Archive for the ‘Gambling’ Category

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Oklahoma Limits Itemized Deductions; Big Hit for Amateur Gamblers

Saturday, March 30th, 2019

Suppose you’re an Oklahoma resident and enjoy gambling one of the many casinos in the Sooner State. You have $100,000 of gambling winnings and $100,000 of gambling losses. You itemize on your federal return anyway (you have mortgage interest, state taxes, and charitable donations), and the wash is just fine. On your Oklahoma return, you’re surprised to find your Oklahoma charitable donations are limited to $17,000 (plus the amount of medical and charitable donations).

Yes, Oklahoma has joined the states that are bad for gamblers. In my hypothetical, an amateur gambler would pay tax on $83,000 of phantom income. This change is the result of a law passed in April 2018.

Posted in Gambling, Oklahoma | Comments Closed

Can a California or Massachusetts Professional Gambler Take a Business Loss on His or Her State Tax Return?

Tuesday, March 19th, 2019

The Tax Cuts and Jobs Act (TCJA) eliminated the ability of a professional gambler to take a loss on his Schedule C based on his business expenses; Congress specifically overrode the Mayo v Commissioner decision. But what about state taxes? Can a professional gambler who had a losing year take a loss on those returns?

First, no professional gambler can take a loss based on his gambling results. Internal Revenue Code Section 165(d) prohibits gambling losses in excess of wins. Every state with a state income tax conforms to this.

But state conformity to the TCJA is decidedly mixed. California does not conform to almost any part of the TCJA. The Franchise Tax Board produced a publication showing each change in law and the impact to California. At the bottom of page 89 is the beginning of the discussion on Section 11050 of the TCJA (which changed the rules for professional gamblers). The FTB publication notes:

California conforms, under the PITL, to the federal rules relating to the deduction for losses from wagering transaction[s] under IRC section 165(d), as of the specified date of January 1, 2015, but does not conform to the federal limitation on the deduction.

Thus, a California professional gambler can take a loss based on his business expenses on his state tax return.

Massachusetts also doesn’t conform to federal law in this area. However, Massachusetts does not allow losses from any business to be reported on its tax returns. Thus, a Massachusetts professional gambler wasn’t able to take a loss based on his business expenses in the past and cannot today.

State conformity on the provisions of the TCJA will vary among the states. If you reside in or must pay state taxes, this is a key issue that you must discuss with your tax professional.

Posted in California, Gambling, Massachusetts | Comments Closed

Tax Help for Gamblers

Saturday, February 23rd, 2019

Jean Scott, the proprietor of the website “Frugal Vegas” (she’s also known as the “Queen of Comps”) called me last year and asked if I would be willing to assist her with the fourth edition of her book, Tax Help for Gamblers. I agreed to do so, and if you’re a gambler looking for information on taxes I think you will be pleased with the effort. The book is due out shortly, and you can pre-order it on sale for $15 (including shipping) rather than the retail price of $24.95. The book is available from Huntington Press at this link.

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Posted in Books, Gambling | Comments Closed

Online Gambling and Offshore Cryptocurrency Exchange Mailing Addresses for 2019

Tuesday, February 5th, 2019

This list has been superceded by the 2020 list.

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. (The IRS and FINCEN now allege that foreign online poker accounts are “casino” accounts that must be reported as foreign financial accounts. The rule of thumb, when in doubt report, applies—especially given the extreme penalties.) You also should consider filing an FBAR if you have $10,000 or more in a non-US Cryptocurrency Exchange.

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.

I have made major updates on this list for 2019. Many, many addresses have changed. We went through the complete database and attempted to find new addresses for each entry.

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 an address for Bodog. If anyone has a current mailing address, please leave it in the comments or email me with it.

Note: This list is presented for informational purposes only. It is believed accurate as of February 5, 2019. 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.

Posted in Cryptocurrencies, FINCEN, Gambling | Comments Closed

A Dutch Lament: Where oh Where Is PokerStars Located?

Wednesday, January 9th, 2019

In a few weeks I’ll be publishing my list of where online gambling sites are located. A question that arose in the Netherlands is in regards to the location of PokerStars, the largest online poker site. An excerpt from my 2018 list shows:

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

PokerStars.eu
Rational Gaming Europe Ltd dba PokerStars.eu
Villa Seminia, 8, Sir Temi Zammit Ave
Ta’Xbiex, XBX1011, Malta

Why is this a big deal? Taxes.

