Radio Russ

Posted on April 27, 2011 by Russ

I am once again the guest on Bart Hanson’s Deuce Plays podcast this week. We discuss “Black Friday” in the online poker world, and its probable impact on taxes, and the possible future of online gambling in the United States. You can download the podcast directly here.

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One Down, Two to Go

Posted on April 26, 2011 by Russ

This afternoon, PokerStars announced that they are now ready to return balances in Americans’ accounts back to them. Depending on the balance, this can be done by check, electronic funds transfer, or wire transfer (only balances of $50,000 or more can be done by wire). PokerStars notes that it could take up to one week for an EFT to reach your bank account.

It is very clear that PokerStars received the assurance of the Department of Justice that nothing would hinder the movement of funds, and that the same assurance was provided to PokerStars’ payment processor. Otherwise, there is no chance of this having moved as quickly as it has.

Meanwhile, Full Tilt has not made any announcements of when they will be ready to process cash-outs. I’d expect that to occur sometime in the next few weeks.

Finally, the silence is deafening from Absolute Poker (owner of Absolute Poker and Ultimate Bet). At the end of last week Absolute made an announcement noting that they’re reviewing their legal options. I would not hold my breath as far as receiving money that you have on Absolute or Ultimate Bet. I do think you will see it…eventually.

Another winner with today’s return of funds is the World Series of Poker run by Caesar’s Entertainment. Many of the individuals who would participate in the WSOP (which begins in just over four weeks) might have had their funds tied up due to the DOJ’s actions; however, it appears that some to all of the funds should be returned just in time for the WSOP.

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FTB’s Top 250 Delinquencies Not a Minor Affair

Posted on April 25, 2011 by Russ

Right at the end of the tax season, the Franchise Tax Board released its list of the top 250 delinquencies. There is still a celebrity or two on the list, but the new list is a bit more mundane than in the past.

It took $305,057.11 to make the list (that’s what Affordable Termite Control, Inc. of nearby Orange owes the FTB). Tops on the list are Halsey and Shannon Minor of Los Angeles; they owe $14.2 million to the FTB. Mr. Minor is the founder of CNET, and he acknowledged last year the tax debt. His ability to pay the debt may be questionable, though; Mr. Minor also owes Charlottesville, Virginia $84,000.

Still remaining on the list is Pamela Anderson. Yes, that Pamela Anderson; she owes the FTB nearly $607,861.

This time around Ms. Anderson appears to be the lone celebrity on the mix. And that’s likely a good thing for Hollywood’s elite, as this isn’t the list you want to be on.

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Another List, Another Bad Score for California

Posted on April 25, 2011 by Russ

Here in the Bronze Golden State, discovering that you rank at the bottom of a list is all in a day’s work. Another list of business climate, this one from the Small Business & Entrepreneurship Council, ranks the best and worst states for small business owners. While this list came out in December, I didn’t discover it until this past week.

First, here are the top 10 states:

  1. South Dakota
  2. Nevada
  3. Texas
  4. Wyoming
  5. Washington
  6. Florida
  7. Alabama
  8. South Carolina
  9. Ohio
  10. Colorado

And now, the worst ten:

41.  Connecticut
42. Minnesota
43. Massachusetts
44. Hawaii
45. Rhode Island
46. Maine
47. Vermont
48. California
49. New York
50. New Jersey
51. District of Columbia

You might notice that the top six states share a common factor: no personal income tax. Somehow, I doubt that this list will make its way to any of the Democratic leadership in Sacramento. At least, California does not have the worst business environment of the 50 states and the District of Columbia.

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Steinberg to Propose Local Income Taxes

Posted on April 25, 2011 by Russ

Democrats in California’s legislature are looking for ways to balance the budget. If you or I were spending $28 billion more than we were taking in, we would cut spending. But that’s not how Democrats in Sacramento approach the problem.

Instead, State Senator Darrell Steinberg wants to allow local school districts to impose income taxes in California. On the bright side, if such legislation were to pass California would likely end up with the top rating…as the worst business environment in the country.

Perhaps Senator Steinberg should look at an op-ed written by the president of CKE Restaurants, Andrew Puzder. Mr. Puzder asks how California can add jobs, and notes that cutting regulations, taming lawyers, and reducing the tax burden are essential. “We have some of the highest tax rates in the nation for businesses and personal incomes.” I doubt Mr. Puzder would say that adding local income taxes would help California businesses.

Luckily, it appears that Republicans in the state legislature are holding firm on their pledge for no new taxes. It’s likely that this, and the proposed tax on soft drinks, will both fizz out.

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Pound Wise, Penny Foolish

Posted on April 21, 2011 by Russ

Robert Flach states this morning that using certified mail, return receipt requested, when mailing tax returns to tax agencies is a waste of time and money.

But the extra you spend to get a return receipt is a total waste of money. It means absolutely nothing – only that the IRS received an envelope from you that was postmarked on April 18th. It doesn’t hurt to do this (except your wallet) – but it really doesn’t help either.

Mr. Flach tells the story of an individual who mailed empty envelopes to his tax agencies every year on April 15th just so something ended up at the agencies. I’m sure that Mr. Flach agrees with me about the Bozo quality of that strategy.

