U.S. Judge Deals Poker Players a Pretty Good Hand in Feud With IRS

After more than two decades of taking money from amateurs, poker player Eric Drache has a simple definition for deciding who is a pro and who is not.

“If you play and win, poker is a profession,” Drache says. “Play and lose, and it’s an addiction.”

Drache and a handful of others have won enough over the years to get to the top of their chosen profession. Yes, profession, they say, despite the Internal Revenue Service’s contention that poker winners are just luckier than poker losers.

“Anyone who says I don’t earn my money ought to have watched me play the last 26 hours straight,” Drache said during the recent 17th annual World Series of Poker in Las Vegas. “Then they can tell me it doesn’t take some ability.”

A recent federal court decision in favor of three-time world champion Billy Baxter supports Drache’s contention. The court ruled that professional poker players should be awarded the same tax advantages as athletes, because they are skilled.

Challenges IRS Contention

The decision, expected to be appealed by the IRS, could mean the return of $178,000 in taxes and interest that Baxter paid. More important, players say, is that it legitimizes poker playing as a profession.

“That’s something that has been a long time coming,” said player Mickey Appleman.

At issue in the Baxter suit was the IRS contention that poker winnings should not be treated as earned income because poker playing is not a business or a trade.

“Even the best poker player relies on the luck of the draw,” IRS attorney Christopher Rizek argued last year. “It’s just as much a gambling transaction as playing 21.”

But U.S. District Judge Bruce Thompson in Reno disagreed, saying that Baxter consistently won at poker because he possessed “extraordinary poker skills” that allowed him to earn $1.25 million from 1978 to 1981.

“Any argument that Baxter’s gaming income is not based upon his personal expenditure of time, energy and skill is meritless,” Thompson said.

Baxter said he took the case to federal court because tax laws at the time put him in the 70% bracket while he would have been in the 50% bracket if his winnings had qualified as earned income. The law has since been changed, but players now will be able to put tax-free money into Keogh self-retirement plans not allowed previously.

“The main thing for poker players is they can set up a retirement plan now,” Baxter said. Baxter, who won the World Series of Poker in 1975, 1978 and 1982, said some players have questioned him about the ruling, but haven’t shown much interest in securing their retirement income.

Former World Champion

“Most people don’t make any money playing poker,” he said. “They’re more worried about how they’re going to pay the rent.”

Some who do make money praised the ruling.

“It’s just like any other professional person--you pay your 50% in taxes. I’ve been doing that for years myself,” said Doyle (Texas Dolly) Brunson, a former world champion.

Brunson said he has thought all along that poker players should enjoy the same tax advantages and social standing as other self-employed professionals.

Drache, who runs the World Series tournament at Binion’s Horseshoe Club and also manages the poker room at the Golden Nugget casino, said players are not looking for recognition, but noted that attitudes toward them have changed in recent years and said the ruling could help advance that attitude.