Archive for the ‘Gambling’ Category

As The Caesars Turns, Episode 2

Tuesday, September 27th, 2016

Caesars Entertainment Operating Company (CEOC) today announced that they reached a restructuring agreement with its major creditors. The deal will likely allow CEOC to emerge from bankruptcy early in 2017. The settlement must be finalized and will require approval of the bankruptcy court.

“It’s important to recognize that a lot of work needs to be done in the next few weeks. Will there be bumps along the road? Yes. Is this a durable deal? Yes,” said Bruce Bennett, a lawyer for Jones Day representing junior creditors.

The deal will have CEOC merge with Caesars Acquisition Company, with first tier lenders getting about 115 cents per dollar, first lien holders getting 109 cents, and junior debt holders getting between 66 cents to 83 cents on the dollar.

But not everyone is settling. Trilogy Capital Management has $22 million of CEOC’s unsecured bonds and will pursue its lawsuit against the casino giant. The next hearing in Trilogy’s lawsuit against CEOC is scheduled for October 6th in New York. Trilogy is asking for $160 million in the lawsuit. The lawsuit, if it goes to trial, would likely confirm or deny whether Caesars truly split into a “good” Caesars and a “bad” Caesars (as Trinity and others claimed).

Tune in next week to see what happens with Trinity’s lawsuit and whether any other obstacles appear for the closure of the bankruptcy of CEOC.

As the Caesars Turns

Thursday, September 22nd, 2016

There have been more developments in the Caesars bankruptcy. First, Caesars Entertainment said it is offering an additional $1.6 billion for junior creditors of Caesars Entertainment Operating Company (CEOC) in the contentious bankruptcy. The stock market reacted favorably to the news Caesars stock went up 21% today.

The underlying issue in the bankruptcy is whether Caesars management deliberately created a “bad” Caesars (CEOC) and a “good” Caesars (everything else). Junior creditors are accusing Caesars of exactly that. Lawsuits on this issue are on hold but unless a court extends an injunction they’ll start moving forward in October.

Earlier this month Judge Benjamin Goldgar ruled that junior creditors are within their rights to have top management at Caesars complete financial disclosure statements. As Bloomberg reported,

Apollo co-founder Marc Rowan, company principal David Sambur and TPG co-founder David Bonderman must provide the information to a committee of dissident creditors who are fighting a reorganization proposal for Caesars, U.S. Bankruptcy Judge A. Benjamin Goldgar ruled. That plan would release the men from any legal liability related to the Las Vegas-based gambling company’s bankruptcy. The bondholders say the men shouldn’t be shielded from lawsuits related to the bankruptcy.

But is $1.6 Billion more enough? Given that an independent examiner said Caesars could be liable for over $5 billion in damages, I suspect junior creditors may be thinking “no.” Caesars management is threatening to put all of Caesars in bankruptcy, with the obvious implication that you might get a lot less if the bankruptcy expands. Perhaps the junior creditors are thinking that this is a sign of desperation; that they’ll get 100% of their debt back by either lawsuits or a full bankruptcy; or that Caesars will increase their offer yet again in the future.

When the bankruptcy began I asked and answered some questions:

How long will the bankruptcy process take? A long time…

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

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…

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.

Nothing has caused me to change my opinions on any of these answers. The soap opera, er, bankruptcy began in January 2015; if you placed a bet on it reaching two years without resolution, your bet looks like a winner to me.

So stay tuned soon for the next exciting episode of “As the Caesars Turns.”

Caesars Gets Another Month

Wednesday, August 31st, 2016

Caesars Entertainment Operating Company (CEOC) appealed Judge Goldgar’s decision to US District Court (decisions in a bankruptcy court get appealed to the District Court). Judge Robert Gettleman gave Caesars until October 5th; Judge Gettleman will hold a hearing in Chicago then. As reported in the Las Vegas Review-Journal, Judge Gettleman “…warned CEOC that it faced an ‘uphill’ fight.”

The pause does give time for the two sides to negotiate. That said, the junior creditors who filed $11 billion in claims against Caesars appear unwilling to settle for what Caesars has offered. The claims relate to allegations that Caesars deliberately reorganized to create a “good” Caesars and a “bad” Caesars. A court appointed examiner has already said that the junior creditors are likely to prevail.

Fail, Caesar: The Bankruptcy May Grow

Sunday, August 28th, 2016

On Friday, Bankruptcy Judge Benjamin Goldgar ruled that an injunction against $11 billion in lawsuits over how Caesars split itself into various units will be allowed to expire on Monday, August 29th. Given that the first of several court rulings in the various lawsuits is due on Tuesday, August 30th there’s a definite possibility that the rest of Caesars will join Caesars Entertainment Operating Company (CEOC) in Chapter 11 bankruptcy.

