Team: Incorporate or Not?

[Dyepaintball12]

I know some Blackjack Teams (like MIT) incorporated and made themselves into actual legal entities. Questions about that:

1) Why do this? Is it so contracts can be drawn up so players/investors are legally responsible to do what they say they will? Couldn't documents like this be made without incorporating?

2) By doing this, aren't you opening doors for the Government to investigate into your profits and therefore taxes? I don't know for sure but I didn't think teams like MIT were paying taxes on all that money they strapped to themselves and left in paper bags in classrooms

Thanks,

Dye

 

[daddybo]

Not!

 

[johndoe]

Usually, you incorporate to shield yourselves from financial and similar liability. The shareholders (or owners) of a corporation are not, in general, liable for the actions or debts of a corporation. Contracts are enforceable whether between people or with a corporation involved.

It also allows you to issue stock, if that's your thing.

As for tax reporting, there's really no difference; whether the corporation reports their earnings honestly is pretty much the same issue as whether a person does.

The popularized MIT team was, I'd imagine, probably reporting their earnings fairly accurately, as they had a lot of investors to report (honestly) to, and keeping two sets of books is a big no-no.

There are lots of options for corporate structures; LLC, S-type, C-type, etc.

 

[moo321]

Technically, if you don't incorporate you're just operating as a sole proprietorship, which is the default.

There are several problems with sole proprietorships. One is unlimited liability; all of your personal assets could be at risk if, say, one of your players committed a negligent tort. For example, your spotter is driving to the casino and kills someone in an accident; "respondeat superior" says you are on the hook for everything.

Another problem is that sole proprietorships end when the owner dies. So you cant will someone your stake in an sole proprietorship.

If you create an LLC (which is what you would want to do) you would have limited liability. This means that neither you nor your investors could be sued for any more than what you have in the team. You can also will an ownership stake in an LLC.

However, assuming you can draft all of the documents yourself, an LLC will probably cost a few hundred dollars.

As far as the tax question, if you don't want to incorporate to avoid taxes, I personally think you're being silly. Other people here don't pay taxes, and I understand their reasons for doing so, but I don't agree. If you get busted running a blackjack team and you haven't paid taxes, you're going to prison, and it will ruin your life. And with a reasonably large team, you'll generate CTR's and other documentation that will give them a reasonable chance to catch you.

Normally I don't think you need to talk to an attorney, because smart people can usually get their questions answered with an internet search, but this is a very particular question about business incorporations. I've taken business law, and I don't know the answer.

In fact, you may want to see if there's a guy in Nevada somewhere that specializes in this stuff; I know there are CPAs that specialize in helping professional gamblers.

Here's a good place to start: http://www.nolo.com/legal-encyclopedia/llc-corporations-partnerships/

 

[Pro21]

Could you elaborate on "CPAs that help professional gamblers." Anyone with personal experience with one that they would recommend? My experience has not been good at finding one.

 

[QFIT]

Another problem is that sole proprietorships end when the owner dies. So you cant will someone your stake in an sole proprietorship.

A sole proprietor is the person. So, you can will your stake.

 

[daddybo]

I know some Blackjack Teams (like MIT) incorporated and made themselves into actual legal entities. Questions about that:

1) Why do this? Is it so contracts can be drawn up so players/investors are legally responsible to do what they say they will? Couldn't documents like this be made without incorporating?

You can draw up any documents you need personally or individually or severally. You don't need a corporation. There is in reality little personal protection from legal issues in a business where the sole asset is money. If somebody's going to sue you they will go after you personally anyway.

2) By doing this, aren't you opening doors for the Government to investigate into your profits and therefore taxes? I don't know for sure but I didn't think teams like MIT were paying taxes on all that money they strapped to themselves and left in paper bags in classrooms

Aside from the tax issues and without going in to the intricacies of each type of corporate entity... Why do you want to add an extra layer of expenses and fees, not to mention an extra tax return and and an extra chance of government scrutiny to a pretty simple operation where it is not needed.

 

[Dyepaintball12]

However, assuming you can draft all of the documents yourself, an LLC will probably cost a few hundred dollars.

