Swapping or selling action is a common practice among tournament players.
This means that a player has agreed in advance to share with others any
winnings he earns. For example, Chris Moneymaker (2003 WSOP winner)
sold 20% chunks of his tournament equity to his father and a friend
for $2,000 each, financing his trip to Las Vegas. This arrangement raises
a tax issue in offline casinos because the casino would normally issue a
W-2G to the winner for the full amount. In order to avoid this, the
winning player presents the casino with Form 5754. The
casino is required to then issue multiple W-2Gs to the people listed on
Form 5754 according to their respective share of the winnings.
Since online poker rooms don't generally issue W-2Gs at all, there isn't
any use for Form 5754 in the online poker world. However, to let the IRS
know what is going on, some winning players issue Form 1099 to those
people sharing in the prize. It's unclear whether this is the correct way
to file, but there doesn't seem to be a better alternative.
(Remember, the information here is not tax advice. For advice you will
need to see a tax professional.)