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Ask Robin D. Your Own Question

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7258
Experience:  15years with H & R Block. Divisional leader, Instructor
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So I financially backed a player named William who played online

Resolved Question:

So I financially backed a player named William who played online poker and that person lost access to his poker account for two years when the DOJ shut down the poker site, but now he finally has access to the money in his account most of which is mine, and a small percentage of that is his, but basically the DOJ is having Garden City Group handle remissions and seems to be insistent upon sending William the money since the account is in his name and they are giving his Social Security number to the treasury to collect ant outstanding debts prior to sending the money and in order to make sure that he pays taxes but like I said the money is actually mine and I want to avoid being double taxed meaning that we both end up paying taxes on that money as if it were both of our incomes. What would you recommend? Should I try and contact the group handling the claims and remission process and ask if they can pay me directly with this person's consent and then give them my Social Security. If they refuse to do that how can I handle the situation from a tax perspective so that he doesn't pay for this as income and then give me the money and have me pay income tax on it again. If he just gives me some sort of a 1099 form showing that the majority of the money was an expense to me and then I pay taxes on it does that solve the problem?
Submitted: 9 months ago.
Category: Tax
Expert:  Robin D. replied 9 months ago.

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
Your backing of the player was a loan. Unless you are in the business of making loans, you unfortunately would not have an expense to claim for the loan.
The interest he owes you for the loan you provided would be the only amount that you would pay tax on and report as income.
The payer is most likely not going to issue you a 1099MISC and the person you loaned the money to should not issue you a 1099MISC. The person you loaned the money to would not issue you anything. You would simply report the interest as regular interest income.

Robin D. :

The money that you loaned if yours and the borrower should repay you. If they do not then you could claim a nonbusiness bad debt and that would be an adjustment for you and beneficial for your tax return.

Customer: Okay Robin I really really appreciate your help and prompt reply, I'm just a little bit confused and not sure if a loan is the correct way to consider this, unfortunately this wasn't exactly a loan I'll be honest with you I didn't tell you the whole truth because I thought it would only confuse you even more but it was really me playing under his account and I actually earned the money in the account and I had not claimed any of that money as income yet neither did most Americans because we had to wait two years for it. Playing on his account is not illegal but I'm going to give William a percentage of whats recovered for helping me claim the money.
Robin D. :

I thought that may have been the case but could only reply to the actual post.

Robin D. :

You still cannot change the issuing by the company. They have laws to follow

Robin D. :

The answer would still be that they are required to pay and report

Robin D. :

The frien cannot even send you a 1099MISC because this is not under that filing

Customer: Robin I want to pay taxes I just don't want to pay twice
Customer: Are you saying that I will have to pay twice
Robin D. :

How woudl you be paying twice?

Robin D. :

Basically

Robin D. :

Your friend is the one that has to pay

Robin D. :

Their name was showing

Robin D. :

Now

Robin D. :

You in reality should reimburse them for the taxes

Customer: In other words the money will be sent to William and then he has to claim that as income and pay taxes on it and then he transfers me the remainder and then I have to claim that as income because I had not paid income tax on it
Robin D. :

No

Customer: One tax person that I consulted said that he would simply give me a 1099 form and show whatever money he sends to me as an expense but you're saying that won't work
Robin D. :

The 1099MISC is for business

Customer: I don't know if it's an expense or if it's a deduction
Robin D. :

is he in the business of gambling

Robin D. :

being a professional at gambling is difficult to claim for taxes

Robin D. :

The IRS may not accept his claim to be a professional

Customer: He's not a professional
Robin D. :

Then he cannot send a 1099MISC

Customer: He doesn't even play
Customer: 1099 other income doesn't work?
Robin D. :

No

Customer: Ok
Robin D. :

He should just show the income

Customer: I trust you so how can I handle the situation as well as possible
Customer: So that we don't end up both paying 25% tax on the same money
Robin D. :

You should pay him the tax on that extra income to him, he can give you the amount as a gift

Robin D. :

Then your friend has reported, the tax was paid, and you do not pay tax on a gift

Customer: Here's the problem the amount is more than 70,000
Robin D. :

OMG

Robin D. :

Well he will need to report the gift back to you for sure

Robin D. :

But still no extra tax to pay

Customer: I'm confused
Robin D. :

He would file the 709 and use the lifetime exclusion

Customer: I was told you cannot give a gift of more than 30,000
Robin D. :

By whom?

Customer: I was just told by several tax people over the years that there was a limit on how much money you could give as a gift
Customer: And not pay tax on it
Customer: Or receive as a gift I should say
Robin D. :

There is a limit but that is for reporting first

Robin D. :

and then for paying tax

Robin D. :

$14000 in a year is the limit then the giver reports

Robin D. :

But $5mil

Robin D. :

in a lifetinme before tax

Robin D. :

lifetime

Robin D. :

sorry

Customer: You are very helpful Robin is there any way I could do a phone conversation with you I feel like it would speed things up
Robin D. :

No, Just Answer regs have this only for contact

Robin D. :

To summarize

Robin D. :

your friend will report and pay, the tax should be paid out of this before he gives you anything

Robin D. :

he will then file the 709 form to report the gift and use the lifetime exclusion to not pay gift tax

Robin D. :

You should not use a conduit in this way again

Customer: What does the lifetime exclusion mean exactly
Customer: The problem is he has never claimed income of more than 10,000 a year he is very poor
Customer: It seems a little bit inconsistent for him to claim 70,000 out of nowhere
Robin D. :

It goes hand in hand with estate tax, When you make gifts before you die that are over the yearly limits, those amounts reduce your estate deduction.

Robin D. :

How about all the poor people that win the lottery?

