ONLINE POKER PLAYERS BEWARE

I thought we had reached the end of our FBAR streak, but not yet. In a Federal District Court case opinion released last week, the Northern District of California ruled that a U.S. online gambler was obligated to report his internet accounts with offshore poker sites PokerStars.com and PartyPoker.com on an FBAR form. Since the taxpayer could make deposits to, and withdraw from, his poker accounts, the court found that the accounts came within the definition of “a bank, securities, or other financial account.”

I don’t know how many U.S. persons have accounts with online gambling sites that are situated outside the U.S., but I am sure that the taxpayer here has plenty of company. If the aggregate balance in all of a taxpayer’s non-U.S. accounts exceeds $10,000 at any time during the year, an FBAR is due. As we all know by now, the penalties for not filing an FBAR can be severe.

If one accepts the reasoning and finding of this case, then tax preparers should be adding to their questionnaires whether the taxpayer has any internet account based on an offshore site that funds gambling activities (or any other activity for that manner) for which the taxpayer can make deposits and withdrawals.

U.S. v. HOM, 113 AFTR 2d 2014-XXXX, (DC CA), 06/04/2014

BITCOINS DO NOT REQUIRE FBAR FILING

I have been posting a lot of FBAR-related posts lately. Here’s one more.

There has been a question whether owners of “bitcoins” and other virtual currencies that have non-U.S. aspects, are subject to annual reporting on the FBAR form. They don’t appear to be financial accounts, but will the Treasury Department agree?

At least unofficially, it appears ownership of virtual currencies do not need to be reported on the June 2013 forms due June 30. So says Rod Lundquist, a Senior Program Analyst in the IRS's Small Business/Self Employed (SB/SE) division, during a recent IRS webinar titled “Reporting of Foreign Financial Accounts on the Electronic FBAR.” Things may change for future years.

Since this is not an official position, taxpayers may still want to consider reporting these items if they want to be conservative.

ZWERNER CASE UNLIKELY TO PROVIDE CONSTITUTIONAL REVIEW OF 50% FBAR PENALTY

The Zwerner case has been discussed here and here. Many hoped that this case may give rise to judicial review of whether the 50% per year FBAR penalty for willful violations passes muster on U.S. Constitution limits on excessive fines. That no longer appears likely as the government and the defendant have now settled the pending litigation regarding that penalty.