Taxable Talk

As if my day wasn’t hectic enough, out of New York (and San Francisco) comes news that the DOJ has indicted the three largest US-facing online poker sites: Full Tilt, PokerStars, and Ultimate Bet/Absolute Poker. The indictment charges a variety of crimes, ranging from money laundering to unlawful gambling. I haven’t seen the actual indictment (it will likely be released in the next day or two), but a DOJ press release is available.

So what does this mean if you are a US-based online poker player and your taxes are due on Monday and you’ve been waiting for that wire transfer and it hasn’t shown up (and likely won’t)? Well, it you can’t file your tax return file an extension. Download Form 4868 and your state’s extension form, if applicable, and mail them by April 18th. This will give you six months more to file your return.

I’ve been asked several times today, “Does this mean I don’t have to pay tax on the money I won in 2010?” No. You had constructive receipt of the money, and it absolutely is taxable. The government’s view is that it’s your problem because you were gambling at an unlicensed (in the US) business.

Will you get your money from the sites? I can’t answer this for certain, but I suspect just like with Neteller you will eventually get your money. With Neteller, it took seven months. I’d expect this to take just as long, and you might get your money in Euros or some other currency. The DOJ’s target is the sites, not American players, so the money should eventually show up.

Will these sites continue to service US customers? I can’t imagine them continuing to serve the US market. I’ve been told that PokerStars has already stopped serving the US market (I’m otherwise occupied, so I have no idea if this is true); I’d expect all three to stop serving the US market. The companies have stated in the past that their attorneys felt that they were operating legally in the US. The Department of Justice has said that’s not true. I can’t imagine them continuing to operate here.

I’ve also been asked whether you have 2011 income from your winnings this year. The answer to this question is maybe. While you could gamble with that money (online) that you won, an argument can be made that you could never actually receive the money. In that case, you would not have had constructive receipt, and it’s all basically “play money.” I’ll likely have more on this post-April 18th.

Will online gambling be legalized in the US? I think it will, but not immediately. Like Napster, online gambling in the US was a creature ahead of its time. Napster violated US copyright laws. The current companies offering online poker in the US violate US laws (in the view of the DOJ).

Napster went away, but there are still illegal music file-sharing companies and there are now much better legal means of streaming music (Pandora, iTunes, etc.) I suspect that in the long-run we will see legal online poker in the US.

I’ll probably have a longer and more detailed post on this post-April 18th.

This entry was posted on Friday, April 15th, 2011 at 8:53 pm and is filed under Gambling. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.