Satellite wins are exempted from tax per the Binions closing agreement with the IRS. If the issuing casino is following the BCA.

You make the mistake of confusing whether or not a the casino is obligated to report a win with whether or not it is taxable.

As to the taxability of the satellite win, I don't know the answer, but I really doubt the BCA speaks to the matter.

The answer that the satellite win is offset by the loss in the main tournament (or offsets the the win in the main tournament can be deceiving).

Lets suppose that a person makes 30,000 in income this year. Lets suppose that this person is single, does not own their own home and has no substantial medical expenses or charitable donations. When tax time comes around this person will take the standard deduction (lets say it is $8,000 this year) Their taxable income is now $22,000.

Now lets suppose this person wins a satellite to play the WSOP main event lets suppose this is worth $10,000 (though I see a reasonable argument that it is in fact worth less). Lets also suppose that this person does not cash in the WSOP. If the satellite win is in fact taxable income it would need to be reported. So now this person adds $10,000 in income making their gross income $40,000. Now this person is faced with a choice. Take the standard deduction for $8,000 and have a taxable income of $32,000. Or itemize their deductions in order to take the $10,000 loss as a deduction against their win. In doing so they can not take the standard deduction, so they itemize and take the $10,000 dedcution but they have no other deductions to take (maybe a few small deductions) and they end up with a taxable income of $30,000. Either way they pay more taxes than if they didn't have the satellite win.

But I don't think the question here is that simple. I think the question is whether or not we will consider the satellite win to be a win at all. Assuming the satellite win can not be cahsed in or sold (as is the general case with many of WSOP ME satellites). Should this count as a win at all or just a continuation of the original wager. If we treat it as a continuation of the original wager, kind of like OK you won the first session and your prize is that you get to come back and continue in the second round then it seems to me that you haven't won anything until you win in the Main Event and thus you have no taxable income from the satellite. It would seem this analysis makes a lot of sense if the satellite is run by the same casino as the WSOP, and you are given a nonrefundable, nontransferable entry to the WSOP ME. Though the argument gets more strained if you win your entry in an online satellite or at another casino, and especially if you have an option to accept cash instead of the entry.

I hope that Jim Perlowski weighs in on this topic.