Uncashed Casino Chips
Card Player published an article about the Playboy Casino in New Jersey. As of last year, players can no longer cash chips bearing the Playboy casino name. There are a few key takeaways from this article.
Timing of Gambling Winnings
Gambling winnings are reportable per the constructive receipt principle. This principle states that income (in this case winnings) must be recognized when you have the ability to control or utilize funds, even if you do not have direct possession of cash. The most common example is the receipt of a check. It does not matter when you cash the check, you must recognize income from the transaction when the check is received.
The same principle applies to gambling winnings. It does not matter if you leave the casino with cash, casino chips or unredeemed slot tickets. Each of these represents an immediately accessible source of funds without restriction. You must recognize income at the end of the session, regardless of the ending source of funds.
For example, you enter a casino with $100 in cash. You play blackjack for an hour and turn it into $200 in casino chips. You then leave the casino without cashing the chips. You come back the next day and finally convert your chips back to cash.
In this scenario, you must recognize gambling winnings of $100, per your blackjack session. There is no taxable event when you eventually redeem your chips, as the $100 profit has already been recognized.
If you forgot you had $200 in chips and flew back home with them, you would still recognize $100 in gambling winnings, even if you never return to the casino to cash the chips.
Found Money Still Subject to Tax
The article also mentions a group of construction workers in Mississippi that found Playboy chips hidden under a concrete slab in 2008. While not considered gambling winnings, the IRS makes it clear that “found money” is still subject to income tax.
If the chips held no cash value, or were unable to be redeemed, no tax would be owed. However, at the time, the chips were still valid and could be cashed at the Playboy casino. If the construction workers kept the chips, they should have recognized ordinary income equal to the face value of the chips.