Online poker accounts not subject to FBAR reporting.

• Author: Beavers, James A.
• Position: Foreign bank account reporting

The Ninth Circuit held that a taxpayer's accounts with two foreign-based online poker sites were not bank accounts that a taxpayer must report on an FBAR (FinCEN Form 114, Report of Foreign Bank and Financial Accounts).

Background

John Horn gambled online through internet accounts with PokerStars.com and PartyPoker.com and used an account at RrePay.com, an online financial organization that received, held, and paid funds on behalf of its customers, to fund the other two accounts. At some points in both 2006 and 2007, the aggregate amount of funds in his FirePay, PokerStars, and PartyPoker accounts exceeded $10,000 in U.S. currency.

Under 31 U.S.C. Section 5314 and 31 C.F.R. Section 103.24, a person must file an FBAR if the person had an interest in, or signature or other authority over, foreign financial accounts, the aggregate value of which exceeded 510,000 at any time during a year. After conducting an FBAR examination of Hom for 2006 and 2007, the IRS assessed penalties against him for failing to file FBARs for his interest in his FirePay, PokerStars, and PartyPoker accounts for 2006 and a penalty for failing to file an FBAR for the PokerStars account for 2007. When Horn failed to pay the penalties, the IRS filed suit against him in district court.

The IRS claimed that FirePay, PokerStars, and PartyPoker were all financial institutions because they functioned as commercial banks. The district court agreed, noting Horn opened accounts with all three entities, controlled access to the accounts, deposited money into the accounts, withdrew or transferred money from the accounts to other entities at will, and could carry a balance on the accounts. The court further found that because all three entities were licensed and regulated in foreign countries, they were foreign financial institutions. Consequently, the court held that Hom's online accounts with them were reportable (Hom, 45 F. Supp. 3d 175 (N.D. Cal. 2014)). Hom appealed the district court's decision to the Ninth Circuit.

Ninth Circuit's Decision

The Ninth Circuit affirmed the district court's decision with respect to the FirePay account because FirePay qualified as a foreign financial institution. However, it reversed the decision with respect to the PokerStars and PartyPoker accounts, finding that they did not fall within the definition of a bank, securities, or other financial account under 31 C.F.R. Section 103.24.

The court determined that Horn's FirePay account fit within the...