Archive for the ‘Gambling’ Category

Online Gambling Addresses Updated for 2015

Thursday, March 5th, 2015

With the United States v. Hom decision, we must again file an FBAR for foreign online gambling sites. An FBAR (Form 114) is required if your aggregate balance exceeds $10,000 at any time during the year.

There’s a problem, though. Most of these entities don’t broadcast their addresses. Some individuals sent email inquiries to one of these gambling sites and received politely worded responses (or not so politely worded) that said that it’s none of your business.

Well, not fully completing the Form 114 can subject you to a substantial penalty. I’ve been compiling a list of the addresses of the online gambling sites. It’s presented below.

There is one major change for 2015. FINCEN does not want dba’s; however, they’re required for Form 8938. One would think that two different agencies of the Department of the Treasury would speak the same language…but one would be wrong.

You will see the entries do include the dba’s. Let’s say you’re reporting an account on PokerStars. On the FBAR, you would enter the address as follows:

Rational Entertainment Enterprises Limited
Douglas Bay Complex, King Edward Rd
Onchan, IM31DZ Isle of Man

Here’s how you would enter it for Form 8938:

Rational Entertainment Enterprises Limited dba PokerStars
Douglas Bay Complex, King Edward Rd
Onchan, IM3 1DZ Isle of Man

You will also see that on the FBAR spaces in a postal code are removed; they’re entered on Form 8938. You can’t make this stuff up….

Finally, I no longer have addresses for Bodog, Bovada, or If anyone has a current mailing address, please leave it in the comments or email me with it. [I have found an address for which appears to be current.]

Note: This list is presented for informational purposes only. It is believed accurate as of March 5, 2015. However, I do not take responsibility for your use of this list or for the accuracy of any of the addresses presented on the list.

The list is in the cut text below.

If anyone has additions or corrections to the list feel free to email them to me.

IRS Proposes Session Method for Slot Machine Play and a Revision to the Regulations on Gambling Information Returns

Tuesday, March 3rd, 2015

This morning the IRS proposed a new Revenue Procedure for individual taxpayers to determine wagering (gambling) gains and losses from slot machine play. Additionally, the IRS proposed an update to the regulations on information returns for gambling from slot machines.

There’s a lot to like in IRS Notice 2015-21, the IRS’s proposal for a “Safe Harbor Method for Determining a Wagering Gain or Loss from Slot Machine Play.” The proposal is for a daily session for slot machine play where there are electronic records. Let’s say an individual plays slot machines at Bellagio from 10:00am – 12:00pm and from 3:300pm – 5:00pm. That can all be combined into one session per this revenue procedure (if it is finalized).

Some things are not allowed. The day ends at midnight, so if a player is playing slot machines from 11:00pm to 1:00am, that would be two sessions (11:00pm – 11:59pm and 12:00am – 1:00am). Additionally, play at different casinos cannot be combined. Finally, each session stands on its own; a gambling loss from a session cannot be netted with a gambling win from another session.

The IRS doesn’t really have a choice in allowing session reporting of gambling; court decisions and an opinion from the IRS General Counsel have endorsed this. The proposed Safe Harbor procedure appears, at first glance, to strike a reasonable balance of session reporting with IRS verification. The only issue I see is that daily reporting is not normally provided to patrons by casinos.

Coincidentally, the IRS released a proposed regulation on reporting gambling winnings from slot machines (and bingo and keno). The IRS will be holding a public hearing on June 17th in Washington on the proposal.

