Sharing tournament action (Form 5754 or 1099)

Swapping or selling action is a common practice among tournament players. This means that a player has agreed in advance to share with others any winnings he earns. For example, Chris Moneymaker (2003 WSOP winner) sold 20% chunks of his tournament equity to his father and a friend for $2,000 each, financing his trip to Las Vegas. This arrangement raises a tax issue in offline casinos because the casino would normally issue a W-2G to the winner for the full amount. In order to avoid this, the winning player presents the casino with Form 5754. The casino is required to then issue multiple W-2Gs to the people listed on Form 5754 according to their respective share of the winnings.

Since online poker rooms don’t generally issue W-2Gs at all, there isn’t any use for Form 5754 in the online poker world. However, to let the IRS know what is going on, some winning players issue Form 1099 to those people sharing in the prize. It’s unclear whether this is the correct way to file, but there doesn’t seem to be a better alternative.

(Remember, the information here is not tax advice. For advice you will need to see a tax professional.)