gaming law. Basically, Antigua and Barbuda challenged three key federal laws that made Internet gambling illegal in the U.S. Antigua argued successfully that the effect of those three laws was discriminatory and contrary to U.S. trade obligations. We've been tracking the negotiations between Antigua and the U.S. following adoption of the panel recommendations. When we last checked mid-July, Antigua had requested arbitration to at least come up with a reasonable compliance period.
Compliance will require some very challenging work at both federal and state levels. Until they come up with a strategy in line with U.S. trade obligations toward Antigua, Internet gambling law in the U.S. will remain unresolved.
Uncle Sam, however, does not appear to be that fussy. According to Tax Tip 05-34 of Feb. 17/05, Gambling Income and Expenses:
| Quote: | Gambling income includes, but is not limited to (emphasis ours), winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes.
Generally, if you receive $600 ($1,200 from bingo and slot machines and $1,500 from keno) or more in gambling winnings and your winnings are at least 300 times the amount of the wager, the payer is required to issue you a Form W-2G. If you have won more than $5,000, the payer may be required to withhold 25 percent of the proceeds for Federal income tax. However, if you did not provide your Social Security number to the payer, the amount withheld will be 28 percent.
The full amount of your gambling winnings for the year must be reported on line 21, Form 1040. If you itemize deductions, you can deduct your gambling losses for the year on line 27, Schedule A (Form 1040). You cannot deduct gambling losses that are more than your winnings.
It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.
For more information on record keeping, see IRS Publication 529, Miscellaneous Deductions, or Publication 525, Taxable and Nontaxable Income. You may also want to check out Form W-2G and its instructions and Tax Topic 419, Gambling Income and Expenses. All are available on this Web site. You may also order free publications and forms by calling toll free 1-800-TAX-FORM (1-800-829-3676). |
What is the meaning of those underlined words, we wonder? Scare yourself with Examples of Gaming Fraud Investigations, then try the links at the bottom of the page. Topic 419 suggests the spirit of the IRS is to favor taxing your winnings, but the proviso at the website reminds visitors that information online is not intended to be legal advice. For greater certainty, contact the Illinois IRS branch nearest you.
Hope that helps.
Legal@pokerpulse.com
Tracking Internet gaming law worldwide - even Illinois. |
Note: See also the September, 2001 issue of U.S. TAXFAX, a newsletter published online by Kotler van den Brink & Company, U.S. and international tax consultants near the Canada-U.S. border in White Rock, B.C. Here's an excerpt:
| Quote: | | U.S. citizens and residents (i.e. resident aliens) must include gambling winnings in taxable income and pay income tax at the individual marginal rates on their good fortune. They are able to deduct gambling losses to the extent of winnings in the year; however, the winnings must be included in gross income while the losses may only be claimed as an itemized deduction. This means that the benefit of the losses are often not realized because itemized deductions can be limited in certain situations. |
Last edited by legal on Sun Mar 05, 2006 3:22 pm; edited 2 times in total |
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legal
Site Admin
Joined: 18 Aug 2004
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| Posted: Fri Jan 20, 2006 5:21 pm Post subject: |
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Canadian lottery winnings not taxable
Canadian tax authority busting e-mail lottery scams:
It's a brave new day indeed when e-mail alerts from the local tax authority are as helpful as this one, which we received the week of Jan. 15/06:
| Quote: | You do not have to pay taxes or fees to the CRA on lottery or sweepstakes winnings!
The Canada Revenue Agency (CRA) is warning the public to beware of an email scam in which individuals are informed that they have won a large sum of money in a lottery or sweepstakes, usually from a foreign country.
There are many versions of the scam, but the general concept remains the same: The victim receives an unsolicited email or regular mail from a legitimate-sounding financial institution claiming it has a bank draft from a foreign sweepstakes company that is payable to him or her. The email states that, to receive the prize, the addressee must first pay part of the taxes allegedly owed on the prize amount.
No taxes or fees of any kind have to be paid on lottery winnings in Canada. Any unsolicited email, letter, or telephone call telling you otherwise is a scam. Do not, under any circumstances, send money to someone making such a pitch to you. Instead, immediately contact your local police department or the Royal Canadian Mounted Police.
If you receive an email that claims to be from the CRA and asks for money, or if someone sends you a copy of an email that was supposedly sent to him or her by the CRA, you are likely dealing with a scam artist trying to rob you of your life savings.
Here are a few tips to avoid being a victim of such a scam:
Does the letter or email contain several noticeable typos or spelling and grammatical errors? If it does, you're probably dealing with a scam. The CRA employs technology and people to ensure there are minimal errors in its communications with taxpayers.
