IRS Takes Aim at Poker Tournament Winnings

IRS Takes Aim at Poker Tournament Winnings

2/13/2008
The IRS recently released Revenue Procedure 2007-57 which provides that poker tournament sponsors must report the payments of winnings in excess of $5,000. The Internal Revenue Code of 1986, as amended ("IRC") generally requires income tax withholding and information reporting for "any payment of winnings." A person who has gambling winnings must provide certain information to the casino or other person making the pay-out. The person paying a gambling pay-out must then report to the IRS the amount of the pay-out and the identity of the winner Prior to the release of Revenue Procedure 2007-57, there was wide-spread confusion among casinos and poker tournament sponsors whether the payment of winnings were subject to the IRC income tax withholding and information reporting requirements. Revenue Procedure 2007-57 resolved the confusion. The IRS concluded that entry fees and buy-ins constitute a "wagering pool." Accordingly, payments in excess of $5,000 paid to a poker tournament participant are subject to IRC income tax withholding and information reporting. Revenue Procedure 2007-57 carves out a significant safe harbor which relieves casinos and other sponsors from the withholding obligations. Casinos and other poker tournament sponsors are not required to withhold income tax if the IRC information reporting requirements are satisfied. To qualify for the Revenue Procedure 2007-57 safe harbor, casinos and other poker tournament sponsors must: - Collect the name, address, and Taxpayer Identification Number of tournament winners who receive payments in excess of $5,000; - The information must be provided under penalties of perjury on IRS Form W-2G or IRS Form 5754; and - The casino or other tournament sponsor must file a copy of the information return with the IRS on or before February 28 (or March 31 if filed electronically) of the calendar year following the year of payment. The information reporting requirements are effective for payments made on or after March 4, 2008.
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