The dispute is over whether Ceasars (and its private equity owners, Apollo Global Management and TPG Capital) created a “good” (or healthy) Caesars and a “bad” (or unhealthy) Caesars (CEOC being the unhealthy Caesars). CEOC offered $4 billion extra in its reorganization plan if the junior creditors (they’re the ones who were protesting and suing over this dispute) would agree to the offer. While one junior creditor accepted the offer, most did not. Judge Goldgar wondered why the private equity owners weren’t contributing any of their own money to resolve the dispute. My cynical belief is that Apollo and TPG wanted to have their cake and eat it, too.

While CEOC plans on appealing the ruling, that’s a long shot. Given that a bankruptcy court examiner felt that the lawsuits could succeed (with damages as high as $5.1 billion), one possible means out for Caesars is to put the rest of Caesars into Chapter 11.

This coming week will be very critical for the future of Caesars.

The 2016 Hom Decision: Do Online Gambling Sites Still Need to be Reported on the FBAR?

Wednesday, July 27th, 2016

The Ninth Circuit’s unpublished opinion in United States v. Hom is now up. It’s sort of a misnomer to use the word “published” for an unpublished opinion. Unpublished here means it cannot be cited as a precedent; the court doesn’t think it has sufficient precedential value. It doesn’t mean, though, that the opinion isn’t of value.

Back in 2014 Mr. Hom was convicted of not filing an FBAR (then, Form TD F 90-22.1) for accounts at FirePay, PokerStars, and Party Poker. The appeals court quickly upheld that FirePay is a foreign financial account.

Hom’s FirePay account fits within the definition of a financial institution for purposes of FBAR filing requirements because FirePay is a money transmitter…FirePay acted as an intermediary between Hom’s Wells Fargo account and the online poker sites. Hom could carry a balance in his FirePay account, and he could transfer his FirePay funds to either his Wells Fargo account or his online poker accounts. It also appears that FirePay charged fees to transfer funds. As such, FirePay acted as “a licensed sender of money or any other person who engages as a business in the transmission of funds” under 31 U.S.C. § 5312(a)(2)(R) and therefore qualifies as a “financial institution.”… Hom’s FirePay account is also “in a foreign country” because FirePay is located in and regulated by the United Kingdom.

This part of the ruling shouldn’t be a surprise. If it looks like a duck, walks like a duck and quacks like a duck, it might just be a duck. FirePay offered services that banks do. It looked like a financial institution; the court ruled it was one.

However, Mr. Hom prevailed regarding PokerStars and Party Poker.

In contrast, Hom’s PokerStars and PartyPoker accounts do not fall within the definition of a “bank, securities, or other financial account.” PartyPoker and PokerStars primarily facilitate online gambling. Hom could carry a balance on his PokerStars account, and indeed he needed a certain balance in order to “sit” down to a poker game. But the funds were used to play poker and there is no evidence that PokerStars served any other financial purpose for Hom. Hom’s PartyPoker account functioned in essentially same manner.

The Government argues that these entities were functioning as banks, but this argument lacks support. Neither the statute nor the regulations define banking. In discerning the plain meaning of the text, we interpret words in light of their “ordinary, contemporary, common meaning” unless they are otherwise defined. Merriam-Webster dictionary defines bank as, “an establishment for the custody, loan, exchange, or issue of money, for the extension of credit, and for facilitating the transmission of funds.” There is no evidence that PartyPoker and PokerStars were established for any of those purposes, rather than merely for the purpose of facilitating poker playing. [footnotes and citations omitted]

So are we done (again) with including online gambling accounts as foreign financial accounts? Unfortunately, the government made another argument: that online gambling sites are casinos. The Court rejected that argument because it was raised too late (it needed to be presented during the actual case). However, we need to examine it because nothing prevents the government from raising it in the future.

So let’s look at the law and the regulations promulgated under the law. 31 USC § 5312(a)(2)(X) defines a financial institution to include, “a casino, gambling casino, or gaming establishment with an annual gaming revenue of more than $1,000,000 which—
(i) is licensed as a casino, gambling casino, or gaming establishment under the laws of any State or any political subdivision of any State….”

