Tax on cash held in an offshore poker account

[CrackPipes and Kakfights]

I talked to my tax attorney about this and, although I realize it may be a grey are, if you are a pro and have earned cash in your "account," it is highly likely going to be taxable income to you in that year regardless of when you pull it off. If in a later year you can't collect you can probably take a bad debt deduction.

I do know that all those people who had fictitious income with Madoff had a real problem because they paid taxes for years on phantom income and had trouble taking the losses.

However detection risk is low (but that is what a lot of people who had Swiss bank accounts also thought).

[Dan Druff]

I talked to my tax attorney about this and, although I realize it may be a grey are, if you are a pro and have earned cash in your "account," it is highly likely going to be taxable income to you in that year regardless of when you pull it off. If in a later year you can't collect you can probably take a bad debt deduction.

I do know that all those people who had fictitious income with Madoff had a real problem because they paid taxes for years on phantom income and had trouble taking the losses.

However detection risk is low (but that is what a lot of people who had Swiss bank accounts also thought).

Poker sites aren't bank accounts, so it's not the same as Swiss bank accounts.

Poker sites holding your money could be said to be an IOU.

Or it could also be looked at that your cashout is "paying" you for "work" you previously did, so the taxable income is considered for the year you get paid.

For example, if I did work on December 28, 2015, but received payment on January 4, 2016, then I would have to declare that income for my 2016 taxes, NOT my 2015 taxes.

Payment matters, date of work does not matter.

http://biztaxlaw.about.com/b/2013/12...ears-taxes.htm

I'm sure that, in light of the COUNTLESS online gambling scandals where people "win" money but never get paid, it could be argued successfully to the IRS that you have not actually earned money on these unlicensed, illegal sites until you actually get paid.

It's a different story on a legal site such as WSOP.com, as that is licensed and regulated by a US entity, and you could not make the case that you weren't sure if you would ever get paid.

I compared this to making drug deals when discussing it on radio. If you make a drug sale in late 2015 but don't get paid until 2016, it's still 2016 income. And if the guy you sell the drugs to never ends up paying you, then you don't have to declare it as income.

I realize that online poker is a bit different, because you can request cashouts at will, but as long as you can show that you kept a reasonable sum of money there for the games you needed to play (for example, I couldn't claim that $200k on Bovada for 30-60 limit is appropriate), then I think you are justified to hold money on there indefinitely, provided you are actively playing.

This is all a grey area and there is no case law on illegal online poker in relation to cashouts and taxes. So I could be wrong, but I think this line is pretty safe.

[CrackPipes and Kakfights]

I talked to my tax attorney about this and, although I realize it may be a grey are, if you are a pro and have earned cash in your "account," it is highly likely going to be taxable income to you in that year regardless of when you pull it off. If in a later year you can't collect you can probably take a bad debt deduction.

I do know that all those people who had fictitious income with Madoff had a real problem because they paid taxes for years on phantom income and had trouble taking the losses.

However detection risk is low (but that is what a lot of people who had Swiss bank accounts also thought).

Poker sites aren't bank accounts, so it's not the same as Swiss bank accounts.

Poker sites holding your money could be said to be an IOU.

Or it could also be looked at that your cashout is "paying" you for "work" you previously did, so the taxable income is considered for the year you get paid.

For example, if I did work on December 28, 2015, but received payment on January 4, 2016, then I would have to declare that income for my 2016 taxes, NOT my 2015 taxes.

Payment matters, date of work does not matter.

http://biztaxlaw.about.com/b/2013/12...ears-taxes.htm

I'm sure that, in light of the COUNTLESS online gambling scandals where people "win" money but never get paid, it could be argued successfully to the IRS that you have not actually earned money on these unlicensed, illegal sites until you actually get paid.

It's a different story on a legal site such as WSOP.com, as that is licensed and regulated by a US entity, and you could not make the case that you weren't sure if you would ever get paid.

I compared this to making drug deals when discussing it on radio. If you make a drug sale in late 2015 but don't get paid until 2016, it's still 2016 income. And if the guy you sell the drugs to never ends up paying you, then you don't have to declare it as income.