Robin D. :

This is not earnings from work this is gambling

Customer: Okay so you still standby this is really the only option
Robin D. :

That or the loan but then you really did not loan him anything.

Customer: I was hoping to basically let them know that this was my money and not his but you're basically saying I can't do that
Robin D. :

The site is not going to do that

Customer: As far as which option would result in me paying The least amount of taxes are they pretty much the same
Robin D. :

No

Robin D. :

A loan constitutes interest income to the loaner, that means you would have to report a regular amount of interest on your return as income

Customer: Okay so the loan idea is out the window because clearly I have not been reporting any interest
Robin D. :

Correct and in reality it is not and never was a loan

Customer: So I'm going to receive somewhere around 50,000 as a gift
Customer: Don't you think the IRS is going to say hey this looks a little fishy
Robin D. :

Yes, and the knowledge not to do this again

Customer: Are you saying you're just recommending that I don't do this again
Robin D. :

Yes

Customer: Clearly I wont
Robin D. :

Our posts passed each other

Robin D. :

I did not respond about what the IRS woudl think was fishy

Customer: So the only reason I'm concerned is that I think my chances of getting audited are going to increase several fold
Customer: I don't see how you can claim 50,000 as a gift and not have the IRS interrogate you
Robin D. :

You do not even report the gift

Robin D. :

Gifts are only reported by the giver

Customer: So she is going to bank wire me 50,000 and then I'm just going to not report that At all on my income tax
Customer: And the IRS is just going to overlook it
Robin D. :

Yes, please tell me your friend is in the US and a US person though

Customer: What happens when I get audited what am I going to say that it was just a gift
Customer: yes
Robin D. :

Then correct

Robin D. :

The receiver is not required to report a gift from a US person

Customer: So then theoretically what is stopping someone from just paying someone $1 million and saying it was a gift and not having the other person pay a penny in tax
Robin D. :

The fact that the person is connected in such a way as to be receiving compensation rather than a gift

Customer: I think the idea you're proposing sounds great but I'm just a little bit confused why this loophole isn't being abused
Robin D. :

It is not a loophole

Customer: So you're saying that the IRS would eventually deduce that it is not a gift and come after the person
Robin D. :

What you attempted was a loophole

Robin D. :

The IRS would questuion a gift if they saw a connection that made them think the "gift" was really payment for services or as employee

Customer: The only reason I don't like this arrangement is simply that it isn't true the money is not her income and she shouldn't be paying tax on it but what you're saying is since I cannot have them send me the money that it is my only option
Robin D. :

Basically yes. The site is not going to do what you want now because from the beginning you attested to being the other person.

Customer: If I could get them to send me the money then problem solved but otherwise this is my only good option In your opinion correct?
Robin D. :

Yes

Customer: Okay so when I talk to my lawyer and tax people could you give me the exact jargon that I will use as to explain the situation, I'm going to copy and paste it
Robin D. :

Why are you using a lawyer, has this situation already gone to a legal situation?

Customer: Because I need to make sure he doesn't take the money and run
Robin D. :

The lawyer?

Customer: No William
Customer: The lawyer is there so that there is an enforceable contract binding him to pay me whatever amount is left
Robin D. :

You can explain then that you used "William" name and info to gamble, (hopefully) with his consent, "William" will report and pay tax from the winnings, then "William" will gift you a sum and report the gift by filing Form 709

Robin D. :

I can only explain tax reporting I cannot imagine how a lawyer will come up with a contract or wording for that.

Customer: Ok Will that form have my information and the amount on it I assume
Robin D. :

Yes, it will show your name and info

Robin D. :

and relationship to the giver

Customer: Okay this sounds like a potential trigger of an audit in my opinion
Customer: But what you're saying is It is my only option
Customer: If she just withdrew the money and paid me cash which is essentially what she's doing that would at least avoid the auditing right
Robin D. :

She cannot reassign the income to you.

Robin D. :

Her name was used so that is not an option. She will have to report the income.

Robin D. :

She can give it away if she wants to

Customer: I mean simply that she claims the income and then agrees to pay me 50,000 in cash and there is no need to mention a gift
Customer: And there is a much lower risk of being audited IMO
Customer: Because there's no record of where that money went
Robin D. :

She cannot give you more than $14,000 and not report.

Robin D. :

She will be against tax law if she does

Customer: I see so what if she gave me 14,000 and then my mom and dad 14,000
Customer: And my sister
Customer: Sorry I'm just making a mockery of the system at this point
Customer: Clearly the numbers are all arbitrary
Robin D. :

She can give $14000 to as many people as she wants in a year and not report. And here you are getting complicated and "webby" again which started the problem (not trying to be mean but....)

Customer: I'm just trying to find the option that you the least problematic and risky solution
Robin D. :

I understand

Customer: I see what you're saying
Robin D. :

but simple pictures are best sometimes

Customer: It sounds like gifting 14,000 to my father and mother and me is actually not a bad option
Customer: Because it avoids the whole increased risk of an audit
Customer: Significantly I would assume
Robin D. :

A gift is only a gift is there are no strings attached

Robin D. :

So you cannot say hse is giving them anything if you in turn require that they then give it to you

Customer: True so then I'll just have them do me favors in the future
Customer: Quick question though
Customer: In this hypothetical scenario William would not have to report giving any gifts to anybody and we would not have to report receiving any gifts
Robin D. :

Yes but remember what I said about what a gift is

Customer: i see
Robin D. :

I hope our CHAT has been helpful

Customer: Thank you very much Robin you have been great
Robin D. :

You are most welcome.
Your positive rating is always thanks enough.

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7258
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 2 other Tax Specialists are ready to help you

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