Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Mar 30
2016

Online Poker: A New Way to Bank?

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In light of Tax Day (note that it’s on the 18th of April this year due to a holiday on the 15th) we want to point out a curious ramification from a federal case concerning online gambling, tax reports, and foreign accounts.

In United States v. Hom [1], the defendant, John C. Hom, was an online poker player who had money in player accounts situated outside America. Accounts such as these are used for depositing funds, wagering them on the site, and withdrawing whatever remains; they are not generally treated as “bank accounts” proper, and Hom did not bother to file a tax return on them. Surprisingly, the court said he should have.

As explained by the court in its decision, an individual is mandated to file an FBAR (a Report of Foreign Bank and Financial Accounts) for a reporting year if all of these requirements are satisfied:

(1) he or she is a United States person;

(2) he or she has a financial interest in, or signature or other authority over, a bank, securities, or other financial account;

(3) the bank, securities, or other financial account is in a foreign country; and

(4) the aggregate amount in the accounts exceeds $10,000 in U.S. currency at any time during the year.

Id. at 1178.

In Hom’s case, three of the requirements were clearly satisfied: the defendant was a U.S. citizen (1), the accounts, like the gaming companies holding them, were located in a foreign country (3), and the aggregate amount in those accounts exceeded $10,000 (4).

Requirement (2) was the sticking point. Could an online poker account really clear the definition of “other financial account,” thus compelling Hom to file an FBAR? His team argued that it didn’t: the funds weren’t held in a bank or securities account and the defendant’s actions were limited to making deposits and withdrawals. Strikingly, the court ruled that it was a financial account because “he opened up all three accounts in his name, controlled access to the accounts, deposited money into the accounts, withdrew or transferred money from the accounts to other entities at will, and could carry a balance on the accounts.” Id. at 1179. The ability to deposit and withdraw at will sufficed to make the gaming companies “function as institutions engaged in the business of banking. Accordingly, defendant’s accounts are reportable even under the current regulations.” Id.

This is a very broad expansion of what passes for a financial institution, and it begs the question of how far it can go. For example, are funds in an attorney escrow account, or other escrowed accounts for a foreign transaction, FBAR reportable? After all, they, too, permit the client to make withdrawals and deposits and carry a balance—and possibly even control access.

Hom is only one case; other courts aren’t bound by it. However, they could still be influenced by this decision. It is therefore prudent to file an FBAR on gambling accounts located overseas that exceed $10,000. Furthermore, one should wonder whether other courts will borrow this reasoning and apply it to other forms of escrow accounts. These questions are very pertinent in light of the IRS’s continuing emphasis on the disclosure of foreign accounts.

[1] United States v. Hom, 45 F. Supp. 3d 1175 (N.D. Cal. 2014)

 

Ifrah Law is a leading white-collar criminal defense firm that focuses on financial services.

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, health care, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen and George Calhoun, counsels Jeff Hamlin and Drew Barnholtz, and associates Rachel Hirsch, Nicole Kardell, Steven Eichorn, David Yellin, and Jessica Feil. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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