If you like to gamble, you probably already know that your gambling winnings are considered income, especially if you gamble within the United States at the casinos located here. But what about if you’re sitting in your living room, playing poker online? You may be reporting the income (and if you’re not, you should be), but did you know that there is an additional requirement if you maintain an account offshore with your gambling website?
Regardless of whether internet gambling is legal, illegal, or whatever – rules can vary from state to state – if the gambling site which you are playing on is located offshore, you may have reporting issues you are unaware of. The vast majority of internet and online gambling sites are located outside of the United States, and as such are considered to be foreign accounts. But if you are a U.S. citizen, or lawful permanent resident, you are required to annually report to the IRS any account you are holding offshore in which the aggregate balance of the accounts exceeds $10,000. And the penalties for failing to report those accounts are very harsh. This was highlighted recently in a court case, where the court granted summary judgment to the IRS for an internet gambler who failed to report his accounts (U.S. A vs. John C. Hom, 2014-1 USTC ¶50,307, June 4, 2014).
The FBAR (Report of Foreign Bank and Financial Accounts) report, FinCEN Form 114, is required to be filed by June 30 of the calendar year for most individuals. It is filed separately from your federal tax return. Internet gambling accounts which are based offshore are considered to be “foreign financial institutions” that must be reported to the Department of the Treasury. Failing to report these accounts can result in penalties of a minimum of $10,000 per account, up to 50% of the highest account balance, in addition to subjecting you to criminal prosecutions. In Mr. Hom’s case, the IRS assessed $30,000 in penalties on the 3 overseas accounts he had failed to report. You may also be required to file Form 8938, Statement of Specified Foreign Financial Assets, with your tax return, depending on the balance of the account(s). This form, while having similar requirements to the FBAR, has a different set of guidelines for filing. Here is a link that shows a comparison of Form 8938 and FBAR.
For more information on FBAR reporting, visit this website.
For information on the filing requirements of Form 8938, visit the IRS website.