Archive for the ‘International’ Category

Do Canadian Professional Poker Players Owe Income Tax?

Thursday, November 5th, 2020

In the United States, the tax law can be boiled down to two sentences: Everything is taxable unless Congress exempts it. Nothing is deductible unless Congress allows it. Gambling winnings are taxed–they are an accession to income. An American professional gambler clearly owes income tax.

However, in many countries like Australia only professional gamblers (those conducting a business) are taxed on their gambling winnings. This came up when Australian Joseph Hachem won the World Series of Poker. He successfully argued that at the time he won he was an amateur gambler and did not have to pay income tax on his winnings.

The law in Canada is not settled in this area. There is a court case from British Columbia that says that professional poker players do not have to pay tax on their winnings. But clarity is likely coming, as the Tax Court of Canada will hear the case of Jonathan Duhamel in March.

Mr. Duhamel won the 2010 World Series of Poker main event earning $8,944,310. Canada’s tax agency, Canada Revenue Agency (CRA), argues that Mr. Duhamel was operating a business; thus, he owes income tax on his net income. CRA argues that Mr. Duhamel hasn’t paid $1,219,114 (Canadian Dollars) in tax from 2010-2012. That’s $934,695 (USD), well worth fighting over.

The case will probably come down to whether or not the business aspect of Mr. Duhamel’s career outweighs the luck that caused him to win specific events. Per an article in The Canadian, CRA believes that because he considers himself a professional poker player, he behaves like a “serious businessman” while playing poker, he has no other primary source of income, and he performs his occupation for 40 to 50 hours per week, he is in business and owes income tax. Mr. Duhamel argues it’s just luck that causes him to win.

The good news for Canadian poker players is that clarity on income taxes is coming (probably next summer). The bad news is that to this observer it appears that CRA is starting with pocket Queens versus Mr. Duhamel’s eight-seven suited.

Forgot to File the FBAR? A Typo Gives You Two More Weeks

Saturday, October 17th, 2020

The FBAR (Report of Foreign Bank and Financial Accounts) was effectively due last Thursday, October 15th. FINCEN (the Financial Crimes Enforcement Agency) issued an extension (the notice was released on October 6th) for those impacted by the recent natural disasters such as some hurricanes, wildfires, and the Iowa derecho. Those individuals so impacted have until December 31st to file.

But when the agency first updated the notice on October 14th, they accidentally left out that it only was for those impacted by the natural disasters. Oops. Yesterday, FINCEN clarified this:

On October 14, 2020, FinCEN posted an incorrect message on its Bank Secrecy Act (BSA) E-Filing website.  FinCEN removed it within 24 hours.  The message incorrectly stated there was a new filing extension until December 31, 2020 for all filers of Reports of Foreign Bank and Financial Accounts (FBARs).  The extension until December 31, 2020, however, is intended only as an accommodation for victims of recent natural disasters covered in FinCEN’s October 6, 2020 notice ( https://www.fincen.gov/sites/default/files/shared/Notice-Extend%20FBAR%20Due%20Date%20for%202020%20Disaster%20Victims-Final%2020201005.pdf )

FinCEN apologizes for the error and any confusion this has caused, and has coordinated with the IRS to address the concerns of filers who may have missed their filing deadline due to the October 14, 2020 message.

Filers who file their 2019 calendar year FBAR by October 31, 2020 will be deemed to have timely filed.  As set out in the October 6 notice, FBAR filers impacted by recent natural disasters continue to have until December 31, 2020 to file their FBARs.

So if you forgot to file the FBAR, relax and get it done over the next two weeks. The penalties are on the ridiculous side for not filing the FBAR. Just do it!

Just File the FBAR

Thursday, October 8th, 2020

One week from today is the tax filing deadline. It’s also the effective deadline for filing the Report of Foreign Bank and Financial Accounts, FINCEN Form 114; that’s the form that’s better known as the FBAR. The FBAR is part of the Bank Secrecy Act (it’s not a tax form), but tax professionals like me get the joy of preparing the form. There’s no tax due with filing the FBAR–it’s an information return. Yet I regularly hear excuses on why not to file the form.

You are required to file the FBAR if you have $10,000 aggregate at any time during the previous year in one or more foreign financial accounts. These include the obvious (non-US bank accounts and non-US brokerage accounts) to the not so obvious (most online gambling accounts). Penalties for not filing the FBAR are stiff (to say the least). Non-willful penalties begin at $10,000 while willful penalties start at the greater of $100,000 or half the balance in the account—yes, that penalty is per account.