Unfortunately, most online poker sites offer activities found in a casino. For example, PokerStars now offers casino games; other sites offer sports betting. A court could easily find that PokerStars meets the definition of an online casino and since it is clearly based outside the United States meets the definition of a foreign financial institution. Thus, the only safe course is to continue to report online gambling sites as foreign financial sites on the FBAR.

I would prefer (from a workload standpoint) to draw a different conclusion, but the safe course is that we must continue to recommend that individuals with funds on online gambling sites file the FBAR.

Hom Decision Reversed

Tuesday, July 26th, 2016

Back in 2014 the US District Court for the Northern District of California held that online gambling accounts are reportable foreign financial accounts for the FBAR. Mr. Hom appealed that decision. Today, the Ninth Circuit Court of Appeals reversed the decision in regards to online poker accounts. (Hat Tip: http://federaltaxcrimes.blogspot.com/2016/07/ninth-circuit-rejects-).

I’m not sure of how much this decision changes things. (Once the decision is published, I will post further on the decision.) From Jack Townend’s analysis:

FirePay was a financial institution, the Ninth Circuit held, because it met the definition of money transmitter. The other two were not money transmitters or otherwise financial institutions as defined. The Ninth Circuit rejected the Government’s argument that they should be treated as banks (a type of financial institution requiring an FBAR) because they functioned as banks, applying the plain meaning of the term bank to exclude these services.

Two caveats about the opinion. First, the panel described it as nonprecedential under Ninth Circuit rules. Second, the Government made an argument — which the Court declined to consider because too late (see p. 4 fn. 1) — that PokerStars and PartyPoker were casinos, another category of financial institution which, if foreign, requires FBARs for accounts.

The casino argument could be valid for the future. And as I said before, I want to read the decision before I tell people you don’t have to file an FBAR for online gambling accounts. Thus, I still recommend (for the moment) including online gambling accounts as reportable foreign financial accounts.

Fail, Caesar! A July Update

Saturday, July 23rd, 2016

Since I last reported on the bankruptcy of Caesars Entertainment Operating Company (CEOC) there has been some news:

1. The junior creditors appear to be no closer to agreeing with the senior creditors on a restructuring of CEOC. The latest obvious strife was when Judge Benjamin Goldgar threatened sanctions against the junior creditors for objecting to CEOC employing the law firm of Kirkland & Ellis as bankruptcy counsel. Jones Day, the counsel for the junior creditors, then withdrew their objections.

2. A Chinese consortium is apparently bidding for the Caesars Interactive Entertainment Inc, a unit of Caesars Acquisition Company (CAC). CAC is not in bankruptcy (at least for now). Given the current acrimony in the bankruptcy it is almost a certainty that the junior creditors will object to this sale (unless the proceeds are funneled to them, and there’s no chance that the current owners of Caesars want that to happen) so this deal is very unlikely to move forward until the bankruptcy is settled. Reports are that the World Series of Poker is not part of the proposed sale.

I still believe that the most likely outcome is for all of Caesars to be forced into bankruptcy, and this is more likely to happen sooner rather than later.

Can a Non-Tax Treaty Country Resident Obtain a Refund of Gambling Withholding from the IRS?

Sunday, July 10th, 2016

Every year during the World Series of Poker (WSOP) I receive several inquiries like the following:

I’m a resident of Brazil and I cashed in an event at the WSOP and won $100,000 (net). The Rio withheld 30% of that for your Internal [Revenue] Service. Can I get any of that back?

The good news is that a tax benefit is available. However, it’s not what you might think. Let’s look at the four methods of obtaining a tax benefit:

1. Tax Treaty. The US and Brazil don’t have a Tax Treaty, so there’s no way of getting the money back by claiming a Tax Treaty benefit.

2. Conducting a Business in the US. An individual conducting a business in the US must file a US tax return, and will owe tax based on the net income of the business. A poker player conducting a business in the US who has $100,000 of winnings and $100,000 of losses will have an income of $0 and not owe tax. Thus, that individual would be able to obtain a refund.

There’s a problem here, though: Is this individual conducting a business in the US? To be conducting a business in the US requires regularity: A business isn’t playing in one poker tournament or one event in one poker tournament. So is it possible for a non-American to be conducting a business in the US? Absolutely.

Consider a professional golfer from (say) Brazil playing on the PGA tour. That individual would almost certainly be conducting a business in the US, and be able to deduct losses and business expenses. (Indeed, that individual might even be considered a resident of the United States based on days in the US and have to file a Form 1040 rather than a Form 1040NR.)

