Several of our clients have asked, “The decision on poker accounts being ‘banks’ is nonsensical. Do I really have to file an FBAR for those accounts?”
I am in general agreement with the individuals questioning the ruling. Banks and financial institutions generally offer investments, credit cards, loans, checking accounts, securities, and similar products. An online gambling site does take client’s money–but solely so that the client can gamble.
The United States has, for various laws, lumped casinos in with banks. For example, casinos fall under the same currency transaction reporting rules as banks. If you take $20,000 into your local casino and deposit it at the casino cage, a Currency Transaction Report is supposed to be issued. Casinos have to issue Suspicious Activity Reports.
If you go back to 2009, the FBAR was required for online gambling accounts. (That was the advice given to us from the IRS FBAR group.) In 2011, when new regulations came into play, the IRS no longer said that. The new regulations appeared to make an online gambling site not a reportable foreign financial account.
However, a federal judge disagreed.
Section 5312(a)(2) lists 26 different types of entities that may qualify as a “financial institution.” Based on the breadth of the definition, our court of appeals has held that “the term ‘financial institution’ is to be given a broad definition.” United States v. Dela Espriella, 781 F.2d 1432, 1436 (9th Cir. 1986). The government claims that FirePay, PokerStars, and PartyPoker are all financial institutions because they function as “commercial bank[s].” Section 5312(a)(2)(B). The Fourth Circuit in Clines found that “[b]y holding funds for third parties and disbursing them at their direction, [the organization at issue] functioned as a bank [under Section 5314].” Clines, 958 F.2d at 582 (emphasis added).
It may be that this decision will be reversed. It’s possible another court would come to a very different conclusion. But the laws on the FBAR are draconian, including willful penalties that are a minimum $100,000 fine. My thinking is simple: I’d rather be safe than sorry. Thus, my strong advice is, “Just file the FBAR.”
We sent out a special newsletter to our clients on this issue. Here’s what we wrote:
The FBAR is due June 30th and there are no extensions. There are significant penalties (including possible imprisonment) for FBAR mistakes.
The general rule on whether you have to file an FBAR is if you have $10,000 or more aggregate in one or more foreign financial accounts at any time during the year you must file an FBAR. If your aggregate balance remained under $10,000, you will not have an FBAR filing requirement.
Even if you don’t have an FBAR filing requirement you must still disclose your foreign financial accounts on your tax return. At the bottom of Schedule B are a few questions which include, “At any time during 2013, did you have a financial interest in or signature authority over a financial account, (such as a bank account, securities account, or brokerage account) located in a foreign country?” This question must be answered yes if you have a non-US based online gambling account.
There are two choices in filing an FBAR. We can file it for you (we would need you to complete and return Form 114a; if you need us to send you this form, let either Aaron or me know) or you can file it yourself at the BSA efile system.
Here are answers to some questions relating to this issue:
1. I had $6,000 maximum in my PokerStars account. I cashed it out and moved that same $6,000 into my foreign bank account. Do I need to file an FBAR? No. You never reached $10,000 aggregate in your foreign financial accounts.
2. I already filed my FBAR for 2013 but I have online gambling accounts that must be reported. What do I do? You will need to file an amended FBAR.
3. My tax return has already been filed; I did not note any foreign financial accounts on Schedule B. Will I need to amend that return? Yes.
4. Do online gambling accounts count for Form 8938 on the tax return? (Form 8938 is similar to the FBAR and reports certain foreign financial accounts.) Yes
5. Do I need to go back for prior years and file amended FBARs and tax returns? This is unclear at the present time, but the answer is probably yes. The statute of limitations on FBARs is six years from the due date, so 2009-2013 are open (2008 will be beyond the statute of limitations on July 1, 2014). However, gambling accounts were considered foreign financial accounts for 2009, so this impacts solely 2010-2012 for FBAR purposes. For tax returns, only 2011 and 2012 are open (assuming timely filing). Note also that the first year for Form 8938 was 2012.
I and other practitioners have asked the IRS and FINCEN for more information regarding this. I do expect to obtain a response regarding this within a couple of weeks. I will be updating this issue on my tax blog (http://taxabletalk.com) when I have more information.
6. My only online gambling accounts are in Nevada and New Jersey with the regulated sites in those states. Do I need to file an FBAR? No. Those accounts are not considered foreign financial accounts.
7. My online gambling accounts are with current US-facing sites; their legality is questionable. Must I report my accounts on an FBAR? Yes, as long as you have $10,000 or more aggregate in one or more such accounts.
8. Can I access my PokerStars and Full Tilt Poker accounts while in the United States? Yes, you can. PokerStars sent us instructions on how to do this:
Your deposit, cashout, transfer and playing transaction history is now available for request directly from the PokerStars software. To request this information from the PokerStars Lobby screen, select:
‘Requests’ -> ‘Playing History Audit’
From the pop-up window that appears, you can select a date range to request the specific information required. You will also need to select a password for the file. You may choose any password you wish; however, we do not recommend using the same password as for your PokerStars account. If you wish to view your FPP/VPP information, please ensure the relevant box is checked.
Finally, you will need to select the output format. The options available are Excel (97-2003), HTML and a text file. Then click on OK to submit the request. You will be prompted to enter your PokerStars password to confirm the request. An email with further instructions will be sent to your registered email address.
If the file provided will not open, it indicates you have an older compression program that does not support the encryption used on the file. To resolve this and open the file, you will need to update your compression program or download a new compression program. We recommend using WinZip 11 (or newer) or 7-zip which will allow you to open the file. You can access these programs from the following links:
WinZip – http://www.winzip.com/prod_down.htm (Choose ‘Download’ > ‘Get WinZip Free’)
7-zip – http://www.7-zip.org/
I will be posting a list of online gambling addresses next week.