The FBAR must be electronically filed. Most tax professionals’ software will handle filing the form. You can also do it yourself on the BSA E-Filing System. And if you have an FBAR filing requirement, you may also need to file Form 8938 with your tax return. This is essentially a duplicate of the FBAR but with different filing thresholds and slightly different accounts that must be reported. (The IRS has a good webpage on the differences between the FBAR and Form 8938 filing requirements.)

The rule of thumb with the FBAR is simple: When in doubt, include the account. There are no penalties for overreporting; there are severe penalties for underreporting. Take foreign cryptocurrency exchanges. The IRS has publicly stated that these do not have to be included on the FBAR. However, the instructions to the FBAR don’t say that. Thus, I urge individuals to include them. I maintain a list of foreign online gambling sites and cryptocurrency exchanges.

So don’t forget the FBAR when you’re filing your taxes. And if you have any doubts on whether to include that account, include it.

Online Gambling and Offshore Cryptocurrency Exchange Mailing Addresses for 2020

Thursday, February 27th, 2020

If you have one or more foreign financial accounts and you have $10,000 aggregate in those account(s) at any time during 2019, you must file the Report of Foreign Bank and Financial Accounts (the “FBAR”). This is Form 114 from FINCEN. (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.

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.

There remains debate over whether you need to file an FBAR for foreign cryptocurrency exchanges. At a presentation last year, an IRS employee stated that for the FBAR foreign cryptocurrency exchanges did not have to be reported. Unfortunately, the instructions for the FBAR do NOT state this. (See here, here, and here.) Thus, I strongly advise that foreign cryptocurrency exchanges continue to be reported on the FBAR. There is no penalty for overreporting; there are severe penalties for underreporting.

There is no dispute, though, about reporting foreign cryptocurrency exchanges on Form 8938: They must be reported on Form 8938 (if you have a Form 8938 filing requirement).

Note: This list is presented for informational purposes only. It is believed accurate as of February 27, 2020. 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.

You Heard About that May 29th Filing Deadline, Right?

Wednesday, January 8th, 2020

So let’s look at important tax deadlines this year. There’s January 31st (the deadline to mail and file many 1099s and to distribute and file W-2s), March 15th (the deadline to file S-Corporation and partnership tax returns, and Forms 3520-A), April 15th (the deadline to file personal, C-Corporation, trust/estate/fiduciary returns, and FBARs), and May 29th, of course.

What? There’s no tax deadline on Friday, May 29th. That’s technically true, but there is a filing deadline on May 29th : the Benchmark Survey of U.S. Direct Investment Abroad (BE-10).

The BE-10 is due every five years, and five years ago it was quite a surprise to the tax professional community. Adding to the fun last time was that the Bureau of Economic Analysis (the government agency where the Survey is filed) was completely unprepared for the volume of reports. There were major issues with filing, and let’s just say that the experience was not good for everyone who had to deal with this.

So who must file?

All U.S. persons that owned, directly or indirectly, 10% or more of the voting stock of a foreign corporation, or an equivalent interest in an unincorporated foreign business enterprise (e.g. a partnership), at any time during the 2019 fiscal year, are required to file a BE-10 Report.

I’m giving an early heads-up on this, as I suspect few are aware of this required report. There are both possible civil and criminal penalties. If you’re a tax professional and have any clients who are owners of foreign entities, make sure they’re aware of this filing. The BEA webpage on the BE-10 isn’t fully ready (for example, the link to getting on their mailing list for updates is not working), but any tax professional who deals with this should bookmark this page and discuss this with your clients. And if you happen to be the owner of a foreign entity, make sure you’re aware of the May 29th deadline.

Bozo Tax Tip #3: Only Income Earned Outside the US Is Taxable

Wednesday, April 10th, 2019

A few days ago I was explaining to a client the basics of the US Tax Code: All income is taxable unless Congress exempts it; nothing is deducible unless Congress allows it. That’s the basics.

My office is in Las Vegas, Nevada. I’m a US citizen. So I owe US income tax on my earnings, right? Of course I do. But where few willingly go the Bozo contingent jumps in. Here’s a method of avoiding tax on all your income. It’s been used by celebrities such as Wesley Snipes. So let’s use Section 861 of the Tax Code to avoid tax!