But I strongly disagree with Mr. Flach’s contention that you should not use certified mail, return receipt requested. I have had four clients directly impacted by this. The first individual had his estimated tax payment end up with the fishes. He had mailed his estimated tax payment to PO Box 510000 in San Francisco back in September 2005; as a result of a traffic accident his payment (and thousands of others) ended up in San Francisco Bay instead of the US Treasury. My client had no problem making his replacement payment considered timely when he showed his certified mail receipt. (The IRS did later develop a procedure for anyone impacted by this accident.)

My second client had his tax return “eaten” by the US Postal Service. He mailed it certified mail, return receipt requested, and it apparently looked liked confetti when it arrived at the IRS. The envelope, or what was left of it, showed up in late May. My client was able to resend his return, check, and a copy of his certified mail receipt, and the IRS considered the return and payment timely.

My third client filed electronically on October 15th (he had filed an extension), but his return was rejected. He then mailed his return to the IRS, with proof of the rejection, and used certified mail, return receipt requested. The IRS then attempted to impose the late filing penalty (claiming that the return was filed after the deadline for rejected e-filed returns). After sending the IRS a copy of the certified mail receipt, the IRS rescinded that penalty.

Unfortunately, my fourth client fell on to the Bozo side of things. He did not use certified mail, return receipt requested, and his tax return to a state tax agency vanished. As I note in one of my Bozo Tax Tips, he did save $2.42. He also paid over $1000 in penalties.

Yes, I’m sure that people use the Bozo strategy that Mr. Flach mentioned. But for the honest taxpayers (hopefully, all of us), not using certified mail, return receipt requested, when communicating with a tax agency is just Bozo.

Posted in IRS, Taxable Talk | 2 Comments

Roni Deutch In More Trouble

Posted on April 21, 2011 by Russ

California’s Attorney General would like to see “Tax Lady” Roni Deutch in prison. Yesterday, California Attorney General Kamala Harris asked a Sacramento court to send Ms. Deutch to prison for contempt. Why? Because Ms. Deutch and her law firm are accused of shredding 2.7 million pages of documents related to a case filed against her firm by the State of California.

Instead, it appears that the court has put a receiver in charge of her business and frozen her assets. Ms. Deutch will face a contempt charge in a hearing now scheduled for July 22nd.

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Apparently Much Faster than Neteller

Posted on April 20, 2011 by Russ

The one question I have been asked many times by my clients with money held up because of the Department of Justice’s action against online poker sites is, “When will I get my money back?” The answer appears to be sooner rather than later.

This morning, the Department of Justice announced that the DOJ has entered into agreements with PokerStars and Full Tilt Poker so that the domains that the DOJ seized will be allowed to be used by the sites so that player funds can be refunded.

The agreements allow for PokerStars and Full Tilt Poker to use the pokerstars.com and fulltiltpoker.com domain names to facilitate the withdrawal of U.S. players’ funds held in account with the companies. The deposit of funds by U.S. players is expressly prohibited. In addition, the agreements do not prohibit, and, in fact, expressly allow for, PokerStars and Full Tilt Poker to provide for, and facilitate, players outside of the United States to engage in playing online poker for real money. The agreements also require the appointment of an independent Monitor to verify PokerStars’ and Full Tilt Poker’s compliance with the agreements. The Government stands to enter the same agreement with Absolute Poker if it so chooses.

As expected, the agreement parallels that of the Neteller fiasco. The one major plus for players is that it took Neteller several months to reach that agreement with the DOJ; in this case, it took several days.

Additionally, like the Neteller agreement there’s an independent monitor. Clearly, the monitor will make sure that PokerStars and Full Tilt abide by the agreement. Additionally, while there is no mention in the press release of the DOJ getting a list of who is being paid, it is certainly possible the DOJ required such a list and that such a list will make its way to the IRS. We’ll likely not know unless (or until) audits begin.

There are still several unanswered questions. Unlike with Neteller (which was a payment processor), PokerStars and Full Tilt Poker must still get the money to Americans. Using payment processors is out (unless the DOJ suddenly changes its stripes). I am guessing that the two poker sites will contract with a European payment processor and cut checks and mail them to all impacted individuals.

As for Isai Scheinberg of PokerStars and Raymond Bitar of Full Tilt Poker ever standing trial in the US, the odds are about as good as it snowing in Irvine today. As the DOJ acknowledges in today’s press release, there is nothing illegal about PokerStars and Full Tilt Poker offering online poker for real money in other areas of the world. This likely makes extradition to the US very difficult.

So after a black Friday, a relatively pleasant Wednesday morning for online poker players in the US. Unfortunately, the DOJ has made quite clear that they believe that online poker is illegal, and continuing to offer real money games to Americans is a very bad idea.

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We’re Almost Back

Posted on April 19, 2011 by Russ

With the emphasis on “almost,” Aaron and I plan on being back in the office on Wednesday. We’re enjoying the beautiful weather in Irvine and Bethesda today, and a lot of much needed sleep. If you’ve contacted our office today, you will get voice mail. We’ll be in the rest of this week but only for minimal hours. We’ll be back on a normal schedule next Monday, April 25th.

If you like 72 F and a few wispy clouds, I recommend a late day in April in Irvine….

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DOJ Indicts Major Online Poker Sites

Posted on April 15, 2011 by Russ

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.

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