The Ninth Circuit’s unpublished opinion in United States v. Hom is now up. It’s sort of a misnomer to use the word “published” for an unpublished opinion. Unpublished here means it cannot be cited as a precedent; the court doesn’t think it has sufficient precedential value.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