Online poker accounts weren’t subject to FBAR, but payment processing account was.
Under the Bank Secrecy Act, U.S. citizens must file an FBAR with the U.S. Treasury disclosing any financial account in a foreign country with assets in excess of $10,000 in which they have a financial interest or over which they have signatory or other authority. The Court of Appeals for the Ninth Circuit hhas found that one of three accounts a taxpayer maintained to facilitate online poker was with a financial company and had to be reported on a Foreign Bank and Financial Accounts Report (FBAR). However, the two online poker services, which created accounts for him in foreign countries, weren’t financial companies subject to FBAR reporting.
Facts of FBAR and Online Poker Player Case
John Hom gambled online and had accounts worth more than $10,000 during the years in question with two online poker companies, PokerStars and PartyPoker. He used a third company, an online financial organization, FirePay.com, to facilitate the transferring of money to and from his two poker accounts; he also had more than $10,000 in his FirePay account during one of the years in question. The IRS assessed Hom with 31 USC 5321(a)(5) penalties for his failure to submit FBARs regarding his interest in his FirePay, PokerStars, and PartyPoker accounts.
Court of Appeals for the Ninth Circuit Decision
The district court found that Hom’s accounts with FirePay had to be reported on an FBAR, while the PokerStars and PartyPoker accounts did not. the Ninth Circuit found that Hom’s PokerStars and PartyPoker accounts did not fall within the definition of a “bank, securities, or other financial account.”
The Court reasoned that 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 appeared 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 USC 5312(a)(2)(R), and so qualified as a “financial institution.” Hom’s FirePay account was also “in a foreign country” because FirePay was located in and regulated by the United Kingdom. The Court referenced IRS’s FBAR Reference Guide; “typically, a financial account that is maintained with a financial institution located outside of the United States is a foreign financial account.”
FBAR and Poker Players
If you have online poker accounts, and have been transferring money via an offshore institution, you may have foreign bank account filing obligations with the IRS. The penalties for not compling with fling requirements are severe. If you have questions about your specific situation, please contact the attorneys at Freeman Tax Law to schedule a free, confidential consultation.