The proposed regulation does not change the reporting threshold for when a W-2G is issued for slot play:

Under the proposed regulations, the reporting thresholds for winnings from bingo, keno and slot machine play (other than electronically tracked slot machine play) remain the same as under the existing regulations. These thresholds are intended to reach a balance between reporting burden and compliance risk. Based on over 35 years of experience with the current thresholds, the IRS thinks they are sufficient at this time to verify correct reporting of wagering income. Accordingly, §1.6041-10(b) of the proposed regulations provides that reportable gambling winnings means (i) $1,200 or more in the case of one bingo game or slot machine play, and (ii) $1,500 or more in the case of one keno game. However, advances in technology in the nearly four decades since the existing rules were adopted may overcome the compliance concerns that prompted the higher reporting thresholds and may warrant reducing the thresholds for bingo, keno, and slots to $600, consistent with other information reporting thresholds under §6041(a). Accordingly, the IRS and Treasury will continue to monitor the effectiveness of the existing (and proposed) reporting thresholds, and may propose to reduce those thresholds at a future time. Comments are specifically requested regarding the proposed reporting thresholds, including the feasibility of reducing those thresholds to $600 at a future time, whether electronically tracked slot machine play should have a separate reporting threshold, and whether the amounts should be uniform for bingo, keno, and slot machine play.

If anything, the threshold should be raised, not lowered. The value of a 1977 dollar today is a bit over $4. Thus, an equivalent threshold today is $4,800. I doubt the IRS will like my opinion on this. I am certain that casinos will not want the threshold lowered.

There’s more in this (this notice runs 30 pages), but it is Tax Season and I have a lot of work. I will report on this again after April 15th.

Fail, Caesar!

Monday, January 19th, 2015

Last week Caesars Entertainment Operating Company (CEOC) filed for Chapter 11 bankruptcy in Chicago. One week ago, second-tier bondholders filed an involuntary bankruptcy petition in Delaware. A company can only be in one bankruptcy court, so there’s an obvious issue: Which bankruptcy filing will “win”? And what will the future bring to Caesars?

I’m going to do some speculation in this post. Be forewarned that I am not an attorney, so my views are just that: my views on the topic. I was in corporate finance for many years prior to being in tax, so I am familiar with many of the issues involved.

First, not all of Caesars is in the bankruptcy filing. Caesars split into two major entities, and only CEOC is in Chapter 11 (for now). Here’s a handy chart for what’s in and what’s not. Caesars Growth Partners (CGP) did not file for bankruptcy.

However, the second-tier creditors believe that Caesars deliberately made a “good” company (CGP) and a “bad” company (CEOC). A federal judge ruling on a lawsuit in New York gave tacit support to the second-tier creditors when she allowed the lawsuit to continue.

Let’s go through some questions and their probable answers:

1. Why did Caesars file for bankruptcy in Chicago? They are a Delaware corporation headquartered in Las Vegas? In bankruptcy, you can file anywhere you have nexus. Caesars has two casinos in Illinois, so the Northern District of Illinois is a possible choice. Presumably, Caesars looked at the likely judges anywhere in the country they could file (including Courts of Appeal–here, the Seventh Circuit Court of Appeals) and liked the Northern District of Illinois over other choices.

2. Then why did the second-tier creditors file in Delaware> Caesars is a Delaware corporation, so a filing in Delaware is also valid. The second-tier creditors probably did the same analysis as Caesars and liked the Delaware judges and the Third Circuit Court of Appeals.

3. There are two bankruptcies: the involuntary petition in Delaware and the voluntary petition in Chicago. Which one is likely to stand? This is the question today, and it’s a pick-em. There is a burden on the second-tier creditors, but the federal court ruling in New York gave them some advantages. Judge Kevin Gross in Delaware will end up making the initial call. That said, if he rules that the case should be in Delaware, I expect that CEOC will file an appeal.

4. How long will the bankruptcy process take? A long time. While CEOC wanted a prepackaged bankruptcy where most everyone agreed, that just isn’t happening. True, 80% of the senior (first-tier) creditors approve of the restructuring. However, no other class of creditors is happy. While it’s theoretically possible that Caesars will exit bankruptcy in 2015, it’s not likely.

5. Who will profit from the bankruptcy? That’s a question with a sure answer: the lawyers.

6. Why aren’t all of Caesars’ hotels included in the bankruptcy?
If you look at the list, some of the hotels are merely operated by Caesars and won’t be included in the bankruptcy even if the second-tier debtholders win. However, it is definitely possible that the bankruptcy could expand and take in more of Caesars than just CEOC.

