Published in February 28th, 2007
CardPlayer Magazine

Accountants are people who tend to get excited about boring things. Sounds a bit scary, but ask a CPA something about the latest tax law changes and watch what happens. Their eyes light up and, believe it or not, a smile will probably form. Yes, it’s sick, but true.

I am an accountant who likes fun things - like poker and taxes. When you ask me about taxes and mention that you are a poker player, my eyes light up, I have a big grin, and you usually can’t stop me from talking. Yes, it’s sick but true.

Being out in the poker arena and having numerous clients who are poker players, I learn a good deal about what you guys are telling each other. While there are a lot of players out there winning a lot of money, there are also a lot of players who are giving bad tax advice to the winners. The things I have heard would make you go on TILT if you believe them (and be in big trouble with the IRS). Here is the latest I have heard.

Players have asked me about their offshore gaming accounts. We have all used them at one time or another in order to play on most of the internet sites. I warn players that first of all, if they win money, it has to be claimed on their tax return. They understand this, but they think they have a solution.

People remind me that the accounts they have are “offshore” and that the IRS can’t touch them because the IRS doesn’t know how much is in those accounts. This may be true. If the IRS requests account information from someone like NetTeller, NetTeller–type operations most likely will refuse to hand it over since the US Government has no jurisdiction over them. Keep in mind, some of these accounts are not just used for gambling. They are also used to buy merchandise. It wouldn’t be time nor cost effective for the government to try to monitor sites such as PayPal and NetTeller, even if they could.

Now, could the IRS look at your bank statements where the money was transferred in and out of NetTeller? Absolutely they can if you are being audited. The first thing they will request are copies of your bank statements. From those, they will add up all of your deposits and want to know the sources of the deposits. If your deposits in your bank account are a lot more than on your tax return, I hope you have a really good explanation ready.

So, your money is sitting out there somewhere offshore. If you transfer it into your account in the US, there is now a trace. Here is what has begun happening. Some of the offshore account sites are offering a Visa or Mastercard in the form of a Debit card. The player then gets the money out of the account by purchases they make every day with their debit card. No statements are mailed out - just go online and check your balance. Sounds good? Not really…

The IRS issued something called a “John Doe” summons to major credit card companies to uncover the extent of the use of these cards in the US and, therefore, under IRS jurisdiction. When the IRS has not been able to identify the owner of the card, summonses have been issued to companies where the cards have been used, such as airline, hotel and rental car companies. The IRS can then trace the offshore transactions. The IRS is aware that some people use offshore transactions to avoid paying income tax. Use of an offshore bank account, brokerage account, credit cards, wire transfer, trust, offshore employee leasing, or other arrangement to hide or under-report income or to claim false deductions on a federal tax return is illegal. A taxpayer involved in these schemes could be subject to payment of taxes, interest, and penalties, as well as potential criminal prosecution.

In April 2006, the IRS filed a “John Doe” summons to PayPal asking it to turn over ccount data. I recently e-mailed PayPal to find out about this summons. Their response was, “We take the privacy of our customers’ information very seriously. We have received a summons, but we do not have any further information at this time”.

During fiscal 2005, 68 individuals were convicted on charges of promotion and use of abusive tax schemes designed to evade taxes. A special program in 2003 has yielded more than $170 million in taxes, interest, and penalties, and the IRS and the States continue to aggressively pursue taxpayers and promoters in this area.

What is the moral of the story? Be smart, play hard, and don’t listen to bad accounting advice. Good luck.


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