Gambling and the Law

There is no doubt many of you reading this article will fill out brackets for this year’s NCAA Tournament. March Madness and the Super Bowl are two of the country’s biggest gambling events, and not just for avid sports fans. Why is March Madness so popular? Well, it’s the office pools and the morning water cooler talk about the Cinderella upsets, the buzzer beaters, and most importantly, who is leading the pool.

So, is entering the office pool for a few bucks considered illegal gambling, or is there a loophole? Technically – it is currently illegal, as the only place to legally wager on sports is Nevada (even Atlantic City outlaws it). But will the police knock down your door, haul you in for a mug shot to be printed on the front page of the CitPat? I doubt it. Police agencies (and everyone else for that matter) understand that this illegal gambling takes place, but just like any other entity, they must prioritize and use their limited resources wisely. In fact, I would bet money (theoretically of course) that many police officers participate in bracket mania.

March Madness office pools have become so prevalent that some states have considered legislation that would make participating in one an exception to the gambling laws. Last year, a Michigan state representative introduced a bill that did so if the entry fees were $20 or less and consisted of 100 people or fewer. The proposed legislation, however, never came to fruition.

As many remember, the most highly publicized case involving office pools was in 2003, when University of Washington football coach Rick Neuheisel was fired after wagering on March Madness. It should be noted, however, that Neuheisel later obtained a $4.5 million settlement from the university and the NCAA over the firing; and it is believed that other factors played into the termination.

So, as you pick your upset specials and fork over that tournament entry fee, have fun…as March Madness brings to Michigan something much more important….warmer weather.

Poker night has been around for as long as anyone can remember; and with the poker craze of a few years ago after Chris Moneymaker’s unbelievable run from online poker tournament qualifier to World Series of Poker champion (and millions of dollars richer), poker games seem to be everywhere. You know the deal: guys gathering in someone’s garage or basement with pizza, beer and a card table. While some games are legal, such as in the casinos and at the ever popular charity games, these friendly games are considered illegal.

Why is poker illegal? Most states ban games that rely more on chance than skill, and poker has long been viewed as an illegal game of chance. However, recent court decisions have held that poker is a game of skill, and therefore not subject to gambling laws. Trial courts in South Carolina, Pennsylvania and Colorado have recently acquitted defendants after experts testified, including a University of Denver statistics professor and also Mike Sexton, a professional poker player and co-host of the World Poker Tournament, that poker is a game based on mathematical calculations, timing, and being able to analyze other players’ behavior.

There is no doubt that this argument will continue to play out in courtrooms all across the country. But as you can see, poker players are finally starting to convince others that there is more to poker than flopping a full house (for those of you non-poker players, that is extremely lucky!).

On a serious note, as many probably know but do not care or think about, gambling winnings are always taxable income and must be reported on your tax return. This includes, but is not limited to, winnings from lotteries, horse races, raffles and casinos. These payers must furnish an IRS Form W-2G to you if you are lucky enough to win $1,200 or more in gambling winnings from bingo or slot machines, $1,500 or more in proceeds from keno, or $600 or more in gambling winnings and the payout is at least 300 times the amount of the wager (this formula is for games other than those previously listed, such as blackjack, poker or craps).

Conversely, if you are like most and often lose at the casino (hey, they have to pay for those multi-billion dollar properties some how), you can deduct your losses for the year if you itemize. Unfortunately, you cannot deduct your gambling losses that are more than your winnings. Keep in mind that it is important to keep records of your gambling activities if you intend to deduct losses, as you must be able to provide some sort of record to the IRS.

The tax code treats professional gamblers different from novices like most of us. Do you think you’re a professional? Most likely you are not a professional if you have another job but also frequent the casino, even on a regular basis. The IRS has ruled very narrowly on what it considers to be a professional gambler. If you think you are one, you should consult a tax/legal professional as there may be tax advantages.

Please note that part one of this article regarding the legality of participating in your office bracket was written in fun and must not be considered legal advice. Please consult with your lawyer if you have any questions.

This publication is for general information only and is not intended as formal legal advice. If you have any questions or need assistance, please contact Curtis & Curtis, P.C.

Curtis & Curtis, P.C. is a full service law firm located in Jackson, Michigan providing superior legal services and advice to individuals, families and businesses throughout mid-Michigan since 1901.

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