Hand-pays: Who Pushed the Button?

       Gaming is a social activity that’s more fun when you play with others. You’ll often see little old ladies gamble with their friends, pooling their funds while taking turns pressing the button to make their money and entertainment last longer. YouTube video filmmakers sometimes work in pairs or groups making their recording, one filming the action for his video while the other spins the reels for him to make it happen. Sometimes groups of  young guys who’ve had a little too much to drink ask perfect strangers to push their slot button for luck to start their bonuses. Sometimes people play on the free-play on someone else’s card - someone who may not even be at the casino - or they may add their credits to ones abandoned in a machine by a former player. Nobody thinks much about what would happen if one of these shared credits paid for a spin that hit a  hand-pay jackpot. 

       If one person has his player’s card and money in the machine, but the other person had his hand on the button when the reels brought up the lucky result, who gets the jackpot? Whose name goes on the W2G, and who pays the tax?

       Last April a “Slot Fanatic” who had just won his first hand pay (a slot jackpot over $1200 requiring the issuance of a W2G form by the casino for tax reporting) started a conversation thread that posed these very questions. He got some very interesting replies - some personal experiences, some opinions about what seemed reasonable, some misinformation - but no answers one could quote in print from either the IRS or from any State or Native American Gaming Commission. I’ve been scouring the internet for the past week myself looking for something in writing from someone other than a blogger. I finally have one. See the update inserted here.

     [UPDATE: 6/13/2015.  Colorado Gaming Regulation 47.1-1256 reads: A person lawfully playing a slot machine is the only person who can receive the award from a slot machine ... If more than one person is playing a slot machine, including two persons playing the machine together, the award must be given to the person who made a valid wager on the game and completed a valid game play.
       So there we have a quotable source from the Colorado Department of Revenue - The person who pushes the button gets the money and pays the tax.]

       So I have the answer to the question of who pays the tax, however, and it’s not one I like. The person who pushed the button will get the money from the casino, but he doesn't have to be the person who get the W2G. Here’s what my research says the the casino could do. 

       IRS has a form to use if there is a shared jackpot or if the person to whom the winnings are paid is not the actual owner or the only owner. It’s called Form 5754. (You can look at the form and its instructions on the internet at irs.gov.) It’s the same form that is used by the lotteries when there are shared winners of that jackpot. It’s the form that is currently in the news because Harrah’s refuses to use it to show the split of money between winners and sponsors at the World Series of Poker.

       It’s not hard to fill out the 5754 form. The person who “pushed the button” to whom the casino is going to pay the money is the recipient of record. He lists himself in Part 1 of Form 5754. In Part 2, he lists the actual owner/winner - the person whose money (and probably also whose players card) was in the machine. You will notice if you look at the form that he has to have that person’s Social Security Number (Tax ID Number) to complete the form. (Without it, the payer - the casino - has to withhold 28% in tax from the amount on his W2G.) The recipient of record listed in Part 1 signs the form under penalties of perjury. Then he gives it to the casino which is supposed to fill out a W2G for each of the actual owners listed in Part 2 - not the person they hand the money to who pushed the button - using this information.

       In the case of the old ladies sharing a machine and a jackpot, if the win was $1200, each one’s W2G would show $600.  They would each still get a W2G even though neither would be for $1200 or more. In the case of the YouTube filmers, “Button Pusher” will be listed in Part 1 only (unless he is also sharing in the winnings) and he will NOT get a W2G.  “Actual Owner” will NOT be listed in Part 1, but will be in Part 2. The W2G that both he and the IRS get from the casino will show his information  that was provided on the 5754 form. You can view both Form W2G and Form 5754 on irs.gov.

       So what is the problem? This seems easy and perfectly logical to me. The problem is the casinos. Some of them don’t want to use this form. 

       I spoke with a manager at Pauma Casino today. Paula is one of our smaller Native American casinos here in Southern California. I posed a hypothetical question about gambling jackpots to her - what does the casino do when the player whose money and players card are in the machine is not the one who pushed the button on the winning spin?  She didn’t like the idea of the two friends co-mingling funds, but acknowledged it happens frequently. But, like everyone else, she had the same answer to the question of who the casino pays the money to: "it’s always the one who pushed the button.” 

       I mentioned Form 5754 to her, and she said “Pauma doesn’t use that form.” I didn’t realize they had a choice - but in light of WSOP’s problems in the news, maybe they do. I asked her if there was anything in writing she could direct me to - there wasn’t - and whether it was an IRS or Gaming Commission Rule. She didn’t know. Each Native American Casino has its own Gaming Commission I learned, so different casinos could easily have different rules.  Or different ways of applying the same rules. Or, if they wanted, a “don’t ask, don’t tell” policy where they accept whatever the players say. I don’t know what happened in the case of the winner posting the question on Slot Fanatics. 

       The casino manager’s suggestion was that the person who pushed the button could ask the casino to withhold tax, and he could pay the person whose money and card were in the machine the rest of the payout if that’s what they agreed to. She suggested that when “Button Pusher” files, he includes the W2G income and withholding with his own gambling information on his 1040 and that he works things out with the other gambler if his tax increase caused by the jackpot doesn’t match what was withheld by the casino. Seems like a lot of trouble to me, when Form 5754 would clear everything up for everyone much more easily. 

       By the way, CPAs can not issue corrected W2Gs as some suggested on the Slot Fanatics site. Look at the form. Go to irs.gov if you don’t have one to look at. Your CPA is not the payer. The casino is.  A correction to an IRS form is made by the issuer who did it wrong to begin with. CPAs often attach statements to tax returns explaining inconsistent tax treatment when they file with different numbers than the payer forms show, but they can’t correct the form that was sent to the government by the casino. Only the casino can do that. Be careful relying on tax advice on blogs, especially if the blogger doesn’t have a background in law or accounting.

       I thought later while typing this that there is another question I should have asked the manager at Pauma when I had the chance. Is the spin that determines who is paid the money the one that brings up the bonus symbols to give you the bonus, or is it the one that starts the bonus play? 

       Most hand pays are the result of wins in the bonus rounds, so it might eliminate the problem if the person who provided the money to play the game also pushed the button starting the bonus reels. If the critical button-push is the one that starts the bonus play, maybe the YouTube filmers could get around their quandary by pausing their recording long enough to push the button starting the bonus themselves for at least that one spin. This won’t help the two old ladies sharing money and a machine, however, though the proper use of form 5754 would. It is better to ask your casino what their procedures for hand payouts are before your big win and then structure your playing accordingly. Especially if you are a gambler who likes to bet the max.

       I’ll be writing more about this later. I have two blog entries, one by Michael Schakelford - the Wizard of Odds - and another by the Gaming Guru John Robison, that I want to share with you on this subject. I also want to tell you the story of what happened to Laura and Jill Waters at Pauma a few years ago. Because this entry is so long, I’ll stop for now and put up Part 2  in a day or so.