PokerStars.com is based on the Isle of Man. The Isle of Man is a self-governing British Crown Dependency. It is not part of the European Union. The Isle of Man is located in the Irish Sea. Malta is another island; it’s located near Sicily in the Mediterranean Sea. Malta is a member of the European Union. PokerStars.eu is based in Malta. This matters for taxes in the Netherlands. If you’re a resident of the Netherlands and you play on PokerStars.com, you owe 29% tax on your winnings; however, if you play on PokerStars.eu, you don’t. Needless to say, Dutch residents play on PokerStars.eu.

Except the Dutch Tax Office disagreed. They held that since PokerStars.eu is owned by the Rational Group (the parent of PokerStars), and the Rational Group is based on the Isle of Man, that playing on PokerStars.eu is still playing on a site outside the European Union and 29% tax is owed. A District Court agreed with the Dutch Tax Office. That decision was then appealed to the Court of Appeals in ‘s-Hertogenbosch.

That court reversed the ruling (link is in Dutch). The ruling, as best as I can determine, states that the place of establishment of the holder of internet poker (here, Malta) is decisive for the classification as domestic or foreign game of chance and, thus, taxation of play on PokerStars.eu violates the Treaty Establishing the European Union. The decision can be appealed to the Supreme Court of the Netherlands but for now, playing on PokerStars.eu is tax-free.

News Story (in English): Dutchnews.nl

Posted in Gambling, International | Comments Closed

Gambling With an Edge Podcast

Tuesday, November 13th, 2018

I appear on this week’s episode of Gambling With an Edge. We discuss the new tax law, and tax topics of interest to gamblers, including how the new higher standard deduction will negatively impact gamblers.

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Posted in Gambling | Comments Closed

Here We Go Again…

Tuesday, October 30th, 2018

A few years ago I penned a post titled “Taxes and Daily Fantasy Sports: The Duck Test.” To remind everyone,

If it looks like a duck, walks like a duck and quacks like a duck, then it just may be a duck.

The duck test came up yet again yesterday in Albany, New York. The New York legislature passed a law legalizing Daily Fantasy Sports (DFS), even though the New York state constitution specifically prohibits gambling. The New York legislature statutorily said, “DFS isn’t gambling.” Yesterday, Judge Gerald Connolly said the legislature was wrong.

Last year a lawsuit was filed seeking a ruling on whether DFS is New York was legal. (The case is titled White, et. al., v. Cuomo, et. al.) Yesterday, the ruling came out. (My thanks to Legal Sports Report who published the ruling. LSR is a vital resource for anyone interested in sports betting in the United States. But I digress….) The issue is the same one I raised back in 2014.

Unfortunately, many states look at just an element of chance to determine if something is gambling. And there’s no doubt that daily fantasy sports have such an element. [emphasis in original.]

In this case, Judge Connolly ruled that based on the New York constitution if there’s a contest with an element of chance, a prize, and consideration and the constitution doesn’t state that activity isn’t gambling, it is gambling. Gambling is prohibited by the New York constitution, so the constitution will need to be amended in order for DFS to be legalized.

I expect this decision to be appealed, and a stay put on any adverse impacts for DFS in New York…for now. The problem is that the ruling seems right to me. If the New York prohibition against gambling was statutory, DFS could be legalized by statute. Since the New York prohibition is in the state’s constitution, a constitutional amendment appears to be necessary. This does not bode well for the future of DFS in New York.

Additionally, this ruling points out something that should be obvious regarding sportsbetting. The Supreme Court decision in Murphy v. NCAA allows sportsbetting to be legalized state-by-state. In some states, that just means passing a new law. In many states, though, that will mean amending the state’s constitution. Changing a state’s constitution takes a lot more time and effort.

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Posted in Gambling, New York | Comments Closed

Can a Professional Gambler Take the Foreign Earned Income Exclusion?

Saturday, September 15th, 2018

I was asked that question this past week: Can a professional gambler take the Foreign Earned Income Exclusion? The Exclusion allows one to exclude about $100,000 of income from income tax.

The IRS website (which is quite good) has a page on the general rules for the Exclusion. The IRS notes,

Self-employment income: A qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income. The excluded amount will reduce the individual’s regular income tax, but will not reduce the individual’s self-employment tax. Also, the foreign housing deduction – instead of a foreign housing exclusion – may be claimed.

A professional gambler (unlike an amateur) will have self-employment income. A professional gambler files a Schedule C, and that qualifies as “earned income.” As the name implies, you must have earned income to take the Foreign Earned Income Exclusion.

But there are other requirements. Your “Tax Home” must be in a foreign country. Your Tax Home is where your main place of business, but there are other rules that influence the location of your Tax Home. One thing, though, is certain: If your Tax Home is in the United States you won’t qualify for the Exclusion.

