Online Poker: Cheating, Taxes, and the Law

[Editor’s note: this post originally appeared as a stand-alone page on this site; because of a new site structure I am rolling out in the next few days, I am re-posting it on my blog. Another useful resource on this topic is my paper, Tapping the Aquarium: Legal Implications of Advertising for Online Gambling Sites in the United States.]

It’s very questionable whether or not online gambling is legal in the United States – in some states, it is definitely not legal. While online gambling is most likely not a prosecutable federal crime, it is almost certainly prosecutable by most states. Granted, no players have been prosecuted in the United States, but that doesn’t mean it won’t happen. Just as importantly, it is not really safe – although there are online “tells”, there is nothing like seeing your opponent across the table; when you gamble online, you may very well be up against any number of types of cheats or even playing a “bot” (computer software) and not realize it. If you’re good, the bots are probably not a problem, but the unreality of the game should concern you. Additionally, you’re giving personal information (like banking account numbers) to people overseas, who are outside the jurisdiction of U.S. authorities and may never have to answer for it if your identity is stolen.

Another problem is that I know of no good – or even reasonable – way to pay taxes on online gambling winnings. Like it or not, they are taxable, so you should pay taxes, but the government says it’s illegal, so how do you report your winnings? Fail to report any winnings over $600, and you are committing tax fraud, a serious crime (most forms of tax frauds are felonies). If you are any good and win a lot of money – say, enough to become a poker pro or even supplement your income by any significant amount – whether or not you choose to report it, the likelihood of getting audited and/or charged with tax fraud and/or some gambling crime gets much higher. Many high-profile online gamblers have gotten by, just fine, so far, but there is no guarantee that this situation will continue.

Still, the biggest concern is (or should be) the hazy legal status of online poker. See, for example, this article on online gambling from CNN. The article failed to note that federal courts, so far, have held that the Wire Wager act only covers sports betting. Still, you can bet that the states and the federal government will find a way to regulate and tax or eliminate entirely online gambling, and soon, and it’s likely that many people will be brought up on charges before that happens. In each of the last few sessions of Congress, bills have been introduced to outlaw online gambling; while the legislators may be struggling with finding the right wording, they are trying to ban online poker playing in the United States. There is a real likelihood that, much like pot-smoking in the ’60s or file-sharing in the ’90s, many unsuspecting online players will suddenly find that their hobby, previously legally “iffy,” but conveniently overlooked, has turned into a legal, personal, and professional liability, overnight. Better safe than sorry, right?

Some good resources on the legality and safety of Internet poker include:

DISCLAIMER: I am not a lawyer; nothing on this page should be construed as legal advice. If you are considering playing poker for real money on the Internet, you should seek legal counsel before doing so.  UPDATE 1/2/2010: While I have been admitted to the Texas bar since writing this post, the disclaimer above still applies. The law regarding online poker is unsettled and complex, and nothing on this page is legal advice. The links in this post likewise do not represent legal advice — they are merely information you may find useful, but I have no control over the content at those links and I do not guarantee the accuracy of that information.

If you suspect you have a gambling problem – or if those close to you think you might – please visit Gambler’s Anonymous.

Freeroll

Just finished 23rd in a 2,757-player no-limit hold ’em freeroll on Ultimate Bet. W00t!

EDIT: Also, just finished 70th out of 3,589 in a no-limit Omaha freeroll on PokerStars. Fun times.

Good Times in Indiana

Sarah and I went with two mutual friends to an Indiana casino, tonight. The guys played poker while the ladies played $0.02 slots. I did well at poker, while my counterpart lost only a little. The real story, though, was that each of the women won $200, playing $0.02 slots… at the same time. They hit the same payout on adjacent machines, literally within seconds of each other. It was kind of amazing.

The more exciting aspect of my life is, of course, that my wedding is now only seven days away! That is exciting, indeed!

Wild Poker Hand

Last night, I played some Hold ‘Em, and went all-in with top pair (kings), holding AK offsuit. The problem was that two other players had AK offsuit, as well! One of them caught a K-high flush on the river, and the other caught the A-high flush on the river. Ouch. Of course, the pot was a monster.

Probability of (at least) 3 players in an 8-handed game having AK (suited or unsuited) = .000029% (1 in 3,465, 531 hands).
Probability of (at least) 3 players in an 8-handed game having AK offsuit = .000013% (1 in 7,921,215 hands).

So, that was probably a once-in-a-lifetime hand. Too bad I got busted on it.

Poker Chips

I got the rest of my poker chips, today; all in all, the service was pretty good. I did get a chance to “break in” the table and chips, a bit, and am happy with both.

Okay, back to work

New Page – Online Poker: Cheating, Taxes, and the Law

I have posted a new page, Online Poker: Cheating, Taxes, and the Law, dedicated to the legal issues and risk associated with online (real money) poker playing. Short version: I don’t think it’s a good idea to wager real money on poker or any other type of gambling activity, online, if you are in the United States.

I think poker, in particular, should and probably will be legalized, licensed, and regulated within the next five or so years, but playing is not a good bet, right now. I’ll have more to post about why poker – online and off – ought to be legal, even in the mind of a southern, Christian conservative like yours truly, at some other time, but not tonight.

Why I Like Playing a Short Stack

I have played a fair amount of poker, this weekend, since I’ve got little else to do; I resolved to avoid work, this weekend, and I don’t know anybody, nearby, so I might as well play some cards. I had a very good night, on Friday, and again last night (cashed out with 18x and 26x my buy-ins, respectively). Saturday night, however, was not so hot, which reinforced my preference for playing just a bit short-stacked.

Generally, it’s not such a good idea to use the minimum buy-in (10x the big blind) – it’s easy to lose all of it, without playing badly, but it’s hard to catch up to other players at the table. When I have an option, I usually go for about 40-50 big blinds (40-50 BB), which makes me short-stacked, since most players will buy in for the max (usually 100 BB). This accomplishes several things:

  • It forces me to play tight and throw away hands I might be tempted to play, if I had lots of chips
  • It forces me to pay attention to the players, cards, bets, etc.
  • It forces me to play the players and not the cards – if you’re short-stacked and not trying to read your opponents, you’re toast.
  • It means that even a modest win – say, 5 BB – is a big one, given my stack size, which makes me feel like a winner, early, and keeps me from getting in a psychological hole. If I double-up, well, then I’ve caught up to the folks who did the max buy-in… and at their expense.

I don’t always win, playing a short stack, of course, but if I look back at my play over the last few months, I have good nights much more often starting with a modest stack (40-50 BB) than with a big stack (100 BB) or a tiny one (10-25 BB).

Today’s News

Today, I received the poker chips and table top I ordered several days ago. All in all, they are very nice – the table top, in particular, surpassed my expectations. I bought both chips and table top at 5StarDeal. The downside: while I ordered 250 white chips and 200 red, I received 450 white and 0 red. The good news is that they are replacing those chips and refunding me the return shipping cost.

Meanwhile, I got very, very frustrated with Macromedia Dreamweaver; while it claims to support Find/Replace operations with regular expressions, a great many regex features (like the “limsux” operators, most special/control characters, and some others) don’t work, and the matches are not always all found. Hence, I had a client website offline for about an hour – far longer than the planned 5 minutes – while I double-checked and corrected Dreamweaver’s faulty performance. I think I’m going to build a regex-capable find/replace program for Windows, since none of the programs I’ve seen work properly. Who would be interested in such a thing? If you would, or if you know of another program I should look at, please comment!

P.S. This is the dealer button I ordered, but I don’t have it, yet.