High stakes poker and taxes

Practical and Practice issues for Professionals who practice in the area of taxation. Moral, social and economic issues relating to taxes, including international issues, the U.S. Internal Revenue Code, state tax issues, etc. Not for "tax protestor" issues, which should be posted in the "tax protestor" forum above. The advice or opinion given herein should not be relied on for any purpose whatsoever. Also examines cookie-cutter deals that have no economic substance but exist only to generate losses, as marketed by everybody from solo practitioner tax lawyers to the major accounting firms.
Arthur Rubin
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Re: High stakes poker and taxes

Postby Arthur Rubin » Fri Jun 24, 2011 5:54 am

CaptainKickback wrote:http://www.covers.com/articles/articles.aspx?theArt=237804

Seems that for a period of time, there was a regular, on-going high stakes poker game with Hollywood big names, a "hedge fund manager" (now indicted for fraud), $100,000 buy ins and Gabe Kaplan.

I wonder, for the folks that had net winnings over a single year, how many of them recorded it on their taxes. That's problem one.

Problem two is that what they were doing is completely illegal in California.

So, how much trouble do you think these H'wood types are in?
Poker (at least some variants) are a game of skill, under California law. Although any rational person would consider Texas Hold 'em a game of chance, California may not agree.
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The Operative
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Re: High stakes poker and taxes

Postby The Operative » Fri Jun 24, 2011 12:56 pm

Arthur Rubin wrote:
CaptainKickback wrote:http://www.covers.com/articles/articles.aspx?theArt=237804

Seems that for a period of time, there was a regular, on-going high stakes poker game with Hollywood big names, a "hedge fund manager" (now indicted for fraud), $100,000 buy ins and Gabe Kaplan.

I wonder, for the folks that had net winnings over a single year, how many of them recorded it on their taxes. That's problem one.

Problem two is that what they were doing is completely illegal in California.

So, how much trouble do you think these H'wood types are in?
Poker (at least some variants) are a game of skill, under California law. Although any rational person would consider Texas Hold 'em a game of chance, California may not agree.


Just glancing at California law, what made the earlier games illegal wasn't the fact that it was poker. What made them illegal was the games were held at hotels and nightclubs. Home games, where no person makes money for operating the game, do not appear to be illegal under California law. See Section 337j of the California Penal Code.

As for how much trouble these types are in, I would guess not much. The maximum punishment for violating that section of the penal code is one year in jail and a $10,000 fine. A sentence of one year in California equates to about a week in real life.

Edited to fix my screwed up URL.
Last edited by The Operative on Fri Jun 24, 2011 5:41 pm, edited 1 time in total.
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Re: High stakes poker and taxes

Postby wserra » Fri Jun 24, 2011 3:09 pm

Arthur Rubin wrote:Although any rational person would consider Texas Hold 'em a game of chance


Not the way I play it, it's not. [W.C. Fields]
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Re: High stakes poker and taxes

Postby Dezcad » Fri Jun 24, 2011 3:16 pm

Arthur Rubin wrote: Although any rational person would consider Texas Hold 'em a game of chance, California may not agree.


And neither does a number of people, including Steven Levitt and a [url=http://www.chicagobreakingbusiness.com/media/acrobat/2011-05/247216220-24113646.pdf]study entitled "THE ROLE OF SKILL VERSUS LUCK IN POKER:
EVIDENCE FROM THE WORLD SERIES OF POKER"[/url].

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The Operative
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Re: High stakes poker and taxes

Postby The Operative » Fri Jun 24, 2011 6:16 pm

Dezcad wrote:
Arthur Rubin wrote: Although any rational person would consider Texas Hold 'em a game of chance, California may not agree.


And neither does a number of people, including Steven Levitt and a study entitled THE ROLE OF SKILL VERSUS LUCK IN POKER: EVIDENCE FROM THE WORLD SERIES OF POKER.


There is quite a lot of skill involved in the game. The ability to read people, knowing the percentages, and how to place bets to get maximum money out of your opponents. This is why the good or skilled players will win more than average and less skilled players over time. However, any one hand or series of hands may involve a bit of luck. One professional, Daniel Negreanu, seemed to hit a bad luck streak for about a year. During that time frame, he would have the dominating hand and would lose to a 10 or 15% chance draw. As a professional, he was able to keep playing and probably lost less than a less skilled player would have.