Does the letterhead in the documents look out of focus or unclear? The CRA has very strict guidelines regarding the creation of letterhead and the use of its corporate identifiers. If you are unsure, compare with documents you received in previous dealings with the CRA. If you're still not sure, contact your tax services office.
Are you asked to pay taxes allegedly owed to the CRA by making a deposit into a bank account registered to an individual? The CRA does not use personal bank accounts for the purpose of receiving payments and all CRA debts are payable exclusively to the Receiver General for Canada.
Still not sure? Contact the CRA at 1-800-959-8281 to find out whether the information the individual is providing to you is correct.
For more information about this and other fraud schemes, or to report deceptive telemarketing activity, visit www.phonebusters.com, send an email to info@phonebusters.com, or call 1-888-495-8501 (toll free). |
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legal
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| Posted: Tue Jun 06, 2006 12:44 pm Post subject: |
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The Globe and Mail
Canadian Daily Broadsheet
Tax Matters
Think your gambling winnings are tax-free?
Don't bet on it
By Tim Cestnick
| Quote: | Winning the Tax Game
Paperback
By Tim Cesnick
Canadian tax law works so that you'll generally face tax on all sources of income unless specifically exempted under a particular section of our Income Tax Act. The Canada Revenue Agency's Interpretation Bulletin IT-334R2 Miscellaneous Receipts provides some guidance on how the taxman will view your gambling profits.
The CRA's view is that you may be subject to tax on income derived from gambling, including poker, if your gambling constitutes a business. Now, whether or not your gambling is a business is a question of fact that can only be answered by looking at your circumstances and course of conduct.
While no one factor is conclusive, the CRA looks at the following criteria to make a judgment call: The degree of organization that is present in your pursuit of the activity; the existence of special knowledge or inside information that enables you to reduce the element of chance; your intention to gamble for pleasure versus gambling for porofit as a means of earning a living; and the extent of your gambling activities, including the number and frequency of bets.
Poker is the type of game where you can develop special knowledge that enables you to win more often. The more often you play, and particularly where you're playing for profit, and not just for fun, the more the taxman will call your winnings business income. In this case, you'll be entitled to deduct any costs associated with playing including tournament entry and travel costs. (emphasis added)
On the flip side, if you're losing more than you're winning you may have a tough time convincing the CRA your gambling is a business, and so your losses may be denied. Where it's clear that your gambling is for fun and not for profit, your winnings should be tax free. (Report on Business, p. B11) |
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legal
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Joined: 18 Aug 2004
Posts: 510
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| Posted: Fri Sep 01, 2006 10:51 am Post subject: |
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Canadian gamblers heads-up
See also the link at the official website of celebrated Canuck poker player Isabelle 'No Mercy' Mercier, which provides:
| Quote: | | If you are a Canadian Resident and were subjected to a 30% withholding tax on your winnings in the USA, you may be entitled to a refund. Please send me your contact information and I will recommend you to a Toronto-based agency for Refund Management Services. |
Last edited by legal on Fri Sep 01, 2006 11:18 am; edited 2 times in total |
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legal
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Posts: 510
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| Posted: Fri Sep 01, 2006 11:03 am Post subject: |
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Keep it all!
No U.S. tax on gambling winnings of non-resident aliens from the UK:
| Quote: | From: Mash McCann
To: Legal@pokerpulse.com
Sent: Friday, September 01, 2006 6:41 AM
Subject: Tax position on online gaming income
Hi
Could you help me by letting me know what is the tax situation on the winnings if a UK citizen plays online at a US site? Is the UK citizen liable to pay US tax on his/her winnings? I understand that if you live in the US you can play an EU based site tax free, but if they play a US site they are taxed.
Look forward to hearing form you.
Kind regards,
Mash |
Our reply:
| Quote: | From: legal
To: Mash McCann
Cc: legal
Sent: Friday, September 01, 2006 10:44 AM
Subject: Re: Tax position on online gaming income
Hi Mash,
We found the answer to your question in the following IRS tax bulletin much faster than we expected. (Quiet praise for the IRS). Here's what it says:
| Quote: | Gambling winnings (Income Code 28)
In general, nonresident aliens are subject to NRA withholding at 30% on the gross proceeds from gambling won in the United States if that income is not effectively connected with a U.S. trade or business and is not exempted by treaty. However, a recent change in the law provides for an Exclusion of Certain Horse-Racing and Dog-Racing Gambling Winnings from the Income of Nonresident Alien Individuals. The winnings and the tax withheld are reportable on Forms 1042 and 1042-S
No tax is imposed on nonbusiness gambling income a nonresident alien wins playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States. A Form W-8BEN is not required to obtain the exemption from withholding, but a Form W-8BEN may be required to inform the withholding agent that the person is a foreign person, that is, Form 1099 reporting and backup withholding would not be applicable. When a Form W-8BEN is submitted to the withholding agent solely for the purpose of identifying the payee as a foreign person, a TIN is not required on such Form W-8BEN.
