Case Overview:
A district court in California recently heard the case of United States v. Hom, 2014. Mr. Hom, an online gambler, held accounts at two online poker sites, PokerStars and PartyPoker, during 2006 and 2007. In order to fund his online play, Hom used an online financial site, FirePay.com, to manage transfers of money to and from his poker accounts. The court needed to rule whether these accounts were “financial institutions” which would require Hom to file a Report of Foreign Bank and Financial Accounts (“FBAR”) and whether each of the accounts should be classified as a “foreign” bank account.
The court ruled that online poker accounts are treated as financial institutions because they function as a “commercial bank.” Since the sites held funds and disbursed them at the discretion of the holder, they effectively functioned as a bank. This meant that Hom was responsible for filing an FBAR for each account that held a balance of $10,000 or more at any point during the year.
Mr. Hom also tried to argue that although these sites are based offshore, they hold bank accounts within the United States, meaning that his funds may have not been located outside of the country. However, the court ruled that these accounts belong to the sites, not the defendant. Since each site is headquartered outside of the United States, these funds are considered foreign.
The court’s ruling solidified the law (for now) and required Mr. Hom to pay a $10,000 fine, per account, for not filing an FBAR for each account. It seems that this will be the IRS’s position on this issue and players should take note of this ruling to make sure they are in accordance with the tax laws.
What Poker Players Should Do:
For now, players should plan on filing an FBAR for each online poker account that had more than $10,000 in it at some point during the year. This includes accounts such as FirePay, Neteller and other online wallet and fund-transferring sites.
This also means players need to go back and file FBARs for any year in which they had an online poker account that held more than $10,000 at any point during the year. The statute for FBARs is six years and they are due on June 30th, which means the statute on 2008 will be up in June 2014.
Finally, in order to correctly file an FBAR, players must go back and amend any tax returns for years that are still open to review (2011-2013).
If you have any questions about your online accounts please feel free to call (702) 433-7075 and we can discuss your situation.
