Accountants are people who tend to get excited about boring things. It sounds a bit scary, but ask a CPA something about the latest tax-law changes and watch what happens. Her 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 put you in big trouble with the IRS). Here is the latest I have heard.
Players have asked me about their offshore gaming accounts. We all have 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 NETELLER, NETELLER-type operations most likely will refuse to hand it over, since the U.S. government has no jurisdiction over them. Keep in mind, some of these accounts are not used just for gambling. They also are used to buy merchandise. It wouldn't be time- nor cost-effective for the government to try to monitor sites such as PayPal and NETELLER, even if it could.
Now, could the IRS look at your bank statements, where the money was transferred in and out of NETELLER?
Absolutely,
if you are being audited. The first thing the IRS will request is copies of your bank statements. From those, it 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 very good explanation ready.
So, your money is sitting out there somewhere offshore. If you transfer it into your account in the U.S., 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. A player then gets the money out of the account by purchases he makes every day with his debit card. No statements are mailed out; just go online and check your balance. Sound 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 U.S., and therefore under IRS jurisdiction. When the IRS has not been able to identify the owner of a 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 underreport 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 account data. I recently e-mailed PayPal to find out about this summons. The response I got 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 U.S. 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.
Ann-Margaret Johnston is a practicing CPA in Cumming, Georgia. She is the author of the recently published book, How to Turn Your Poker Playing Into a Business. Her website iswww.pokerdeductions.com, where you can find answers to commonly asked poker tax questions.
