by Brian Mahany
With nary a word in conventional media, the U.S. Attorney’s office in Manhattan issued a press release announcing the indictment of 11 people involved with online poker. Included in the indictments are the founders of the three largest online poker companies doing business with American gamblers. Should players be worried? The answer is yes if they failed to pay taxes on their winnings.
Congress enacted the Unlawful Internet Gambling Enforcement Act in 2006 making it a federal crime for gambling businesses to accept payment in connection with unlawful Internet gambling. Despite the new federal legislation, the three largest online poker businesses doing business in the U.S. continued to allow U.S. residents to gamble on their sites. The three companies, PokerStars, Full Tilt Poker and Absolute Poker, are all based offshore.
According to the indictments, the three companies used fake businesses to trick U.S. banks into processing their payments. In some instances they created hundreds of non-existent merchants solely to hide the transactions.
When that no longer worked, PokerStars and Full Tilt Poker “persuaded” SunFirst bank of Lake George, Utah to accept their money. By “persuaded” I mean the online poker companies allegedly agreed to invest $10 million in the bank and give the bank’s vice-chairman a $20,000 finders fee. The parties involved have been charged with bank fraud and money laundering.
The government will soon start wading through reams of bank documents. Although the first waive of indictments are against officials from SunFirst and the three gaming companies, high stakes gamblers can expect the IRS will soon start sifting through the list of big winners.
Just how large is the problem? Millions of Americans play online poker according to estimates. Although the government is seeking both prison and $3 billion in forfeitures, experts say that is just the tip of the iceberg.
Said FBI Assistant Director Janice Fedarcyk, “The defendants bet the house that they could continue their scheme, and they lost.” Just how many lucky winners the IRS will soon catch remains to seen.
The IRS works on a “first contact” policy. If you contact them first and come into compliance, criminal prosecution is almost always averted. But if the IRS knocks on your door first, all bets are off.
What should you do if you have big winnings from online gaming? Contact a tax attorney immediately. CPA’s do not enjoy the same privilege as lawyers. If you have significant winnings that were not reported, see a lawyer. Anything you say to your accountant can unfortunately be used against you – the IRS can compel them to testify.
Mahany & Ertl is a full service law firm helping individuals and small businesses resolve tax problems. From tax compliance to audit defense, we can help. Contact attorney Brian Mahany at (414) 704-6731 (direct) or at . All calls are completely confidential.