Let’s assume your Tax Home is abroad. You also need to meet one of two other tests: The bona fide resident text or the physical presence test. A bona fide resident is an individual who, in the view of US tax law, resides in another country. Generally, you must be a citizen or official resident of another country (more than just being present in another country via a “tourist visa”). Additionally, you must be a bona fide resident for an entire calendar year to qualify under this test. If you’re residing in, say, the United Kingdom for the entire year and have a work permit for the U.K., you’re likely a bona fide resident of the United Kingdom.

The physical presence test is simpler. You must be outside of the United States for at least 330 days out of a 365-consective day period that includes part of the tax year involved. (If the 365-day period is split among two calendar years, the maximum exclusion is pro-rated based on the number of days in the tax year that fall in the 365-consecutive day period.) There are some other rules about this test: A day in (or above) international waters is considered a day in the United States; if you change planes in the United States (say you’re flying from Toronto to Mexico City), that does not count as a day in the United States; and any portion of a day in the United States (other than transit between foreign points) is considered a full day in the United States.

Finally, the Exclusion only covers foreign earned income. Let’s say a professional gambler qualifies for the Exclusion, earning $80,000 outside the United States. But he spent a week in the United States, and earned $20,000 while in the U.S. That $20,000 isn’t eligible for the Exclusion.

So let’s circle back to the original question: Can a professional gambler take the Foreign Earned Income Exclusion? Assuming he (a) is a professional gambler, (b) with foreign-source income, (c) has a Tax Home outside the United States, and (d) qualifies by either the bona fide resident or physical presence tests, he can take the Exclusion. Do note that while the Exclusion impacts income tax, it does not impact self-employment tax.

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Posted in Gambling, International | Comments Closed

The Real Winners of the 2018 World Series of Poker

Sunday, July 15th, 2018

Over the past two weeks 7,874 competitors (myself included) paid $10,000 to enter the main event of the World Series of Poker. Who would win the money? And how much of the winnings would they actually get to keep?

One important 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 (because the full details are rarely publicized). Now, on to the winners.

Congratulations to John Cynn of Evanston, Illinois for winning the 2018 WSOP Main Event and a cool $8,800,000. After a mammoth 10-hour heads-up battle against Tony Miles (where the chip lead went back and forth), Mr. Cynn finally prevailed when his king-jack flopped trips and all Mr. Miles could muster was queen-high. Mr. Cynn will pay federal income tax, self-employment tax (all nine of the final players are professional gamblers), and Illinois income tax. Of his winnings he’ll lose an estimated $3,860,183 to tax (keeping $4,939,817), a tax burden of 43.87%. Mr. Cynn definitely benefits from tax reform; had he had the same winnings in 2017 he would have owed $4,094,676 so he saves $234,493. Another way of looking at this is his tax burden last year would have been 46.53%. Mr. Cynn has the second highest tax burden of the final nine.

The aforementioned Tony Miles finished in second place. A resident of Jacksonville, Florida, Mr. Miles benefits from Florida’s lack of a personal income tax. Mr. Miles, like all of the Americans at the final table, will owe federal income tax and self-employment tax; he’ll owe an estimated $1,939,341 (38.79%) of his winnings.

Finishing in third place and winning $3,750,000 was Michael Dyer of Houston. Mr. Dyer had the chip lead for the first part of the final table but ran into a full house of held by Mr. Miles. The Texan avoids state income tax but will still lose an estimated $1,449,275 to federal tax (38.65%). Mr. Dyer has the lowest tax burden of the six Americans at the final table (and the second-lowest tax burden overall).

Nicolas Manion of Muskegon, Michigan started the final nine with the chip lead but couldn’t make it through; he ended up in fourth place for $2,825,000. Mr. Manion is the only individual who will end up paying three taxes: federal, state, and city. Michigan has a flat income tax of 4.25% and Muskegon has a city income tax of 0.5%. Still, Mr. Manion is better off in 2018 than if he had won this in 2017; he’ll lose only an estimated $1,217,323 to tax (43.09%).

Joe Cada finished fifth for $2,150,000. If that name sounds familiar, it should: Mr. Cada won the Main Event in 2009. This time around Mr. Cada’s pocket tens lost a classic race against Mr. Miles’s ace-king. Thanks to tax reform, Mr. Cada loses only 40.59% of his winnings to tax ($872,635) compared to 42% back in 2009. Mr. Cada, a resident of Shelby Township, Michigan, owes federal and Michigan tax.

Aram Zobian of Cranston, Rhode Island, ended up in sixth place for $1,800,000. A professional poker player, Mr. Zobian will owe federal and Rhode Island tax. Rhode Island has marginal tax rates up to 5.99%, so it’s in the middle of the pack for states. Overall, Mr. Zobian will owe an estimated $721,821 in tax (40.10%).

