I’m suffering from some insomnia, thinking about various things to make myself sleepy, and this scenario popped into my head.
Let’s say Bob and Tim are good friends and take a vacation to Las Vegas. Tim doesn’t gamble with his own money. Bob does gamble, but for whatever reason he believes Tim to be luckier, and asks if Tim will place his bets for him, which Tim is happy to do. Bob withdraws cash from his checking account and hands the cash to Tim. Tim ends up winning, and gives the money back to Bob, who deposits it back in his bank account at the end of their trip. Here are the questions I have.
Does Tim have any tax liability in this scenario? Would this be considered a gift from Bob to Tim, then a second gift from Tim to Bob, or is Tim functioning more like the person at Charles Schwab who manages Bob’s 401k?
Would casinos frown on this practice, especially if large amounts like hundreds of thousands are involved?
Would it matter, for tax purposes, if the gambling was done on a slot machine, a table game, or at the sports book?
I’ll ignore the tax implications for a moment, but I will point out that it’s rather common for one legal adult to play another legal adult’s money, as long as the other legal adult gets the winnings.
I’ve been to casinos, and enjoyed playing all kinds of games in them, but my gambling vice of choice is horse racing. Just last week at the race book, a friend asked if I could put $2 down for him on a horse—all he had was coins (two Canadian loonies; we’re in Canada), and the Amtotes (machines that sell parimutuel tickets), don’t take coins. I could place the bet using my Amtote credit voucher, and he handed me two loonies. His wager won, and he got the proceeds. All I did was place the bet.
For that matter, back in the day, there were “runners” in the really fancy parts of the track. If you were enjoying your meal in the classy dining room that had a dress code during the races, you didn’t have to get up to place a bet at all—all you did was signal a runner, who would come, write down your bet and take your money, run it to the window, call it for you, and bring back the ticket and any change. If you won, they would cash it for you as well. I’m sure they enjoyed receiving a tip in such cases, but by the time I was well-heeled enough to go to such places at the track, runners had been phased out.
Point is, that people have been placing bets for other people for ages. As long as both parties agree that Tim will place Bob’s bets and Bob will get the proceeds, and both are of legal age and are in agreement as to the arrangement, then I don’t see a problem.
Casinos will not be bothered in the slightest who places the bet!
Since they have a % edge, all they want is as much betting as possible.
(If James Bond gets a beautiful woman to bet for him, that’s all fine.)
Since at no point does Tim get any benefit, I can’t see how he has any liability.
I don’t know of any difference from where you place bets.
If Tim plays slots or progressive games any taxes from a massive win would have to be paid by Tim.
If I go to Las Vegas, (as a UK citizen) and win big on a slot I get to keep it all. If an American goes to LV and hits the same big win they have to pay taxes. If Bob was foreigner and Tim was a USian Bob could end up paying.unneccessay takes. The other way round Bob could be in trouble for tax evasion if the arrangement became known.
IANAL
However the usual answer is that a construction created for the intent of avoiding tax is illegal. Proving the existence of a construction might be hard, but that isn’t the question.
If Tim and Bob attracted the attention of the inland revenue, someone is going to be paying tax, and it will come down to how clearly the deal is set up. If Bob is declaring the winnings and paying the tax, it should be fine. OTOH, if Tim is declaring the winnings and paying tax, and it comes to light that he pays tax at a much lower rate than Bob, and there is evidence of an arrangement between Tim and Bob, well - there is your construction.
Bob is quadriplegic. Tim is his assistant who helps him get around. They are in a casino.
Bob asks Tim to place a bet for him. Tim reaches into Bob’s pocket, takes out Bob’s wallet, takes the money Bob specified out of Bob’s wallet, puts the money in a slot machine, and pulls the lever. The slot machine gives out the big prize of one million dollars. Tim receives the check and deposits the money in Bob’s bank account.
I have a hard time believing anybody would argue in this circumstance that Tim won the money and owed the taxes on it.
I feel the situation in the OP would be legally equivalent. Bob wasn’t giving his money to Tim and Tim wasn’t giving his money back to Bob. The money, both the bets and the winnings, were always owned by Bob. Tim was just placing the bets on Bob’s behalf, using Bob’s money.
But here’s an interesting variation. Bob and Tim are in a casino. Bob says Tim is luckier than him and asks Tim to place a bet for him. Bob gives Tim the money. Tim goes up to the table or machine and places the bet. The bet wins and the prize is a million dollars.
Tim suddenly sees the million dollars in front of him and says “Screw you Bob, I won this money and I’m keeping it. You gave me that chip and it was mine. So I own the winnings.”
Bob says “Tim, you bastard. I only handed you the chip so you could place the bet for me. It was my bet so the million dollars belongs to me.”
Bob and Tim can’t resolve this argument. But they tell the casino representative the whole story with both of them agreeing on the facts. So who does the casino give the money to?
If Bob and Tim win more than $1,200, the casino will hand them a W2g form and that will settle the issue of tax liability right then and there.
Just as the casino doesn’t care who places the bet, it doesn’t really care who gets the winnings. IANAL but If Bob and Tim disagree on whose money it should be, I suspect the casino will cordially invite them to settle it between themselves, either as gentlemen, by stepping outside, or in court.
Kent_Clark has it right. More then once my wife has come home from the casino smiling with (what remains) of her winnings and hands me the silly W2 form. I get to pay the tax on it next tax season. We don’t itemize anymore so I can’t write it off like I used to. I point this out to her and mention that she could make a donation that I will set aside for taxes. Request denied!