I currently own an LLC which I started (in Michigan), and all of the paperwork can be done on one sheet of paper at the Department of Labor and Economic Growth and costs exactly $50. All the bylaws and operating agreements can easily be created for free on your own.

And as for the sole proprietorship being the default: Are you even technically a business if you get a bunch of people together, collect money and then count cards at a casino? I kind of see that as more of a sports team than a business other than the fact that people invest in you.

What defines you as a business?

 

[daddybo]

What defines you as a business?

Production of revenue with the intent to produce profit = business. Technically you would also need a state and local license for every casino you operate in... If you are indeed a business. (Although that would be hard to enforce.) You are much better off being a bunch of "friends" doing some serious gambling.

 

[daddybo]

Could you elaborate on "CPAs that help professional gamblers." Anyone with personal experience with one that they would recommend? My experience has not been good at finding one.

Actually, I do know one.

 

[moo321]

Could you elaborate on "CPAs that help professional gamblers." Anyone with personal experience with one that they would recommend? My experience has not been good at finding one.

Somebody recommended one to me years ago. Don't remember who it was... Maybe ask around for recommendations?

 

[WRX]

Could you elaborate on "CPAs that help professional gamblers." Anyone with personal experience with one that they would recommend? My experience has not been good at finding one.

And Pro21 should know, if anyone should! This just highlights the fact that professionals knowledgeable about the needs of professional gamblers will always be few. It's a small potential client base.

 

[WRX]

I know some Blackjack Teams (like MIT) incorporated and made themselves into actual legal entities. Questions about that:

1) Why do this? Is it so contracts can be drawn up so players/investors are legally responsible to do what they say they will? Couldn't documents like this be made without incorporating?

2) By doing this, aren't you opening doors for the Government to investigate into your profits and therefore taxes? I don't know for sure but I didn't think teams like MIT were paying taxes on all that money they strapped to themselves and left in paper bags in classrooms

Thanks,

Dye

Team members' legal responsibility for their obligations has nothing to do with the form of business organization adopted by the team. An agreement that includes the elements of a legally-recognized contract, whether or not in writing, is enforceable between individuals and business entities of all types.

The IRS has the power and the motive to look into profits from gambling, whether or not generated through a corporation. The filing of a tax return by a corporation will, of course, alert the IRS to the possibility that additional unreported profits are being generated, but so will the filing of returns by individuals that list income from gambling. Which, by law, individuals should be reporting. CTRs and certain tax reports by casinos, such as W-2s in connection with slot jackpots, can also alert the IRS.

Professionals need to use large sums of cash in their business. This has nothing to do with a desire to conceal anything from the IRS.

The choice of form of business entity--general partnership, corporation, LLC, etc.--is usually motivated mostly by tax considerations. Each type of entity is taxed in a different way, and therefore one or another may be more favorable given the needs of a particular team.

 

[QFIT]

Technically you would also need a state and local license for every casino you operate in... If you are indeed a business. (Although that would be hard to enforce.) You are much better off being a bunch of "friends" doing some serious gambling.

You only need a license in you are in a business that requires a license. But I agree there is no reason to incorporate. In New York, you have to file an unincorporated business tax and a metropolitan commuter transportation mobility tax quarterly on such income when not incorporated. Lots of forms.

 

[aslan]

And Pro21 should know, if anyone should! This just highlights the fact that professionals knowledgeable about the needs of professional gamblers will always be few. It's a small potential client base.

I am a CPA, but gambling is not my specialty. My gut is that all you are doing by incorporation is drawing a significant amount of attention to yourself.

Assuming you follow the law in paying income taxes when you gamble by yourself, when you team up, why not expect each person to do the same? Why complicate things? Each person declares their winnings and they offset any losses against those winnings.

True, you won't be able to declare business expenses, such as, airlines, rental cars, hotel rooms, meals, etc., but then, you won't be putting yourself under the IRS's scrutiny, with the greater risk of audit just because such a business to bound to set off alarms and whistles all over the place.

Don't forget, too, that as a business you will have to show a profit in 3 out of 5 years to be safely presumed to be a business, and not a hobby. So, you might have to understate expenses so that you make a bottom line profit even when things don't go all that well. Also, you'll have the added burden of documenting all your gambling forays, with detailed accounting for each session played. Sounds to me like a major headache, unless of course you like that sort of thing.