7. Will this impact the World Series of Poker? It’s not likely to have an impact for 2015, but it definitely could sometime in the future. The WSOP is owned by Caesars Interactive Entertainment, Inc.; that’s not currently part of the bankruptcy filing (but it could be if the second-tier wins out).

8. Could some of Caesars’ properties be sold? Definitely. If this does not end up being a prepackaged bankruptcy, then each tier of debtors will propose a plan. One plan could be to auction various properties, so it’s definitely possible.

9. Why did Caesars file bankruptcy?
CEOC has been losing money for years and has over $18 billion in debt. The problems stem from the leveraged buyout that Caesars went through several years ago. At that time, the economy was booming and had things continued at the same rate Caesars would have been fine. That didn’t happen.

10. What will happen to the stockholders of CEOC?
That’s another question with a certain answer: Their stock is near worthless.

As 2015 progresses we’ll have a better idea how the reorganization of Caesars progresses. It will have a huge impact here in Las Vegas, and it is likely that things will not work exactly how Caesars management want. We’ll get an early read on this when Judge Gross rules on where the bankruptcy actions will take place.

1099 Time (2015 Version)

Saturday, January 3rd, 2015

As we start 2015, we’re running some repeats of important issues.

It’s time for businesses to send out their annual information returns. These are the Form 1099s that are sent to to vendors when required. Let’s look first at who does not have to receive 1099s:

  • Corporations (except attorneys)
  • Entities you purchased tangible goods from
  • Entities you purchased less than $600 from (except royalties; the limit there is $10)

Otherwise, you need to send a Form 1099-MISC to the vendor. The best way to check whether or not you need to send a 1099 to a vendor is to know this before you pay a vendor’s invoice. I tell my clients that they should have each vendor complete a Form W-9 before they pay the vendor. You can then enter the vendor’s taxpayer identification number into your accounting software (along with whether or not the vendor is exempt from 1099 reporting) on an ongoing basis.

Remember that besides the 1099 sent to the vendor, a copy goes to the IRS. If you file by paper, you likely do not have to file with your state tax agency (that’s definitely the case in California). However, if you file 1099s electronically with the IRS you most likely will also need to file them electronically with your state tax agency (again, that’s definitely the case in California). It’s a case where paper filing might be easier than electronic filing.

If you wish to file paper 1099s, you must order the forms from the IRS. The forms cannot be downloaded off the Internet. Make sure you also order Form 1096 from the IRS. This is a cover page used when submitting information returns (such as 1099s) to the IRS.

Note also that sole proprietors fall under the same rules for sending out 1099s. Let’s say you’re a professional gambler, and you have a poker coach that you paid $650 to last year. You must send him or her a Form 1099-MISC. Poker players who “swap” shares or have backers also fall under the 1099 filing requirement.

Finally, there are strict deadlines with information returns.  Here are the deadlines for 2014 information returns:

  • Monday, February 2nd: Deadline for mailing most 1099s to recipients;
  • Monday, March 2nd: Deadline for filing paper 1099s with the IRS (postmark deadline); and
  • Tuesday, March 31st: Deadline for filing 1099s electronically with the IRS.

Remember, if you are going to mail 1099s to the IRS send them certified mail, return receipt requested so that you have proof of the filing.

London Calling: The Real Winners of the 2014 World Series of Poker

Wednesday, November 12th, 2014

Nine individuals came to Las Vegas on Monday and Tuesday to compete for the championship at the World Series of Poker (WSOP). Who would be the lucky winner? And who really got to keep the money?

You will notice a theme to this year’s winners: London. Four of the players reside in the capital city of the United Kingdom yet none are from London. Indeed, they’re all from other European countries. The reason they’ve chosen the United Kingdom is simple: taxes.

Tax rates in Europe are notoriously high. But citizens of the European Union are allowed to move and reside in another E.U. country (as long as they pay that country’s taxes). The United Kingdom beckons to poker players for a simple reason–gambling income is not taxed in the U.K. A tax rate of 0% looks quite good in comparison to tax rates of 75% in some E.U. countries.

