Tax Court Ruling Deems Tournament Poker "Gambling Activity"

Tournament Poker: Gambling or Skill?

Playing tournament poker has just gotten more expensive. A recent tax court ruling has decreed that tournament poker is not a game reliant on skill, but instead a gambling activity. This ruling means that beginning in March 8, 2008, Casinos will be required to withhold 25% of tournament winnings when the amount exceeds $5000.

The tax court’s decision was based on the facts that bets are made on each hand, that the bets have value, the bets are made in the hope that the bettor will win, and that there are consequences for making a bet. The case came before the tax court when a professional poker player said that she should be able to claim a net loss when playing tournament poker, as tournament poker should be looked upon as a professional sporting event like golf or tennis. The tax court disagreed, and the poker player was only allowed to claim losses equaling her winnings.

This ruling does not affect online poker sites or foreign-based casinos, so the new taxes on tournament poker gambling will not apply there. This will likely cause a surge of poker players spending even more time in online poker rooms, as there are no regulations set in place for them.

Beginning on the 8th of March, 2008, taxes will be even more of a bane for tournament poker players. As an example, if a player wins $5000 in a poker tournament, $1250 will be withheld for taxes and the player will take home $3750. In an interesting comparison, Canada only taxes professional poker players, so amateur players can keep all of their winnings. Don’t head to Canada just yet though, as swirling rumors indicate the Canadians are looking at changing their tax codes as well.

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