Online Gambling and Payment Accounts Tax Reporting Warning

In a recent court case (Hom, (DC CA 6/4/2014) 113 AFTR 2d ¶ 2014-893), a taxpayer’s online payment and poker accounts were found to be reportable under FBAR. All of the accounts were with companies located outside the United States. The taxpayer had control over them and could deposit and withdraw funds at will, therefore the court decided they were financial accounts. Since the accounts had at times more than $10,000 in them, they should have been reported and the taxpayer was assessed penalties for not doing so.

Interestingly, in this case, the foreign companies did hold some of their customers’ fund inside the US, however the court ruled that the nationality of the company and not where the funds were held determined their reporting requirement.

Also of note, the current regulations specifically mention “bank accounts…[which means] a savings deposit, demand deposit, checking, or any other account maintained with a person engaged in the business of banking.” (31 CFR 1010.350)

The court interpreted the activities that the taxpayer could perform with these accounts to be functionally the same as a banking account.  I think that others will be caught in this same wicket. Taxpayers would probably not think of these types of accounts when asked by their tax preparer if they have any reportable foreign bank accounts.

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