Players Shouldn’t Expect Money Back without Facing Tax Problems

by , Apr 18, 2011 | 4:54 pm

Sanford Millar


OP-ED

There are two actions pending against online poker companies in the Southern District of New York — an indictment of individual defendants, and a civil forfeiture complaint against the companies. The civil forfeiture complaint seeks forfeiture of all assets of the defendants, including specified domains and bank accounts.

There have been several civil and criminal forfeiture cases brought by the DoJ in recent years, including Daniel Tzvetkoff’s and Douglas Rennick’s (which are the original and first superseding indictments in the current case). Similar forfeiture cases have also been brought against other payment processors, but in none of these cases, as far as I know, have the Poker companies filed claims objecting to the seizures. Also of note is that no players made claims either.

Any player who makes a claim [for their deposits] should expect criminal inquiry by the FBI and IRS, and would not be able to recover on provable claims for some time. If the Poker companies default on the civil forfeiture, players will have no real legal recovery.

For the purpose of filing Foreign Bank Account Reports, some players may have taken the position, consistent with the position of the IRS, that they are general unsecured creditors in a common pool fund of deposits, and as such have no control or discretion over the investment of the funds. If this position is correct, then the DoJ’s forfeiture claims may have legs, as there may be no players to come forward able to make the specific factual statements necessary for a bonafide claim. Further, in order for the Poker companies to make claims, they likely would have to submit to jurisdiction of the U.S. and open their books and records to the DoJ and IRS among others.

Players who think they can write off their funds on deposit for tax purposes, and thereby get some benefit by tax losses, may run into the problem that IRC ยง165 limits gambling losses to gambling winnings (plus travel and related expenses for professional gamblers). But that means the winnings must have been reported and will require proof of deposits made. For some players, proof of deposit may be problematic.

Any player who makes a claim should expect to face full disclosure requirements on inquiry by the FBI and IRS (likely Criminal Investigation Division) and would not be able to recover on provable claims for some time, and at a non-trivial expense. For among other things, for players to prevail, they will need to get cooperation from the Poker companies and produce “competent evidence”.

If there is a possibility that the Poker companies default on the civil forfeiture, the players will have no real legal recovery.

Just my observations.


Sanford Millar is a domestic and international tax attorney in LA, and Commissioner of the California Bar’s Taxation Law Advisory Commission. Find him at MillarLawOffice.com, where his firm handles cross-border compliance matters with a sub-specialty in e-commerce and internet gaming.


17 Comments to “Players Shouldn’t Expect Money Back without Facing Tax Problems”


  1. Nrocme
    says:

    translation: we’re screwed.


  2. Bly1708
    says:

    You’re talking about the forfeited funds though, right? Don’t the poker companies tell us our money is held in a secure bank in xxx country? So wouldn’t that money still be safe? I don’t expect the companies to hold us accountable for their funds being frozen because of their “wrongdoing”

    I think they would pay us out of the unseized money and accept the seized money as their own loss.


  3. Dan Michalski
    says:

    Even if all you say is true how do you get that money back into the USA without breaking the law?


  4. SanfordsDaddy
    says:

    How on EARTH did you make those parallel’s Sanford? If I was your boss I’d fire you immediately.

    First off, FBARS do not apply this year like they did in 2010. You are a Tax Laywer? Are you serious?

    Next off, the site has absolutely NO discretion over how the funds are actively invested. The site isn’t playing my money, I AM.

    Lastly, poker players already pay taxes on their winnings TAKEN FROM THE SITE. There is nothing different going on this year than last year other than the DOJ has stepped in and possibly written the 1st 1-4 months as a total loss to professional gamblers depending on the flow of funds which is ultimately the derivative of what’s being taken.


  5. NM
    says:

    Meh, this doesn’t really make a lot of sense. I’d bet against the claims above


  6. TJ
    says:

    Get a clue Sanford- do you have any idea how many people we’re talking about who would have claims against the sites? LOL at thinking the FBI would get involved on the player side of this. Fockers like you are why I got out of the legal profession. You do know that there was a similiar case several years ago (Neteller) that involved the seizure of player funds? Don’t you think that a legal resolution would look something similar to how things were handled then rather than the apocalypse you describe?


  7. Smillar
    says:

    http://www.bloomberg.com/news/2011-04-18/online-poker-player-accounts-frozen-amid-fbi-gambling-probe.html
    .


  8. Rob C
    says:

    Expect a Neteller type resolution. To prevent losing public opinion and tainting the Money Laundering charges the DOJ has bent over backwards to avoid player funds in this cases.


