July 31, 2012
I see you've got your list out, say your piece and get out.
Yes I get the gist of it, but it's all right.
Sorry that you feel that way, the only thing there is to say is
Every silver lining's got a touch of grey.
~The Grateful Dead, "Touch of Grey"
The big poker news of the day was the announcement that the DOJ and PokerStars had reached a deal to settle the federal forfeiture proceeding against PokerStars in exchange for PokerStars paying off Full Tilt Poker's players in full for the money stolen/mismanaged from them by directors Ray Bitar, Chris "Jesus" Ferguson, Howard Lederer, and Rafe Furst. Obviously this is welcome news to the tens of thousands of Full Tilt players whose funds have been frozen (or been gambled or spent by Full Tilt shareholders) for over fifteen months. But for some of those players, the check they get in the mail might be a little lighter than they anticipated.
A key provision of the settlement agreement provides that the DOJ will be paid settlement funds from PokerStars to reimburse U.S. players, while PokerStars will reimburse foreign players directly. The settlement agreement also provides that PokerStars will provide the DOJ with player account records to facilitate the reimbursement of U.S. players. Although the DOJ has not yet announced reimbursement procedures for U.S. players to follow, the involvement of the DOJ raises the interesting question of whether some players will receive their entire account balance.
What could possibly prevent a full refund? Well, it seems almost certain that players will need to file some kind of paperwork to the government to submit their claims, and that paperwork will almost certainly include basic information such as names, addresses, and social security numbers. Most likely, the government will also issue a Form 1099-MISC or a Form W2-G with any player reimbursements. Consequently, there are a number of legal issues that might arise that would affect the reimbursement of certain players, including:
- Federal & state tax debts: Players owing tax debts will likely find their player accounts garnished.
- Delinquent child support obligations: The federal government is actively involved in enforcing child support withholding.
- Divorce & bankruptcy court proceedings: Players who have filed asset inventories in divorce or bankruptcy proceedings might find that attorneys for their former spouse or creditors have developed an interest in determining if a poker account refund is in the works.
- Civil judgment and criminal fine garnishments: Players who have unpaid civil judgments and criminal fines may face garnishments of their account funds.
I'm happy for all the Full Tilt players who now have a good chance of recovering their funds which once seemed lost to yet another online poker scandal. If some of those players have a portion of their funds garnished to satisfy child support, tax, or other legal debts, well, every silver lining has a touch of grey.
ADDENDUM (31 July 2012): After I hit publish, I found out via Twitter that tax attorney Brad Polizzano (@taxdood) had also written about the tax implications of Full Tilt refunds. Check out his post!
ADDENDUM (1 August 2012): To follow up on a series of questions and comments on Twitter, I want to clarify that it's not a guarantee that the DOJ would issue a Form 1099/W2-G with any refund. The federal regulations related to remissions in forfeiture cases are silent as to tax withholding, but do provide that the DOJ can impose procedures and conditions for remissions. So at the very least, there will be some kind of paper trail to tie remissions to players, and that paper trail at least creates potential tax implications for players.
Also, normal tax rules will apply to any remissions. So tax would only be owed on the profit/gain, and not on the deposit portion of the player account. Assuming players paid taxes in prior years and have good records, they may well owe nothing further (unless they declared a casualty loss for theft/loss of their account funds). Players who did not pay taxes, underpaid taxes, and/or lack appropriate records to document wins/losses may well find themselves with tax issues. Depending on the records available to the DOJ and PokerStars, the DOJ might be able to document deposits and wins/profits for player reporting purposes, but I'm not certain the DOJ is going to want to go to that kind of trouble. As Brad Polizanno wrote in his blog (see first Addendum above), it would be a surprise if the DOJ and PokerStars have not already thought out most of these sort of logisitics.