Alex Lynskey of Melbourne, Australia finished in seventh place. While the US and Australia have a tax treaty, it does not cover gambling. Thus, of Mr. Lynskey’s $1,500,000 of winnings, he loses 30% off the top to the IRS ($450,000). Australia does not tax gambling winnings for amateur gamblers but it does tax gambling winnings of professional gamblers. The Australian tax system somewhat mirrors ours in that are marginal rates; however, Australia’s top rate is 45% compared to our 37%. The US-Australia Tax Treaty does specify that a foreign tax credit can be taken for taxes paid to the other country. Mr. Lynskey would have paid an estimated $666,296 to the Australian Taxation Office; given the US tax he’s paid that number is reduced to $216,296 (or $292,000 Australian).

In eighth place was Artem Metalidi of Kiev, Ukraine. Mr. Metalidi will pay the least tax of any of the final nine, both in dollars and by percentage. Ukraine has a flat tax rate of 18% plus a 1.5% military tax (a total of 19.5%). Mr. Metalidi will lose only an estimated $243,750 of his $1,250,000 to tax. None of that is going to the IRS: The tax treaty between the Ukraine and the United States exempts gambling winnings from taxation.

Antoine Labat, a professional poker player from Vincenna, France, finished in ninth place. He earned an even $1 million, but that’s before taxes. The United States and France have a tax treaty exempting gambling winnings, so he lost nothing to Uncle Sam. However, France is anything but a low-tax environment. While 2018 French tax rates have not been announced (they’re not announced until late in the year), based on 2017 rates Mr. Labat will lose $432,574 (€369,721) of his $1 million (€854,701) winnings to taxes.

Here’s a table summarizing the tax bite:

Amount won at Final Table $28,075,000
Tax to IRS $9,811,437
Tax to Illinois Department of Revenue $435,600
Tax to France Tax Administration $432,574
Tax To State Fiscal Service (Ukraine) $243,750
Tax to Australia Tax Agency $216,296
Tax to Michigan Department of Treasury $211,438
Tax to Rhode Island Division of Taxation $37,978
Tax to City of Muskegon Treasurer Department $14,125
Total Tax $10,953,198

That means 39.01% of the winnings of the final nine will go to taxes. That’s up from 2017 because last year four of the final nine faced no taxation (they were all residents of the United Kingdom which does not tax gambling winnings).

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

Winner Before-Tax Prize After-Tax Prize
1. John Cynn $8,800,000 $4,939,817
2. Tony Miles $5,000,000 $3,060,659
3. Michael Dyer $3,750,000 $2,300,725
4. Nicolas Manion $2,825,000 $1,607,677
5. Joe Cada $2,150,000 $1,277,365
6. Aram Zobian $1,800,000 $1,078,179
8. Artem Metalidi $1,250,000 $1,006,250
7. Alex Lynskey $1,500,000 $833,704
9. Antoine Labat $1,000,000 $567,426
Totals $28,075,000 $16,871,802

Mr. Metalidi finished in eighth place but based on after-tax winnings he finished in seventh place. The Ukraine’s low flat-rate income tax gives him a benefit over the relatively high taxes in Australia.

But the true winner this year was the Internal Revenue Service. The IRS’s take of $9,811,437 exceeds the combined after-tax winnings of the first and second place winners ($8,000,476) and nearly exceeds the top three! Taxes may be what we pay for a civilized society, but we sure pay a lot of them. One truism this year (as usual) is that the house (the IRS) always wins.

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Posted in Gambling | 1 Comment »

The FBAR Is *Not* Due Tomorrow

Thursday, June 28th, 2018

Most tax-related deadlines are on the 15th of various months. Income tax returns for individuals are due on April 15th; the extended deadline is October 15th. But just to have fun with us there are some exceptions. One of these used to be the FBAR—the Report of Foreign Bank and Financial Accounts (Form 114).

The FBAR used to be due on June 30th, and that was a receipt deadline. Almost every other deadline in tax is a postmark deadline; for example, if you mail your tax return on April 15th and it takes a month to get to the IRS it’s still considered timely filed. That wasn’t the case for the FBAR. Luckily, Congress changed the law.

Beginning with 2016 FBARs (those filed last year) the deadline was changed to be concurrent with the tax deadline (April 15th). There’s an automatic six-month extension until October 15th. A few years ago the FBAR changed and now must be electronically filed. It now also does not have to be accepted by the deadline to be considered timely; it only has to be filed by the deadline.

Every year I get asked by a few clients, “Russ, why haven’t you reminded me about the FBAR deadline at month-end?” I’m happy to tell them that’s simply no longer the case.

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Posted in FINCEN, Gambling, International | Comments Closed

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