I realize that online poker is a bit different, because you can request cashouts at will, but as long as you can show that you kept a reasonable sum of money there for the games you needed to play (for example, I couldn't claim that $200k on Bovada for 30-60 limit is appropriate), then I think you are justified to hold money on there indefinitely, provided you are actively playing.

This is all a grey area and there is no case law on illegal online poker in relation to cashouts and taxes. So I could be wrong, but I think this line is pretty safe.

Actually what you have is an accounts receivable and you are fully taxable on that. This is entirely different from a situation where you your employer cuts you a check after year end. You have control over the cash in your account. Even if you think you don't in the eyes of the IRS you will. The only reason this isn't litigated more is because the dollar amount don't warrant it. college friend who's grandfather left him money in a Swiss bank account and he never bothered to work. He is now in danger of being thrown in jail. Just because this may not be an account you have to file an fbar for does not change the above.

What I'm saying about Swiss bank accounts is people felt safe for years. Now they don't. I don't think you need to file an fbar or declare a balance of your account to the irs (unlike an actual Swiss or other foreign bank accounts) but this does not change the fact that you have an accounts receivable and in the eyes of the irs you will likely be seen as having that cash at your disposal even though this may seem unfair. But again I don't think the irs is going to waste time on somebody who is actually reporting something. But the actual legal and technical grounds sound very shaky to me. I couldn't do this in my business no matter what level of deadbeat I was deAling with until they actually go bankrupt

But the audit lottery detection risk is low.

[Dan Druff]

Listen, I'm not saying that I'm 100% certain about what I'm saying, but nobody really can be.

This is unchartered territory. The IRS does not have printed rules about this. You are trying to apply other situations to this very unique one.

It's not a Swiss bank account. It's not any bank account. Literally anyone could set up a poker site in their bedroom and claim to be holding money for you when you win. That doesn't make them a bank.

What of the accounts receivable thing you claim? Why can't you just call this business a "cash receipts" method of accounting, and thus you only owe taxes when you receive cash?

It is only disallowed to do this if you are selling merchandise AND your sales are over $1 million per year. Neither applies to us here.

What of the claim that you have full control of the cash in your poker account? Well, yes and no. If you want your money today, you can't have it. It will typically take anywhere from a week to a few months to NEVER (ask the Lock Poker customers) as far as when you get your requested money. Also, as you need the existing money on the site to make more money, it i not practical to withdraw it all, especially given the difficulty of getting money on and off the site. So the case can't even be made that you could have withdrawn all of the cash in the account if you wanted, but chose not to. As a regular player, you cannot withdraw all of the cash or you cannot play.

Your friend inheriting the money in a Swiss bank account is a different story. That's a real bank account. He really did have access to the money as soon as he received the inheritance. I would agree with the IRS that he owes tax on that money, the same as he would if the money were in a US bank account. I will say that he is unlikely to go to prison. The IRS does not imprison people for a legitimate misinterpretation of the rules and laws. The only jail people for tax evasion on money derived criminally (think Al Capone) or those who know they owe taxes and purposely refuse to do so (think Wesley Snipes). Otherwise they just act tough, but in the end only force you to pay back taxes and penalties.

[ftpjesus]

If the IRS THOUGHT they could tag people for income for winnings in offshore poker accounts paid out or not they would.. The IRS and Feds have been over-reaching regarding foreign accounts for several years now since Obama took office. To the point they have tried to force other countries to reveal the information of US Citizens and their FOREIGN SPOUSES account holdings. This has lead to hundreds of thousands of US Citizens living abroad to basically tell the US to go FUCK itself and renounce their citizenship as they are permanent residents and or citizens of another country with their marriage to a foreign citizen thus cutting off any claim the US Government can remotely use to try and bleed tax money out of those who they have no right to.. Famous example within the last year was Tina Turner who remarried and is living in Europe.. The US Government tried to demand access to financial information of her husband who has never been a US Citizen and as a result Tina Turner went to the US Embassy and burned her passport at the office.

On a side note this has made some business dealings difficulty as Ive had to move a couple of my forex trading accounts to other brokerages because they ceased doing business with US Citizens/Residents.. Some of it is due to fucking Dodd Frank but some of it is also because of the financial information treaties that exist and they don't want to have to open their books up at all due to having US Customers thus to keep Pandora's box locked they just have dropped US clients completely.