One other note: I do need to point out that many of the players in the tournament were “backed.” Poker tournaments have a high variance (luck factor). Thus, many tournament players sell portions of their action to investors to lower their risk. It is quite likely that most (if not all) of the winners were backed and will, in the end, only enjoy a portion of their winnings. I ignore backing in this analysis. Now, on to the winners.

Congratulations to Martin Jacobson. Mr. Jacobson’s pair of tens beat an Ace-Nine to win the championship. The native of Sweden won an even $10 million. Mr. Jacobson resides in London, and the reason is obvious. Had he still been living in Sweden he would have faced a 56% marginal tax rate to Sweden’s very aggressive tax agency, Skatteverket. Being able to enjoy 100% of your income rather that 44% sure sounds good to me! Saving $5.6 million in taxes by residing in London sounds like a no-brainer to me.

Finishing second was yet another resident of the United Kingdom, Felix Stephenson. The native of Norway has to console himself with $5,147,911 for finishing second. Had he still been living in Norway, he would owe $2,007,685 in tax to Skatteetaten, the Norwegian tax agency (39%). Instead, he owes nothing.

In third place was Jorryt van Hoof for $3,807,753. He didn’t earn sponsorship income from poker sites, though. While he could accept such income, the sites were informed by the Dutch gambling regulator, Kansspelautoriteit, that such sponsorship would be considered advertising to the Netherlands under Dutch law and is illegal. As for residing in London, that saved Mr. van Hoof $1,104,248. The Netherlands taxes gambling at a flat 29% rate. For an extra $1.1 million, even I would take the weather in London.

Finishing fourth was William Tonking, a professional poker player from Flemington, New Jersey; he won $2,849,763. Unlike the first three finishers Mr. Tonking does not get to enjoy all of his winnings. He will owe an estimated $1,073,024 to the IRS and $242,733 to the New Jersey Division of Taxation–a combined tax rate of over 46%.

An obvious question arises: Why doesn’t Mr. Tonking also move to London? Unlike his European competitors, Americans owe tax on their worldwide income. An American living abroad still must file a tax return with the IRS. Taxation for expatriates can be reduced by the Foreign Earned Income Exclusion, tax credits on income taxed by other countries, and tax treaties. For an American playing poker in the United Kingdom, the Exclusion is available. However, for a poker tournament in Las Vegas there are no legal means to reduce that taxation.

Billy Pappaconstantinou of Lowell, Massachusetts finished fifth for $2,143,794. But that’s before taxes. Mr. Pappaconstantinou is an amateur poker player (he’s a professional foosball player), so he’s not subject to the self-employment tax. I estimate he’ll owe $771,827 to the IRS and $111,477 to the Massachusetts Department of Revenue.

In sixth place was Andoni Larrabe. Mr. Larrabe earned $1,622,471 for his finish, and he’ll get to keep all of it. The native of Spain is the last of our London residents. Given the top marginal tax rate of 52% in Spain, I can understand why he now calls London his home. Interestingly, Mr. Larrabe effectively finished in fourth place; his after-tax income puts him ahead of the fourth and fifth place finishers.

Daniel Sindelar of Las Vegas ended up in seventh place. The professional poker player earned $1,236,084 before taxes. Nevada does not have a state income tax, so Mr. Sindelar will only owe tax to the IRS. I estimate he’ll owe $494,397 in tax (40.00%)

Finishing in eighth place was Bruno Politano of Forteleza, Cera, Brazil. The second amateur of the final nine players, Mr. Politano won $947,172. The US-Brazil Tax Treaty does not exempt gambling winnings from withholding, so an even 30% of his winnings ($284,152) were withheld and remitted to the IRS. It appears that Brazil taxes some gambling at 30%. It’s unclear if the poker income would normally be subject to taxation. However, even if it is it’s unlikely Mr. Politano will owe any tax to Brazil given that he can claim a tax credit on the money withheld to the IRS.