Section 861 states that certain items are always considered as income from within the United States. It does not say that income earned in the US is exempt from tax. But tax protesters claim that’s the case; courts, though, basically state, ‘You must be kidding.’ This argument has never been used successfully. In an audit or in court, if you use the Section 861 argument you have no chance of success.

The US taxes its citizens on their worldwide income. That includes the United States. Indeed, if that weren’t the case I’d be out of a job. Mr. Snipes received three years at ClubFed. In the long-run it’s far, far easier to simply pay your tax.

Bozo Tax Tip #6: They Shoot Jaywalkers, Don’t They? (Or Ignoring the FBAR)

Friday, April 5th, 2019

I have, unfortunately, become quite competent in the Report of Foreign Bank and Financial Accounts. That form is better known as the FBAR. It used to have the form number TD F 90-22.1 (yes, it really did) but now goes by Form 114. The form must be filed online through the bsaefiling center of FINCEN, the Financial Crimes Enforcement Network.

You must file an FBAR if you have $10,000 aggregate at any time during the year. The report for 2018 is due April 15, 2019. Do note that there is an automatic extension until October 15, 2019.

The form is fairly simple and straightforward: Note every foreign financial account you have with name, address, account number, and maximum balance at any time during the past year. Let’s say you have one foreign account, a bank account at the Royal Bank of Canada. You would take your maximum balance and convert it to US dollars from Canadian dollars (you should use the year-end Treasury Department conversion rates no matter when the high balance was). The form must be electronically filed and is filed separately from your tax return.

The penalties for not filing it are quite high. Willful non-filing has a minimum penalty of $100,000 or half the balance in the account–and that’s per account! There’s also possible jail time.

So what must be reported:
– Foreign Bank accounts;
– Bank accounts outside the US of a US financial institution;
– Foreign financial accounts where all you have is signature authority;
– Foreign securities accounts;
– Foreign mutual funds;
– Foreign life insurance with a cash or annuity value; and
– Online gambling accounts if outside the US.

There are probably others, too.

The IRS does have a chart that lists most things that need reporting on the FBAR and Form 8938. Form 8938 is the “cousin” of the FBAR; this form needs to be filed if you have larger balances in foreign accounts.

Millions of FBARs are filed each year. When I started in tax, filing an FBAR was a huge audit red flag; that’s no longer the case. There are just too many FBARs filed. Do note that if you have an FBAR filing requirement you must note that in question 7 at the bottom of Schedule B.

To end this with some humor, one of my pet peeves in dealing with taxes is that there are three different sets of abbreviations for foreign counties used in tax. The FBAR has one set; question 7 at the bottom of Schedule B has another set, and Form 8938 has a third set. Some countries are noted identically while others are not. On one of of the abbreviations Curacao is “CU” while that means Cuba in another.

In any case, the FBAR is no laughing matter. The IRS’s mantra here is to shoot jaywalkers. Don’t become such a person: If you have an FBAR filing requirement, file it! Again, the FBAR is due April 15th (but with an automatic extension until October 15th).

Bozo Tax Tip #8: The Shell

Wednesday, April 3rd, 2019

I was talking with a friend who is an attorney in the Midwest. She told me about an individual who decided to use ten layers of shell companies to hide his income. It worked so well that the Bozo had trouble accessing his income.

He was using the usual foreign shelter countries: the Cayman Islands (in the Caribbean), the Channel Islands (in the English Channel), the Isle of Man (in the Irish Sea), and Vanuatu (in the South Pacific). There was a land-based country in there, too: Panama. In any case, somehow the ownership got so messed up that one of the shells refused to deal with another.

My friend didn’t get involved to get the money situation resolved. No, she got involved because her client ended up going through a messy divorce, and her client’s now ex-wife happen to find one of the papers dealing with one of the shells companies. My friend’s a divorce attorney, and a good one, and she was able, with some help, find a lot of the hidden money. The judge was not as amused as I was hearing about the difficulties the man was having getting his money out. And neither was the IRS because he had “forgotten” to pay tax on a lot of income.


There are lots of good strategies for businesses to use to lower their taxes. Income balancing to C corporations can be a good strategy. Maximizing Section 179 depreciation is another. Retirement Accounts are another good strategy. There are many, many others. But hiding income in foreign jurisdictions is a very bad one, and if you get caught you are likely looking at a lengthy term at ClubFed.

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

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.