IRS Declaring War on Poker Players?

[Canada Cal, on the Haley beat---]

Perhaps 'war' is too strong a word, but the IRS took advantage of a favorable and legally suspect Tax Court decision rendered earlier this year to issue a new decree governing large tournament-win payouts: If the payout is over $5,000, an additional 25% must automatically be deducted from the winnings, effective in March, 2008.

Card Player was among the first with news of the new code, which reads, in part, as follows:

Background. Under Code Sec. 3402(q)(3)(C)(i), payers must withhold 25% on proceeds of more than $5,000 from a sweepstakes, wagering pool, or lottery (other than a state-conducted lottery, 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))

Facts. 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 the 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."

--- source: cardplayer.com

While I am not a lawyer, tax or otherwise --- or even a U.S. citizen, come to think of it --- it seems clear that the legal ground claimed by Billy Baxter in establishing that poker is a game of skill must now be fought for again by someone in this generation of poker players; give the game's increased visibility and its low stature in the eyes of the Bush administration, it's no surprise to see the game assailed from several different angles. This decree goes after tournament poker, specifically, but there's an easy, irrefutable proof that establishes that poker is a game of skill.

It is impossible to intentionally lose a game of luck, such as a lottery. In those cases, the bettor's fate is ultimately decided by factors not in the bettor's control. In a game of skill, however, the bettor can take actions that guarantee the bettor's own loss, so a skillful player takes other actions. The greater the difference between a bettor's actions and those that would guarantee a maximum loss demonstrates, over a statistically significant sample, the degree of the bettor's skill.

Only an idiot, an anti-gambling fanatic, or an IRS agent (or other government bureaucrat) could somehow argue with a straight face that poker is a game of luck, not skill. Unfortunately, all three conditions might apply here.