Let’s go back to our Brazilian poker player. The IRS would almost certainly reject such a return at audit unless the person could demonstrate the regularity of a business. Playing in one tournament or one tournament series does not mean you’re conducting a business in the US. This means that for most non-Americans the conducting a business in the US method is not available.

3. Claim Gambling Losses on Form 1040NR. There’s a problem here: Only residents of Canada can claim gambling losses on a Form 1040NR. The IRS used to have a problem with this. However, the IRS redesigned Form 1040NR and put on the form that gambling losses can be taken only by residents of Canada and no longer issues incorrect refunds. This method will not work.

4. Claim a Foreign Tax Credit on a Brazil Tax Return. Almost every country has the ability on their tax returns to claim a foreign tax credit to avoid double taxation. It is likely that this method is available for a Brazilian poker player. It won’t be a refund from the IRS, but it will give you a tax benefit such that you will pay the higher of the two countries’ marginal tax rates. This is the only method that is available for most in this situation.

Yesterday I happen to be at the Rio and overheard someone saying that anyone can apply for a refund of the withholding. That is simply incorrect. The reality is that most individuals subject to withholding on their gambling winnings will not be able to obtain a refund of their withholding.

Taxes and the WSOP: 2016 Update

Monday, May 16th, 2016

I’ll be heading to the Rio Hotel and Casino tomorrow for three days of continuing education. In a little over two weeks, the poker world will be descending on the Rio for the annual World Series of Poker. (I’m probably one of the few individuals who is in both groups.) The 2016 WSOP consists of 68 “bracelet” events culminating in the championship event that begins on July 9th. There are also daily tournaments, satellite events, and cash games at the Rio. Other Las Vegas hotels run poker tournaments, so there are tournaments for almost any size of buy-in available.

I’ve been writing about the tax impacts of the WSOP for years. The first post, back in 2007, noted that the Rio refuses to follow the rules regarding issuing W-2Gs when a poker player presents a correctly completed Form 5754. In 2011 I looked at staking and the WSOP. I presented “updates” in 2014 and 2015 (though essentially nothing has changed).

And that’s still the case today. The Rio won’t issue multiple W-2Gs (though they’re getting closer to admitting the real reason: cost) and the IRS hasn’t come after them (yet). The onus remains on the player to issue required paperwork and withhold taxes when required when the player has backers. (See the 2011 and 2015 updates.)

I have received several inquiries from non-Americans who plan on playing at the WSOP regarding withholding of US taxes and if there’s any means of avoiding this. As noted in IRS Publication 515, withholding is required on gambling winnings (for poker tournaments, of $5,000 or more net) except for residents of these countries:

Tax treaties. Gambling income of residents (as defined by treaty) of the following foreign countries is not taxable by the United States: Austria, Belgium, Bulgaria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Tunisia, Turkey, Ukraine, and the United Kingdom.

Gambling income of residents of Malta is taxed at 10%.

If you’re from one of these countries, you should not have tax withheld from your winnings. My understanding is the Rio is authorized to issue Individual Taxpayer Identification Numbers (ITINs) to winners. (If you already have an ITIN, make sure you bring that number with you.) You may still owe tax to your home country for those gambling winnings; be aware that the IRS does share information with other countries’ tax agencies.

But what if you’re from a country that does not have a tax treaty with the US? Suppose you’re from Portugal, and you play in a WSOP event and are lucky enough to cash. Let’s say your net win is $100,000. Will you get the full $100,000 or not?

The Rio is required to withhold 30% of your net win, so you will receive $70,000 in my hypothetical. You will also receive paperwork showing the withholding (IRS Form 1042-S). If you owe income tax to Portugal on your gambling winnings, you should be able to claim a tax credit for the double taxation.


I’ve been writing about this for nearly a decade and almost nothing has changed. Eventually the WSOP will be called out by the IRS for their violation of the rules on issuance of W-2Gs (and 1042-S’s). It doesn’t look like that will happen in 2016, though.

1500 Full Tilt Remission Petitions Denied by Department of Justice

Sunday, May 8th, 2016

Most (but not all) of the remission payments for balances on Full Tilt Poker have been resolved. However, a notice appeared on Friday on www.fulltiltpokerclaims.com:

INFORMATION REGARDING DENIED PETITIONS

GCG has been informed that the Department of Justice Asset Forfeiture and Money Laundering Section has denied approximately 1,500 Petitions. Petitioners flagged for denial have been notified via email. Please be sure to check your email account’s spam or junk folder to ensure the message was not filtered. Denied petitioners have ten days to appeal the decision.

Impacted individuals have until Monday, May 16th to file appeals.

HatTip: Kevmath