Mark Newhouse of Los Angeles finished in ninth place. A professional poker player, Mr. Newhouse did not win anything additional to the $730,725 he took home in July. I estimate he’ll lose just over 44% to tax ($324,167). If that name looks familiar to you, it should: Mr. Newhouse finished ninth last year, too. That’s an incredible accomplishment though I’m sure Mr. Newhouse is disappointed in not finishing higher.

Here’s a table summarizing the tax bite:

Amount won at Final Table $28,485,673
Tax to IRS $2,869,698
Tax to New Jersey Division of Taxation $242,733
Tax to Massachusetts Dept. of Revenue $111,477
Tax to Franchise Tax Board (California) $77,869
Total Tax $3,301,777

That’s a total tax bite of 11.59%.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Winner Before-Tax Prize After-Tax Prize
1. Martin Jacobson $10,000,000 $10,000,000
2. Felix Stephenson $5,147,911 $5,147,911
3. Jorryt van Hoof $3,807,753 $3,807,753
6. Andoni Larrabe $1,622,471 $1,622,471
4. William Tonking $2,849,763 $1,534,006
5. Billy Pappaconstantinou $2,143,794 $1,260,490
7. Daniel Sindelar $1,236,084 $741,687
8. Bruno Politano $947,172 $663,020
9. Mark Newhouse $730,725 $406,558
Totals $28,485,673 $25,183,896

While Andoni Larrabe finished in sixth place, he ended up in fourth place based on his after-tax income. Unlike the fifth through ninth place winners, Mr. Larrabe gets to keep all of his winnings. It’s always nice when your after-tax income equals your before-tax income.

I’ve been doing this analysis for several years, and this is the first year that the IRS didn’t finish in first place. Indeed, the IRS’s take of $2,869,698 puts it in fourth place. The tax agency can only hope that next year’s winners will not include individuals from the United Kingdom.

For the past several years I’ve ended my post on the WSOP with, “That’s because we all know that the house–the IRS–always wins.” This year, that’s not the case for our four European winners. This year, the house doesn’t always win–when you’re a resident of London. The winners residing in London saved $9.55 million in tax! London is definitely calling for European professional poker players:

UPDATE: A commenter on Twitter asked about Caesars Entertainment’s tax bite. The results from the WSOP should be included in Caesars’ third quarter results. Caesars withheld 6% of each $10,000 entry fee ($600). There were 6,683 entrants, so Caesars earned from the players $4,009,800 before expenses of running the event (dealers, staff, incidentals, etc.). Caesars also has a contract with ESPN for televising the event.

That said, Caesars Entertainment lost $908.1 million in the third quarter so the $4 million in rake that Caesars made on the WSOP was hugely overshadowed by Caesars’ huge debt payments (there is no tax owed by Caesars). Indeed, there are reports that Caesars is heading toward a bankruptcy filing as early as January.

New Jersey Tries Hail Mary on Sports Betting; Will IRS Intercept?

Tuesday, September 9th, 2014

Yesterday, Governor Chris Christie of New Jersey announced that New Jersey would not prosecute any casino or race track that offered sports betting. This is in spite of a federal court ruling that New Jersey’s sports betting law was unconstitutional. My suspicion is that the federal courts will not look favorably on this, and Governor Christie’s actions will be for naught. Indeed, the attorney crAAKer posted on his blog that this is unlikely to succeed.

But let’s assume that somehow the courts allow this. There’s an issue that will put New Jersey at an extreme disadvantage to Nevada’s legalized sports betting: taxes. Specifically, the Excise Tax on Wagering.

Yes, there are a whole bunch of federal excise taxes. And there’s an IRS publication dedicated just to them. One day you might need to know about the tax on arrow shafts (I’m not making this up). But I digress….

The excise tax on wagering is summarized as follows:

IRC 4401(a)(1) imposes a 0.25 percent tax on the amount of any wager authorized under the law of the state in which accepted.

IRC 4401(a)(2) imposes a 2 percent tax on the amount of any wager not described in IRC 4401(a)(2) (i.e., those not authorized by state law).