Most gambling winnings are subject to reporting on Form 1042-S. However, proceeds from a wager placed in blackjack, baccarat, craps, roulette, or big-6 wheel are not amounts subject to reporting.
On their U.S. federal individual income tax returns, nonresident aliens are taxed at graduated rates on net gambling income won in the U.S. that is effectively connected with a U.S. trade or business.
Tax Treaties
Gambling income of residents (as defined by treaty) of the following foreign countries is not taxable by the United States: Austria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, Russian Federation, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Tunisia, Turkey, Ukraine, and the United Kingdom. (emphasis added)
Claimants must give you a Form W-8BEN (with a valid U.S. Taxpayer Identification Number (TIN)) to claim treaty benefits on gambling income that is not effectively connected with a U.S. trade or business.
Expedited TIN
Regulations generally provide that a taxpayer identifying number (TIN) must be furnished on a Form W-8BEN or Form 8233 in order for a foreign individual to obtain the benefit of reduced withholding under an income tax treaty. The U.S. Treasury Department and the IRS are aware of certain unusual cases in which an unexpected payment to a nonresident alien individual claiming treaty benefits arises on short notice. In general, a foreign individual receiving such an unexpected payment currently may be unable to obtain a TIN prior to payment. In such a case, unless the foreign individual already has a TIN, the withholding agent would be required to withhold tax at the 30 percent rate, rather than the treaty rate, and the foreign individual would be required to file for a refund in order to obtain the benefits of the income tax treaty. To alleviate this filing burden on foreign individuals, IRS has put in place administrative procedures that will allow certain withholding agents, who also are acceptance agents and who make unexpected payments to foreign individuals, to apply for and obtain an individual taxpayer identification number (ITIN) for such individuals on an expedited basis. See U.S. Taxpayer Identification Number Requirement for when you can accept a Form W–8BEN without a TIN.
Refer to Treasury Decision 8977, Treasury Decision 9023, and Treasury Regulation 1.1441-6 for more information.
Canadian Tax Treaty
Gambling winnings of Canadian residents are subject to NRA withholding at 30% on the gross proceeds from gambling won in the United States. However, Article XXII of the Canada - U.S. Income tax treaty entitles residents of Canada who are taxable by the United States on gains from wagering transactions to deduct U.S. source losses from U.S. source wagering transactions. Canadian residents should file Form 1040NR to obtain a refund of U.S. taxes withheld from the gambling winnings, if applicable.
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court. |
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legal
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Posts: 510
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| Posted: Wed Dec 27, 2006 1:54 pm Post subject: |
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cbc.ca/news
Sports lotto millionaires beat the taxman
By CBC Sports
News arm of glittering Canadian jewel
repeated, massive federal cutbacks since the '80s
have somehow failed to shut down.
Dec. 21/06
| Quote: | Two brothers who made millions playing sports lotteries won't have to give Revenue Canada a piece of their winnings.
In a decision issued Thursday in Ottawa, Tax Court Chief Justice Don Bowman ruled the multi-million-dollar fortune Brian and Terry Leblanc accrued by playing sports lotteries may defy explanation, but it was exempt from taxation.
Revenue Canada had claimed the brothers, former window-washers, had somehow found a way to beat the system, and demanded they be taxed as a business. "Good for them, but it's time that they coughed up a part of that so that the rest of the people of Canada don't have to carry the burden that they're presenting," Revenue Canada lawyer Roger Leclerc argued.
The LeBlancs' lawyer responded that betting on sports lotteries is too risky to be considered a business, and winnings are tax exempt, no matter how many times you hit the jackpot.
"There's no tax on luck," Bill Vanveen told CBC Radio's Teddy Katz. (emphasis added)
The brothers said they used a computer to help see what kind of combinations would earn them a big pay day. But in the end, they said, their bets came down to pure guesses.
The Leblancs also told the court they lived frugally — even after they started winning — and spent $200,000 to $300,000 per week on sports lotteries across Canada. At one point they had 15 people buying tickets for them. It paid off for the brothers, whom Justice Bowman called compulsive gamblers, with lottery wins all over the country. |
View the reasons for judgment in Leblanc v. The Queen of Dec. 21/06.
More Impossible Odds at the Roll & Shuffle.
More Gambling Hosers, eh? |
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