There has been much discussion recently about the World Series of Poker not accepting Form 5754, which could transfer the tax liability in a poker tournament to another individual. You can read the WSOP’s stance in this PocketFives thread. We sat down with Kondler and Associates‘ Ray Kondler to get his thoughts.

PocketFives: What’s your take on the WSOP not accepting Form 5754? Talk about what the form is and why players attending the WSOP should care about it.

Ray Kondler; There has been a lot talk recently on social media about Form 5754. I have been asked a number of times about this form over the past five or ten years and I do not have a good answer as to why the WSOP does not accept it. I know that other casinos in Las Vegas accept this form at the cage, but the WSOP has had the same stance for a number of years and it does not seem like there will be any change before the 2015 WSOP.

If you are unfamiliar with Form 5754, it is actually a handy form that can save you time and energy if you were in any sort of backer/backee arrangement throughout the year. The form allows you to parcel out portions of your gambling winnings to other parties at the time of the payout. This prevents you from having to file Form 1099 for each backer you had for that tournament and settles all tax liability issues before any money is paid out.

Here’s how it works:

You sell numerous pieces of your tournament action to friends and backers before the tournament starts. When the tournament is over, you are due to receive the winnings (let’s say $100,000) as well as assume the tax liability associated with the score. However, before you head to the cage, you can fill out Form 5754 with each backer’s name, address, tax identification number, and the amount of money they are due without taking into consideration taxes (so a 10% stakeholder would be due $10,000).

While at the cage, the casino would disperse a Form W-2G to each individual on Form 5754 showing their gross win and clearing you of the tax liability associated with the backers’ portion of the winnings. Once this is completed, you would keep Form 5754 for your records, but there would be no additional paperwork associated with the win needed.

This form definitely makes it easier on the players who are involved in swapping or buying action.

PocketFives: What should a person being staked at the WSOP do to ensure he’s allocating his tax liability correctly? Is a notebook acceptable or would you recommend something more advanced?

Ray Kondler: I think a notebook or journal is ideal for these situations. Backing deals vary so greatly that it is critical for players to track every tournament or cash game and noting which sessions were backed and which sessions were not. Quite often, I have players ask me about their backing deal, but they are unable to determine the amount of winnings from backed sessions versus unbacked sessions.

Players should always keep some sort of log that shows the data from all of their sessions, but it should be even more detailed if they are backed. Ideally, you should know the result of every session and the impact it has on both you and your backer. This way, you will know which wins and losses should be claimed by each party at the end of the year.

If you are entering into one-time backing deals for a tournament or a larger-than-normal cash game, it never hurts to have something in writing between you and a backer/backee. Although most players only enter into these types of agreements with friends or colleagues, having a “contract” with each backer will provide a legal document in the case of a dispute and also forces players to stay on top of each relationship.

PocketFives: What should a person who wins a large sum of money at the WSOP do from a tax perspective? Is accepting the money one way versus another advantageous? Should he immediately hire a CPA?

Ray Kondler: If you are fortunate enough to hit a large score at any point during the year, the absolute first thing you should do is look for outside guidance. I would suggest consulting with a CPA and a financial advisor before you go to the cage to claim the money. It is important to outline all of the factors that will be affected by the win and you do not want to make a decision without at least consulting with a professional who has dealt with these situations before.

A CPA can help you plan for the impending tax implications of your win and implement strategies to reduce your overall liability. In some instances, such as bad beat or slot jackpots, you will have the option to take a lump-sum payment or an annuity over a fixed time period. Again, consulting with a CPA will allow you to plan out the potential benefits and drawbacks of each payout scenario from a tax perspective.

PocketFives: What about cash games? Should players be logging how they’re doing in them? What winnings thresholds should they be worried about?

Ray Kondler: Cash games should absolutely be logged in a gambling journal along with the rest of your gambling activity. I suggest having a separate section of your log for each gambling activity so it is easier for someone to decipher which type of activity is which.

It is important to have some sort of secondary evidence that proves you either won or lost money during a cash game session since the casinos will not log your win/loss. The best way to do this is to always swipe in before you play with your player’s card. This way, you can show that the amount of time you logged in your journal corresponds to the actual time you spent at the table according to your player’s card.

I would also suggest making a bank withdrawal before you play, so there is a clear paper trail to show if there was a loss during the session. Once the session is over, you can log the win (or loss) and trace it through your bank account and player’s card.

PocketFives: What about satellites that award tournament entries? What happens if someone sells their entry?

Ray Kondler: If you enter a satellite that is giving away a seat to a bracelet event and you win the event, it will most likely not be taxable. For example, WSOP.com has these types of satellites almost every week and the seats that are given away are non-transferable and have no cash value. Since the only option is to take the seat in the event, the amount won is not taxable.

If you are playing in a satellite event and win a seat with the option to receive the cash value of the seat instead, then this is taxable no matter which option you choose. The fact that there’s an option to choose cash makes the event taxable.