This doesn’t apply to all betting in the US; it applies to:

IRC 4404 provides that the tax applies to wagers:

• Accepted in the United States, or
• Placed by a person who is in the United States with a U.S. citizen or resident, or in a wagering pool conducted by a U.S. citizen or resident.

As noted in an IRS analysis on this tax, this tax applies just to sports betting (and wagering that involves a sports bet). An interesting issue is whether this tax applies to fantasy sports, such as daily fantasy sports. I suspect it does, but that’s another issue for another day.

So let’s say you place a bet at the Bellagio sportsbook, betting $100 that the Chicago Bears will beat the San Francisco 49ers. Out of the Bellagio’s “juice”–your bet will typically cost you $110 or $120, with the house (Bellagio) keeping that extra money–Bellagio must pay the 0.25% wagering tax. On a bet of $100, that’s $0.25. The Bellagio remits the tax using Form 730.

Now let’s consider if the Borgata Hotel in Atlantic City were to accept the same bet. Again, the federal excise tax clearly applies. However, the tax rate will be the 2% rate rather than the 0.25% rate because New Jersey has not legalized sports betting. Indeed, Governor Christie vetoed such legislation earlier this year. While New Jersey would argue that the previously passed Sports Wagering Act allows for sports betting, federal courts have ruled that it could not be put into effect.

New Jersey argues that federal law sort of allows any state to conduct sports betting. From crAAker’s analysis:

New Jersey seeks to avoid the licensing problem by asserting that the licensing provisions can be severed from the statute. Severability is a common law doctrine which permits a court to invalidate one section of a statute while leaving the remainder in force. In this case, the statute contains an explicit legislative endorsement of severability (Section 5:12A-2(g)), which expresses the legislature’s intent to have a court attempt to enforce the statute in the event the statute was found to violate PASPA and creates a legal presumption in favor of severability.

Since New Jersey has not authorized sports betting–the only law that was passed by New Jersey was not allowed to be put into effect by the federal courts–the higher 2% rate applies. That means that the Borgata would owe $2 to the IRS rather than the $0.25 that Bellagio owes on a $100 sports bet.

A fundamental principle of economics is that all government fees and taxes are passed on to the consumer. The additional $1.75 that a New Jersey sportsbook would have to pay would be passed on to the New Jersey sports bettor. That will make betting more expensive in New Jersey than Nevada. Even if somehow the courts were to allow sports betting in New Jersey, it will be at a higher price to the consumer than in Nevada.

I suspect the courts are going to throw buckets of cold water on the idea of legal sports betting in New Jersey. However, even if they don’t the IRS would make it a bad bet.

The Hom Decision and the Past (2008 – 2012)

Sunday, August 17th, 2014

Back in June, a federal district court ruled in United States v. Hom that foreign online gambling accounts are reportable for FBAR purposes. An obvious question is what does this mean for prior years.

First, these are just my thoughts. I am not giving advice here on what any individual should or should not do. You need to consult with your own tax professional and possibly an attorney knowledgeable in FBAR issues.

There are three different foreign account reporting requirements for Americans:
1. The boxes on Schedule B of Form 1040;
2. The FBAR; and
3. Form 8938.

Each of these has a different statute of limitations. Form 8938 has only been in existence for two years, so it only applies for 2012 and 2013. The statute of limitations on tax returns is generally three years (though there are exceptions), so the boxes on Schedule B apply only to 2011 – 2013. The statute of limitations on the FBAR is six years; 2007 and earlier years are beyond the statute date. Finally, online gambling accounts were reportable for 2008 and 2009 (even before the Hom decision), so the years we’re concerned with for the FBAR are 2010-2013.

There are also different financial thresholds for these reports. On Schedule B, any foreign financial account must be reported. For the FBAR, the requirement kicks in at an aggregate balance of $10,000. Form 8938 must be filed if you are in the US and have $50,000 aggregate on December 31st or $75,000 aggregate on any other day of the year. If you are filing Married Filing Jointly (MFJ), the balance amounts double for Form 8938. If you are outside of the US, the limits are $200,000 aggregate on December 31st or $300,000 on any other day of the year (again, the balance limits double if you file MFJ).

