By Mitch Strohm, THELAW.TV
March Madness is here, and the sight of pens
filling out NCAA tournament brackets can be seen in offices throughout the
country.
Millions will be watching while 64 teams vie
single-elimination style for the NCAA Division I Men's Basketball Championship.
Many fans will be making a wager on the
tournament, hoping that their team takes the title.
If you're one of those fans making a wager
through an office pool, you might want to check with your HR department before
you place your bets.
Some companies ban any
kind of workplace gambling, points out Michael Daszkal, CPA at Daszkal Bolton LLP.
In fact, Fidelity fired four
employees back in 2009 for participating in a fantasy football league.
But your company's
gambling rules aren't the only thing you have to worry about. Your March Madness office pool might be illegal.
Legality
of workplace gambling
The legality of workplace
NCAA bracket contests in offices depends on state
law, and each state differs.
"In some states, if no
one is receiving compensation for conducting the contest, it is legal. In other
states, it is a form of prohibited gambling regardless of whether it is
conducted for profit," says Anthony Cabot, a Partner and Practice Group Leader
of the gaming law group for Lewis and Roca, LLP.
So check your state laws before you start your
office pool, and don't take a cut for conducting the contest.
In the Federal workplace, gambling for money
or property is strictly prohibited.
"Federal rules on
gambling prohibit employees from gambling while on duty, or while on
government-owned or leased property, unless necessitated by their official
duties," according to the National
Institutes of Health Ethics Department.
Can
you be arrested?
"As a practical matter, these office pools are
not often the subject of criminal prosecution in states where it is illegal,"
says Cabot.
But that doesn't mean that you're out of the
woods.
In a worst case scenario, in states where it's
illegal, Cabot says that persons operating and playing in the pools could be
arrested.
He notes that these laws are typically
enforced by the local police, but that other agencies can have jurisdiction as
well.
Paying
taxes
Technically, you're
supposed to report all of your gambling winnings to the IRS, according to Daszkal.
Recreational gamblers, like most participating
in an office pool, are required to report gambling winnings as "other income" —
Line 21 — on Form 1040.
Of course, losses from gambling activities can
be used to offset winnings in most cases, says Cabot.
But, he notes, you'll need to keep good
records.
"If you itemize your deductions, you can
deduct gambling losses that you had during the year, but only up to the extent
of your winnings. That's what the law is," says Daszkal.
Gambling losses can be claimed on Schedule A
under "other miscellaneous deductions."
What
happens if you don't report?
"The consequences are
that you pay the taxes, you pay interest and you pay penalties," says E. Martin
Davidoff, tax attorney and CPA at E. Martin Davidoff &
Associates.
He says that for the normal office pool,
you're talking interest and a 20 percent penalty on the tax for inaccuracy, if
there's an IRS audit.
But Daszkal notes that the IRS doesn't seem to
be very aggressive about this.
Still, he warns that
it's important to be cautious when it comes to workplace gambling and dealing
with the IRS.