For an example of bad luck, Oliver Hudson (the actor) was knocked out of the 2005 World Series of Poker on the very first hand by Sam Farha (a professional). The bad luck for Hudson was the flop gave him a hand that no player in the world, including professionals, would have been able to fold.
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Re: High stakes poker and taxes

Postby Dezcad » Fri Jun 24, 2011 9:18 pm

The Operative wrote:There is quite a lot of skill involved in the game. The ability to read people, knowing the percentages, and how to place bets to get maximum money out of your opponents. This is why the good or skilled players will win more than average and less skilled players over time. However, any one hand or series of hands may involve a bit of luck. One professional, Daniel Negreanu, seemed to hit a bad luck streak for about a year. During that time frame, he would have the dominating hand and would lose to a 10 or 15% chance draw. As a professional, he was able to keep playing and probably lost less than a less skilled player would have.


There is also a big difference between the short term and long term.


The Operative wrote:For an example of bad luck, Oliver Hudson (the actor) was knocked out of the 2005 World Series of Poker on the very first hand by Sam Farha (a professional). The bad luck for Hudson was the flop gave him a hand that no player in the world, including professionals, would have been able to fold.


I have some disagreement here. In a deep stack tournament like the WSOP Main Event, it was not necessary for Hudson to have moved all-in when he did. Not only did it jeopardize his tournament early, he was behind to 2 hands that Sammy Farha could have (AT or AQ). Hudson's mistake was moving all in at that point against a professional that would not have called with a hand worse than Hudson's at that point in the tournament. Bad luck - yes - but he also failed to pay attention to the point you made above. Winning the max and losing the minimum.

But I won't turn this into the 2+2 forum. :wink:

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Re: High stakes poker and taxes

Postby Cpt Banjo » Fri Jun 24, 2011 9:38 pm

Dezcad wrote:There is also a big difference between the short term and long term.


Indeed. Backgammon, for example, has a large element of luck because it's played with dice. Given the right throws, I could beat the best player in the world in a handful of games. But if we played 100 games it's obvious I'd lose the vast majority of them (and with my opponent's expert use of the doubling cube, I could lose a lot).
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Re: High stakes poker and taxes

Postby The Operative » Fri Jun 24, 2011 11:15 pm

Dezcad wrote:
The Operative wrote:There is quite a lot of skill involved in the game. The ability to read people, knowing the percentages, and how to place bets to get maximum money out of your opponents. This is why the good or skilled players will win more than average and less skilled players over time. However, any one hand or series of hands may involve a bit of luck. One professional, Daniel Negreanu, seemed to hit a bad luck streak for about a year. During that time frame, he would have the dominating hand and would lose to a 10 or 15% chance draw. As a professional, he was able to keep playing and probably lost less than a less skilled player would have.


There is also a big difference between the short term and long term.


That was the point, though maybe I could have been clearer.

Dezcad wrote:
The Operative wrote:For an example of bad luck, Oliver Hudson (the actor) was knocked out of the 2005 World Series of Poker on the very first hand by Sam Farha (a professional). The bad luck for Hudson was the flop gave him a hand that no player in the world, including professionals, would have been able to fold.


I have some disagreement here. In a deep stack tournament like the WSOP Main Event, it was not necessary for Hudson to have moved all-in when he did. Not only did it jeopardize his tournament early, he was behind to 2 hands that Sammy Farha could have (AT or AQ). Hudson's mistake was moving all in at that point against a professional that would not have called with a hand worse than Hudson's at that point in the tournament. Bad luck - yes - but he also failed to pay attention to the point you made above. Winning the max and losing the minimum.

But I won't turn this into the 2+2 forum. :wink:


I disagree. While Hudson may not have needed to re-raise all-in Farha's check raise, Farha would have made him committed on the river. If Hudson had only called Farha's check-raise, he still would have had close to $2,000 in the pot with a pot about $4,000 before the river. I have seen plenty of professional and amateur players go all-in in similar situations where there are only three or four hands possible hands that can beat them. BTW, from Hudson's position, there were FOUR hands that Farha may have had that could beat him when he went all in on the turn (AT, AQ, QQ, or AA).

Anyway, back to the topic and similar to the "legalize drugs" thread in Quatloosia Good Life forum, I stopped playing serious online poker back in 2006 when Congress felt the need to protect people from themselves. I am hoping that they can eventually figure out a way to regulate (and possibly tax) online poker instead of making it difficult to play for money.
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