New IRS procedures require poker tournament sponsors must withhold and report on payments to winners

by Lou on September 2, 2007

The following information was provided by poker player, author, and CPA Ann-Margaret Johnston.

Rev Proc 2007-57, 1007-36 IRB 547
A new revenue procedure concludes that poker tournament sponsors must withhold and report on payments of more than $5,000 made to winning payees in a tax year.

Under Code Sec. 3402(q)(3)(C)(i) , payors must withhold 25 percent on proceeds of more than $5,000 from a sweepstakes, wagering pool or lottery (other than a state-conducted lottery, which is covered by another withholding rule). Proceeds from a wager are determined by reducing the amount received by the amount of the wager. ( Code Sec. 3402(q)(4)(A) )

A poker tournament sponsor charges an entry fee and a buy-in fee for each participant. In exchange for paying the buy-in fee, a participant receives a set of poker chips with a nominal face value for use in the specific poker tournament. The sponsor pays amounts, which exceed a participant’s fees by $5,000, to a certain number of tournament winner(s), out of a pool made up of all the participants’ fees.

Poker tournament sponsors must withhold.
Rev Proc 2007-57 , which is effective for payments made on or after Mar. 4, 2008, says poker tournament sponsors (including casinos) paying amounts to winners in a manner substantially similar to the facts above, must under Code Sec. 3403(q) withhold and report on payments of more than $5,000 made to a winning payee in a tax year.

They must furnish a copy of the information return to IRS on or before Feb. 28 (Mar. 31 if filed electronically) of the calendar year following the calendar year in which the payment is made. Rev Proc 2007-57 cites legislative history for the proposition that the term “wagering pool” includes all pari-mutuel betting pools, including on- and off-track racing pools, and similar types of betting pools. It also cites a non-tax case (U.S. v. Berent, (CA 9 1975) 523 F.2d 1360, 1361), holding that in common usage “pool” means “a particular gambling practice, an arrangement whereby all bets constitute a common fund to be taken by the winner or winners.”

IRS said it won’t assert any liability for additional tax or additions to tax for violations of any withholding obligation relating to amounts paid to winners of poker tournaments under Code Sec. 3402 , as long as the poker tournament sponsor meets all of the requirements for information reporting under Code Sec. 3402(q) and its regs.

The IRS has found a way to make sure that you put this on your tax return. This also means that the Form 5750 is VERY IMPORTANT now. You have GOT to do this form IF THE WINNINGS ARE SPLIT BETWEEN PLAYERS (BACKING/STAKING SOMEONE) or the main person will be eating all the withholding money!!

Call or email her with any questions.

Ann-Margaret Johnston, CPA
Author of “How To Turn Your Poker Playing Into a Business”
Host of The Poker CPA radio show on
Tuesdays at 7pm eastern

418 Pirkle Ferry Road, Suite 110
Cumming, GA 30040
770-205-2221, phone
770-205-2141, fax

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