 

[Sharky]

s-corp can save on payroll taxes, but not income taxes.

just pay each owner a 'reasonable' wage - which you, obviously, pay ss and medicare taxes on.

s-corps have no retained earnings, so at the end of the year (or even quarterly), profits (or losses) NEED to be dispersed to the owners via K-1 and reported for Federal taxes. You do not pay additional payroll taxes (or state and locals in some states) for this dividend payment.

the key thing not to get audited is paying reasonable wages - which in the casino we know is minimum wage? right?

 

[Iron Man]

It also depends on what state you are in. In California if you set up an LLC you have to pay an $800 franchise fee no matter how much your profits or losses are. Also an LLC gives greater flexibility in allocating and distributing profits and losses. An s-corp is limited to one class of stock and is not as flexible. A c-corp would be the worst idea as that would give you double taxation.

If you do get audited having a business structure would help with the hobby v. business distinction. It seems that if you are making a decent amount of money that you would want to deduct your business expenses against your gross income to get a lower adjusted gross income.

It wouldn't seem that limited liability would be an issue in this context. Anyone playing on your team should just be an independent contractor, and you can issue them a 10-99 with no payroll or other taxes.

One issue you will have is securities regulation. Anyone who "invests" in the team would have to be a qualified investor or participate in the team play. If they are considered to be primarily relying on the efforts of others, it could be considered an investment contract. Then, if they were not a qualified investor they could ask you for their money back and you would have to give it to them even if it was lost. For instance some multi level marketing companies had to give back the initial payment to people who joined because they weren't exempt from securities regulation.

Just my humble opinion, but there could be a lot of tax / legal issues and an attorney would be helpful if you plan on investing with more than $100,000

 

[Pro21]

Aslan,

As a CPA I assume you prepare your own taxes. If you don't mind my asking - do you just declare BJ income as "additional income"? It seems to me the great benefit of this is the money is not subject to self employment tax correct? The downside is that you can't write off things like travel against it.

The other option seems to be putting it on a schedule C where you can take all the write offs but don't those write offs come after paying self employment?

 

[aslan]

Aslan,

As a CPA I assume you prepare your own taxes. If you don't mind my asking - do you just declare BJ income as "additional income"? It seems to me the great benefit of this is the money is not subject to self employment tax correct? The downside is that you can't write off things like travel against it.

The other option seems to be putting it on a schedule C where you can take all the write offs but don't those write offs come after paying self employment?

There's a category on the 1040 for gambling winnings, I think it's called other income. you may offset any gambling losses up to the amount of your gambling winnings. There is no loss deduction available.

My guess is that going into business as a gambler attaches a stigma to yourself. I don't think IRS agents would have any compunction about putting the screws to you, and may even go out of their way to do so, but that's only my own opinion. I have known people who worked for the IRS, and they themselves were spared no grief on how they filed their returns. Some reported to me that it was a ch#ck#n sh#t organization to work for, but then again, I never worked for them and have no first hand knowledge.

Personally, I go out of my way to avoid audit by the IRS, for example, not defining a room in my home as a business office. It is legal to do so if you have a legitimate business, such as tax preparation services, but I know that IRS pays inordinate amounts of attention to businesses operated out of the home, and like to audit such returns believing they will find unsupportable/impermissible business expenses and looking for business operations they can dub a sham to avoid income taxation. I think it's always better to fly under the radar, just as you would do in a session of blackjack.

Knowing APs, they probably have limited expenses anyway--discount airfares (I fly free half the time), comp rooms, comp meals, and heavily discounted car rentals.

If selected for audit, I am sure the IRS would do its best to disprove your claim to be a legitimate business, but then again, that's only my opinion.

If you have nothing to hide, and you don't mind the greater risk of audit, and you don't mind the hassle of keeping books and payroll records, and you don't mind the nuisance of filing state and federal business returns, go for it. It's just not my cup of tea.

 

[muppet]

discount airfares (I fly free half the time)

how do u get cheap flights? right now i am paying full price on my flights and that is a decent-sized expense for me