  9. Dan Michalski
    says:

    but neteller’s crime was being a fully legitimate legal payment
    processor engaging in some illegal activity. (processing sports bets.)
    i know my money there wasn’t for sports bets.

    but here, we are talking about less legitimate companies engaged in
    what the DOJ us calling a fully illegal business … based on illegal
    activity, with payment processing designed to hide that illegal
    activity. (hence the bank fraud and money laundering charges.)

    so with that said, answer me this: even if player accounts are totally
    separate, how on earth do you get it back into your american bank
    without breaking the law?!?

    oh, and also … can you define money laundering for me in a way that
    wouldn’t apply to online poker sites passing funds through different
    companies and countries multiple times so they can show up in your
    American bank account without a trace of the previously declared
    illegal business from where the transaction originated?


  10. Donkey Bomber
    says:

    The real question to me is, did poker players break the law by playing poker on line? If the answer is no, playing poker online is not against the law, then it seems difficult for the DOJ to make the case that players’ money should be seized and not returned to the player. That money was being held in trust much like a bank holds our money.

    If i put money in a bank and the bank commits an illegal act but I don’t, I might expect for the bank’s money to be seized, but then the government to realize that my money was held in trust for me, the depositor, and it should be returned to me.

    Even if the DOJ would take the position that we were committing a crime by playing, I can’t imagine that the feds would want to seize the money of several million Americans playing poker. This could be horrible for the current administration, and I would suggest a class action suit be brought against the federal government by all online players with an account balance greater than 0.

    As far as Dan’s claim about not being able to get the money back to the U.S. because the act of transferring it back to your bank from a gaming site would be breaking the law, well, it makes no sense. Certainly, if the government decided that all players should receive their money back, they would make an exception to this rule. They would also expect to receive taxes on these funds entering the U.S.

    Did the players commit a crime having their money transferred to a poker site? I’m not an attorney, but I can’t imagine me going into my bank and asking them to transfer money to Poker Stars and them saying you are under arrest for asking that question. They would just say no, we can’t do that. The banking institutions were prohibited from having financial transactions with gaming sites. So if I ask the question, they can say no.

    Giving your credit card info to Stars and saying please put $600 on my account is just asking the question. The fact that the sites didn’t ask the question honestly is not my doing. I didn’t ask the sites to do anything fraudulent. I actually was surprised once in a while that my transactions were approved and thought maybe the law hadn’t started yet.

    And, if playing poker online is not illegal, what about the person who put money on a site 8 years ago and has never had to rebuy. Why would his money be kept? And how about the guy who would get a transfer from a buddy when he needed some online funds? Neither one of these people had a transaction with a financial institution.

    I respectfully disagree with Sanford and take many of these positions without having read the complaint and without being a lawyer. I would prefer to be uninformed with strong convictions. That’s how i roll. But, I am willing to take bets that players will get their money back if anyone is interested.


  11. Dan Michalski
    says:

    you communist. let me see your birth certificate.


  12. Browser
    says:

    Why do people keep saying that there would be taxes automatically due on withdrawals from the sites? If you deposit $10k, lose $5k and withdraw the remaining $5k, there is no tax due and no need for tax withholding when it is distributed. You only have to pay taxes on winnings.


  13. Teddy Kaplun
    says:

    check out my twitter @kaplunsportslaw for my point of view on this from my comments back and forth with Dan from @pokerati – overall, I believe (and my gaming law professor who was a SEC regulator and CEO of a river boat gaming company) this will get resolved in favor of returned money for players.


  14. Haley
    says:

    While I agree with Dan’s [private] assertion that everyone with a coherent thought deserves a platform from which to speak, I’ve gotta say Sanford is another poster desperately in need of a disclaimer. Let’s see… this guy is described as a “shareholder” in some internal Excapsa correspondence, not to mention that he seems to have done quite a bit of legal work for Excapsa, just like Stuart Hoegner.

    And his advice is for players to not pursue claims against the companies, which also conveniently would keep those companies shielded from US-based civil discovery motion.

    Holy crap, it’s… crap!


  15. TJ
    says:

    Not to say I told you so Sanford, but I told you so. DOJ obviously wasn’t going to go after player funds. People actually pay you for your opinion???? God bless America.


  16. Guest
    says:

    I book marked this guys website, in case I ever need a tax attorney who is completely wrong.


  17. SanfordsDaddy
    says:

    So Sanford, are you going into early retirement? This was the worst article relating to the online poker fiasco I’ve ever read. Outdated information, absolute garbage interpretations AND THIS IS YOUR SPECIALTY. You seriously make a living off this?

    What’s even more ridiculous is that pokerati let you publish this article. I would be ashamed. http://www.pokerstars.com/usaplayers/faq/