Because I am a licensed tax professional, the only advice I can give is to comply with the law.

But Russ, you ask, what is the law? The IRS told us back in 2011 we didn’t have to report online gambling accounts; now a judge says we do. What’s right?

Unfortunately, no one knows. We’re left to make guesses. Oh yes, it’s a well known principle that the IRS is not bound by the answers they give. This makes no sense to me (or most tax professionals) but this, too, is the law.

So let’s look at some scenarios:

1. An individual has online gambling accounts with more than $100,000 in them since before 2008. This individual also has not filed tax returns claiming the income from one or more of his online gambling accounts. He also maintains foreign bank accounts. Anyone in this situation should speak to a tax attorney familiar with FBAR issues immediately. This individual has major compliance issues and is definitely a potential target of criminal prosecution. Usually, if you go first to the IRS before they find you, criminal prosecution is unlikely.

2. An individual began online gambling in 2012, but just in the Nevada and New Jersey legal sites. She has filed her tax returns noting her income (including the gambling income). There are no FBAR or other foreign account issues. The current regulated online gambling sites in Delaware, Nevada, and New Jersey are not foreign financial accounts.

3. An individual began online gambling in 2012 with non-US-regulated sites. His aggregate balance has never reached $10,000. The question here is whether this individual should amend his 2012 returns to note the foreign financial accounts. (Question 7a of Schedule B asks, “At any time during 2012, did you have a financial interest in or signature over a financial account…located in a foreign country?”) Amending your return for this would not change your tax but would extend the statute of limitations on the return. Because I am a licensed tax professional, the only advice I can give is to amend your return. Of course, given that this issue is not settled law, and there is no specific penalty for answering Question 7a incorrectly, most individuals will not amend their tax returns for this.

4. An individual was playing on Full Tilt Poker from 2008 – 2011 (until “Black Friday”). Since April 15, 2011, he has not played on any of the unregulated sites. This individual filed FBARs for 2008 – 2009 but not for 2010 and 2011. Two weeks ago this individual received through remission the $20,000 balance that he had on Full Tilt Poker. He did include his 2008, 2009, and 2010 Full Tilt winnings on his tax returns. He did not include his 2011 winnings on his 2011 return (but he did not make any withdrawals during 2011, so based on constructive receipt he did not have any reportable 2011 winnings); he plans on including his 2011 winnings on his 2014 tax return (filed in 2015).

Based on the Hom decision, this individual has a foreign financial account for 2010 and 2011. (It’s somewhat unclear whether or not he really has a foreign financial account for 2011. The “balances” at Full Tilt in 2011 were effectively not real; the Department of Justice charged that Full Tilt Poker was a “massive Ponzi scheme.”) That said, I would conclude based on the Hom decision that this individual had FBAR reportable foreign financial accounts.

The problem here is that late-filed FBARs can be subject to penalties. An individual late filing because it was unclear whether the account should be reported would almost certainly not be subject to the “willful” penalties; however, the non-willful penalties can be up to $10,000 per account. Each individual will have to weigh reporting these or not.

If the taxpayer amends his 2011 return (to note that he has a foreign financial account and that he filed an FBAR), this extends the statute of limitations. The 2010 return is beyond the statute date and would not need to be amended to note the FBAR.

There are numerous other scenarios I could write; most will feature some version of the above scenarios. There are some conclusions we can draw:

1. Even with the Hom decision it is possible that other courts will rule differently. This was a decision of a US District Court. An appellate court or another US District Court could rule differently; it is not clear that online gambling accounts are really the same as banks.

2. However, prudence requires that for 2013 returns (and forward) that until FINCEN announces that they do not want online gambling accounts reported on the FBAR, and until the IRS (or Department of the Treasury) announces that they do not want online gambling accounts reported on Form 8938 and the check boxes on Schedule B of Form 1040, taxpayers should report these accounts.