That was my question. I heard of stories in the goode olde days, when slot machines would disgorge a cascade of quarters if you won… that the IRS agent would swoop in before the music stopped to demand a withholding share, etc. (not sure how true that is). I presume in those days, cashing in chips was what detemined the winnings and tax liability of the table games?
I assume nowadays, along with the W2g the casino holds the 25% or whatever on behalf of the IRS? Easier when slot machines print tickets you have to take to a window.
I thought it was a very standard situation and classic court decision - going back to the 1800’s British law, but the same in the USA - that arranging matters (legally) to minimize tax owed is not tax evasion.
IMHO IANAL etc. I would think that if Tim places a bet and Tim wins, then Tim owes the taxes on the winnings. Tim could argue he’s just an agent on behalf of Bob, but then it would come down to justifying that claim for the IRS? Assuming agents are allowed to place bets on behalf of others? I doubt Tim could say “no, I didn’t win this windfall from the bet I placed, my son here Tim Jr. with a much lower tax bracket did…”
Still IANAL - but I suspect the view is that tax minimisation only goes as far as one person. You can arrange your affairs to minimise tax, but creating a scheme whereby the tax liability is split in a manner that removes the liability from one person and places it on another is a form of tax splitting, and that usually has very clear rules - such as couples being allowed to income split to minimise tax. So the OP’s scheme is a construction. The version where Tim is a foreign visitor and not liable for any tax is an extreme version.
If Bob gives Doug some money to gamble for him and Doug wins big, he gives the money to Bob and Bob fills out the W-2.
It’s not the act of placing a bet that makes you owe taxes on the winnings. It’s who winds up with the money. Professional gamblers can and do hire employees to place bets for them. ‘Runners’ often place bets for other people.
Where it would cross the line into tax evasion is if Bob told Doug to fill out the W-2 because Doug has a lower income, then having Doug give Bob the money under the table.
Yep, as long as that’s what they say when the slot attendant comes over. Not sure how it would work at a table, but the dealer can see who is making decisions so if Bob is deciding and Tim is just moving cards and chips. my guess is they will pay Bob.
Nope - but if you won more than around $500 , the machine didn’t pay in quarters. It called an attendant who gave you a W2G and paid you in bills, same as now. When you win more than the W2G amount on a spin, the machine stops until the attendant resets it - you can’t win $1500 and keep betting until you lose it all and avoid the W2G. They give you the W2G and the $1500 in bills.
Taxes are only withheld from certain types of winnings. Not slot machines , bingo or keno unless the person doesn’t give a Taxpayer Identification Number ( usually the Social Security number)
The win in an accession to wealth over which Tim doesn’t have dominion. He is bound by contact to turn the winnings over, therefore it’s really Bob’s money and Bob has dominion over the wealth therefore it’s Bob’s income.
At least that’s what I remember from tax law some years ago
I am a lawyer but not a US lawyer. However I suspect the position is the same all over.
This question concerns the law of agency. The law recognises that a person (an “agent”) can do things for someone else (the “principal”). In such circumstances the general rule is that when an agent does something as agent, they are neither liable for the contractual consequences nor entitled to the contractual benefits.
Tim is the agent. The money is never his (neither the stake nor the winnings). Bob is the principal and at all times the stake and winnings belong to him.
The tax consequences follow in the obvious way.
The casino’s role in receiving the stake and distributing the winnings is essentially irrelevant legally. The casino is not a court or a legislature and cannot decide who is ultimately entitled to either. Nor does it have the power to bestow money upon people according to its view of the contractual position even if that position is legally incorrect.
Caveats -
there may be particular local laws that alter the position concerning gambling on behalf of others
there may be particular tax laws similarly
practical considerations may make it hard for people to enforce or prove their rights but don’t alter what those rights may be
Edited to add - laypeople have a strong tendency to confuse legal principle with evidential and paperwork practicalities. This thread is full of bush lawyers doing exactly this. It is completely possible for the correct tax position to be X, even if proving X may be hard.
“It is hard to prove X” ≠ “the correct legal position is not X”
Many years ago I was part of a team that placed many thousands of dollars worth of bets on horses racing interstate. The money was placed on behalf of an interstate gambler and we were paid to place the bets. We would all back the horses ourselves. Only one of about 10 bets lost but, once the interstate gambler convinced himself that we were taking the best odds first, before putting his money on, he couldn’t be dissuaded and the gravy train was derailed.
I think anyplace that has legal gambling must have local laws concerning who won - because although I found lots of articles saying “whoever pushes the button is the winner” I couldn’t find any where the person whose money went into the machine sued either the person who pushed the button or the casino that paid that person or sued the casino for refusing to pay because the minor (sitting on a parents lap) who pushed the button wasn’t legally allowed to play and therefore couldn’t legally win.
In the case of Jan Flato , the man in the article I linked to earlier, the casino paid his friend based on the video - and if the video showed who pushed the button, it would also show who put the money into the machine. The fact that I couldn’t find anything about him suing suggests to me that he couldn’t find a lawyer to take the case - either because the video will show that he did not provide the money or because in the jurisdiction all that matters is who pushed the button.
Tim would have to prove the circumstances, and the W2g in his name would be solid evidence it was taxable to Tim.
Well, because Tim would wheel Bob over and put the W2g in Bobs name. If the W2 was in Tims name, it would cause issues for Tim. He would have to prove the circumstances.
The casino reviews the cameras, and hands the $$ to Tim, who also gets the W2.
Hahahah , nope. The IRS doesnt have that kind of staff.
Yes, you are correct,
Mind you the IRS has been lenient on Lotto pools, but they need to see the agreements, etc.
Maybe. If it was a smallish slots win, that would work. But say Doug won a car with much ballyhoo. The casino would shy away from handing the keys to Bob, along with the W2.
