The Scoop -- Billy Baxter

Seven-time World Series of Poker bracelet winner Billy Baxter was inducted into the Poker Hall of Fame in 2006, and is considered one of the most influential players in the history of the game. In 1986, he won a federal tax case that set a precedent for the taxation of professional gamblers. After his case, gambling winnings could be treated as earned income for federal income tax purposes. In addition, expenses and losses could be deducted from gambling winnings when calculating net earnings from self-employment, paving the way for other poker players and gamblers to make a profession of their passion.

Diego Cordovez: You’ve had an enormous impact on poker, making it a viable profession in the way that you challenged the IRS. Do people appreciate this? Do the younger guys or people who are new to poker know about this?

Billy Baxter: Occasionally, because it’s gotten a little press in the last few years through Card Player and different things, but before that, a lot of people didn’t really realize that it had happened. I never thought about it like that. At the time, it was a civil matter, and Jack Binion was really responsible for me doing that. I don’t know if you know the whole story.
DC: No, but we want to hear it.

BB: I had been paying quite a lot of taxes on gambling. I moved to Vegas in ’75, and in the first three years I was here, I won the [World Series of Poker] deuce-to-seven event the first year, and the second year, Bobby Baldwin and I played the longest head-up match I believe there has ever been with the smallest amount of chips. We played 12 hours, and had only 100-and-some-thousand apiece. He finally beat me in the end, and then the next year, I won — so I was paying a lot of income taxes, and these funds were documented. I won poker tournaments and all, and was paying taxes by choice. Back then, the income tax rate was 50 percent, which was quite high. But if your income was unearned, meaning passive, like something off of stocks or …

Adam Schoenfeld: The lottery.

BB: Yeah, or slot machines, or whatever. They could charge you up to 70 percent. When all was said and done, they came in on me one day and said, “You know, you owe us another 20 percent.”

AS: Oh, because you had been paying the 50 percent rate.

BB: Right. I talked to Jack about it. I said, “Well, you know the IRS, I don’t want to mess with them. I’ll just pay the damn thing.”

AS: The IRS is worse than fighting city hall.

DC: Plus, just the cost of hiring lawyers and fighting it might be a waste of time.

BB: And it was, and I’ll tell you how that transpired later on. So anyway, Jack said, “You should talk to your lawyer and your accountant about this.” So, I did. My accountant said, “If you lose one of these cases, with the penalty and interest if you don’t pay it, you’ll owe more than that by the time you get it all settled in court, so let’s just pay it under protest and then we’ll sue the government for the return of the money.” So, that’s what we did. We sued the government, and the first step, it went to Reno, to the court up there. I never will forget, it was in the recent Card Player story about me, when the judge got through hearing the lawyer representing the government’s case, he said, “Well, Mr. So-And-So, you may think that this is all luck, but I just wish you had some money and would sit down and play Mr. Baxter in poker, and we’d see how long you would last.” [Baxter laughed as he related the judge’s comment.]

AS: [Laughing] Yeah, find out how much luck is involved!

DC: You told me that story years ago, and I always have repeated it to people, because now there are all these cases where the Poker Players Alliance and experts are testifying about poker as to whether it’s luck or not luck, but the fact that a federal judge himself pointed that out is great.

BB: But they didn’t give up there. They appealed it, and they went to the 8th Circuit Court of Appeals in California. It got pitched out over there, and then they threatened to take it all the way to the Supreme Court. Finally, in the end, they tried to make a deal. I said, “No, we’re right. I don’t want to make no deals. You want to go to the Supreme Court, let’s go.” It was right on the doorstep of the Supreme Court, so to speak. Whether the Court would have heard it or not, I don’t know. But, I think they finally realized that they were barking up the wrong tree. They were bluffing, and I just bluffed right back.