Internet gambling research paper

[thatguy11]

I'm writing a paper in law school for my Cyber Law Class and I was wondering if those of you who keep up with the news knew of a topic that is causing a legal stir within the internet gambling realm. Most students are jumping the p2p cases and I figured I'd combine work with pleasure. So far the cases I have seen involve credit cards completing transactions to gambling websites. Any help would be greatly appreciated.

[beset]

Look at the paypal stuff a while back.

Also, there was a wave of sanctions levied against magazines and radio stations that were playing ads for online sportsbooks. news.google.com should probably turn it up. Also, there was a thread on it in the affiliate forum (people were speculating how long it would be before an affiliate got charged with something).

beset

[Bob Ciaffone]

This is tax season. I am sure a lot of people would like to know if internet poker winnings have to be declared if they are left on the playing site, or transferred to Neteller, or put on a debit card, or whatever. Are such winnings that have not been cashed any different than a stock that has gone up in price but not sold?

[TruePoker CEO]

Yes, they are essentially different.

A stock which has not been sold still represents a capital investment in an enterprise at some point, regardless of whether it has gone up or down in value. (The investment is in an enterprise. The social purpose of delaying capital gains tax until disposition is to encourage capital investment.)

Poker winnings seem somehwat different in nature, they are liquid, cash equivalents and not an investment. They are "earnings" of the poker player/account, not an investment.

(If they were the same, would they be subject to being regulated as securities by the SEC ?)

(The closest analogy to "stock" could be if BobC Poker, Inc. sold pieces of its online poker playing business to third parties, then THOSE investments look like stock and their rise/fall in value would represent a capital gain. This raises an interesting regulatory angle for guys like the fellow on eBay who reportedly quite publicly sold off investment interests in his WSOP "project".)

(Literally, online gaming sites licensed in Antigua are/were regulated by that country's Financial Services regulatory arm.)

[grapabo]

[ QUOTE ]
This is tax season. I am sure a lot of people would like to know if internet poker winnings have to be declared if they are left on the playing site, or transferred to Neteller, or put on a debit card, or whatever. Are such winnings that have not been cashed any different than a stock that has gone up in price but not sold?

[/ QUOTE ]

This gets to the very heart of the definition of "income", which is defined in Eisner v. Macomber (http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us&vol=252&invol=189), a U.S. Supreme Court case that held that a stock dividend wasn't "income" within the ordinary meaning of the term.

[ QUOTE ]
'Income may be defined as the gain derived from capital, from labor, or from both combined,' provided it be understood to include profit gained through a sale or conversion of capital assets

[/ QUOTE ]

In order to constitute income, there has to be some taxable event, and in the context of online gaming, that could in theory be a) winning the hand, b) leaving the table, c) logging out of the site, d) cashing the money out of the site, or e) cashing the money out of Neteller. If there are decisions on this issue, my guess would be that it would be either b) or c), that attempts to use the methods d) and e) would fail, and the attempt by the government to impose method a) (with technology like pokertracker, it wouldn't be impossible) wouldn't be successful.

The Eisner decision talks extensively about the nature of a capital investment, and I think that a good argument can be made that until they are converted to money, poker chips might be similar enough to a capital investment to qualify.

[starvin-garvin]

Good luck on writing your papaer, and I just wanted to add that you could post it here on the forums when you're finished, I'm sure it'll be an interesting read.

[TruePoker CEO]

The case was from 1920, anything more recent .... as I think that dividends are taxable ?

[grapabo]

[ QUOTE ]
The case was from 1920, anything more recent .... as I think that dividends are taxable ?

[/ QUOTE ]

Cash dividends are taxable. The case here involved stock dividends, in which the company distributed more pieces of paper representing an interest in the company.

[Jesse Richman]

if the credit card case you're referring to is the 5th Circuit's decision in the Mastercard case, read it again, as it goes MUCH deeper.

[Trouthunter]

I think Sporting news is the company that recently got nailed for 11 million in fines for running ads for gaming sites. The US Attorney equated it to running ads for child porn and drug dealing IIRC. I think it came out of Missouri. I can scrounge up the article if you can't find it. Paypal also got nailed pretty heavily a while back as well.

[Gregatron]

I found this article about it:

http://stlouis.bizjournals.com/stlouis/stories/2006/01/16/daily48.html

No mention of comparing it to child porn (which is chilling if you are correct), and the fine was apparently only ~7m.

EDIT: I googled this: Attorney general missouri sporting news gambling advertisement

I did not want to google the term "child porn" for obvious reasons.

[TruePoker CEO]

Interesting analogy then ... but only in the sense that so long as you leave funds in a poker site, you are "investing". However, the argument fails because you are not "investing" in a social sense in any third party entity.

The extreme liquidity of your proceeds from playing also should make them "income". Any cases on brick & mortar casino chips or winning lottery tickets' value being non-r=taxable until realized or liquid ? (After all, a "cash dividend" does not mean literally a delivery of cash, rather a cash equivalent, such as a check .... If you do not cash/deposit the check, does that defer your taxes ?)

[Trouthunter]

http://www.revenews.com/bradwaller/archives/001363.html This is the link to the article that I read. You're right on the numbers. My mistake. Of course, this is the internet, so I'm not going to bet my bankroll on the accuracy of the quotes, but if this is true, to compare advertising for poker sites to advertising for child porn is vile and the attorney general involved should be ashamed. It sounds like election year grandstanding at the expense of victims of childhood sexual abuse.