3. When an individual has reportable online gambling accounts for the past, he or she will have to weigh reporting versus the consequences of reporting. Everyone’s situation is different so there is no one size fits all advice here.

4. That said, individuals with unreported foreign financial accounts (on an FBAR) and who haven’t filed tax returns for those years should run, not walk, to a tax attorney who specialized in FBAR matters.

The best advice I can give is that if you are impacted by this, speak to your tax professional. Everyone’s situation is different. If you let your tax professional know how you are impacted by the Hom decision, your tax professional should be able to give you good guidance.

Is a “Dealer Add-On” a Tip or a House Fee?

Sunday, August 10th, 2014

Poker dealers are paid a low hourly wage; they make most of their money from gratuities (tips) from players. Those tips are, of course, taxable. In a poker tournament, dealers also receive tips. Some come from the prize pool while some come from the players themselves when they win or place high in the tournament. Some tournaments offer players a “Dealer Add-On.” The Dealer Add-On costs players a small fee–say, $5 to $50. In return, the player receives an additional amount of tournament chips.

Clearly, a dealer who receives a portion of that add-on must report it as income; all income is taxable unless exempted by Congress, and such Dealer Add-Ons haven’t been exempted. However, there’s a dispute in Florida as to whether the Dealer Add-On is considered income to the casino.

The Florida Division of Pari-Mutuel Wagering (which regulates non-Indian casinos in the state) now says the money is income to the casino, and tax must be paid to the state on it. Until this July, Florida said that Dealer Add-Ons were not income to the casino. The Isle Casino in Pompano Beach, Florida has sued the state charging the rule is, “an invalid exercise of delegated legislative authority.”

Given that Dealer Add-Ons are small compared to the other income that a casino brings in, this dispute will have a minor impact on the casinos. However, it could cause an increase in the fees that a casino charges for running tournaments; that could negatively impact poker tournaments.

Quite a Gamble to Workout There

Sunday, August 10th, 2014

Runnemede, New Jersey is a small suburb of Philadelphia. Located in Camden County, the borough would be happy to let you know about its summer recreation program. The borough got some other publicity at what was once a Curves health club.

Curves is a health club for women. The Runnemede, New Jersey club closed some time ago. There are lots of things you can do with an empty health club. I wouldn’t recommend what was done here: An illegal poker club.

Gambling in the United States is regulated. To open a legal poker room, you need to have various government approvals. Thomas Rand of Williamstown, New Jersey and Ryan Dion of Blackwood, New Jersey ignored that small step. There’s also the other minor difficulty that the only legal live gambling in New Jersey is in Atlantic City, 52 miles from Runnemede.

The club, which ran no-limit Texas Hold’em games three times a week, was shut down by state police in March. New Jersey Attorney General John Hoffman stated, “These defendants operated an old-school gambling club, complete with cash cage, poker tables, and a wide-screen TV for patrons to watch the sports on which they gambled.” The club ran for eight years according to news reports, and included a link to an online sportsbetting website.

Mr. Rand and Mr. Dion pleaded guilty to gambling charges; they’ll be sentenced in early October.

Online Gambling Addresses (Updated for 2014)

Sunday, June 22nd, 2014

Note: This list has been superseded by the 2015 list. You can find it here.

With the United States v. Hom decision, we must again file an FBAR for foreign online gambling sites. An FBAR (Form 114) is required if your aggregate balance exceeds $10,000 at any time during the year.

There’s a problem, though. Most of these entities don’t broadcast their addresses. Some individuals sent email inquiries to one of these gambling sites and received politely worded responses (or not so politely worded) that said that it’s none of your business.

Well, not fully completing the Form 114 can subject you to a substantial penalty. I’ve been compiling a list of the addresses of the online gambling sites. It’s presented below.

Note: This list is presented for informational purposes only. It is believed accurate as of June 22, 2014. However, I do not take responsibility for your use of this list or for the accuracy of any of the addresses presented on the list.

The list is in the cut text below.

If anyone has additions to the list feel free to email them to me.