Do foreign students in the US have to pay taxes on poker winnings?

[nevadaJACK]

I am a Canadian on an F-1 visa in the USA.
I make more than a trivial amount in annual poker winnings.

I have read the US tax code VERY carefully, and I'm interpreting it to say that I do NOT owe taxes to the IRS on my winnings. I am sure there are dozens of others on these forums in my exact position and want to know what conclusion you've come to, and/or whether you've consulted with any professionals.

Here's the thing: the tax code makes very clear that nonresident aliens (what I file as) do NOT owe taxes to the IRS on income from foreign sources. Online poker sites are foreign sources. If it were that simple, then it's an open and shut case.

HOWEVER, there's a little twist:

The IRS publishes "sourcing guidelines" explaining just when income will be counsidered from a "foreign source." Only problem is that online gambling doesn't fit ANY of the categories: i) employment, ii) independent personal services, iii) royalties, iv) fellowship/scholarship.

I suppose that i) and ii) are closest-to-the-pin, but if that's the case, it appears that the source is determined by "where the service is performed." Well, where the hell is an online gambling service performed? Where the player is seated in front of his computer, or where the servers are located?

I approached the international student office at my college about this, and they're utterly clueless.
I'm sure other foreign students in the USA have contemplated this...what conclusions did you come to?

My position on this is that if I do owe taxes on my winnings, I want to pay them so as not to run afould of the IRS...but I sure as hell don't want to pay them if I don't legally owe them.

[Berge20]

Standard disclaimer - Talk to an appropriate tax attorney

I have not been in this situation, but I too would guess others here have. Just giving you my two cents off the top of my head.

It would surprise me greatly if the IRS considered your winnings "foreign source" income. While the corporation itself is in another country, your "work" was conducted on US soil.

That is a point that could be contested I suppose, but that's not a fun path.

*Repeat earlier disclaimer*

[MexKrax]

I'm in the exact same situation. I've done pretty much what you've done (read through the appropriate IRS tax guides online) and I came to the same conclusion as you did, that online poker winnings are "foreign source" income and therefore not subject to US taxes.

Interestingly, the IRS does specify that if you win money in parimutual horse betting at an overseas betting site the money is considered non-US source income even if the actual horse race is conducted in the US. I'm hoping the same principal applies to online poker.

[TheMetetron]

It is #2 (Independent Personal Services).

It is where you are located when you are playing. The only reason I know this is because I am able to take foreign-earned income for playing when I am outside of the USA, but not when I am in the USA. If it was where the site was located, I could do it all the time.

Again, get a tax attorney/accountant to be sure.

[PartyGirlUK]

I spoke to the IRS on the phone, they were actually really useful. I am from the UK, and as such my government has an agreement that all non permanent residents who are living in the US do NOT have to pay taxes on gambling winnings. However, there is a form they must fill out. IIRC the US had the same agreement with about 12 other countries.

[SumZero]

The UIGEA that just past goes out of the way to say you are gambling in the US if either the site is located in the US or the player is playing from the US (but not if the gambling packets just happen to be routed through the US).

I'd think if you were located in the US when the gambling occured you'd have to count it as US income.

[teddyFBI]

[ QUOTE ]
The UIGEA that just past goes out of the way to say you are gambling in the US if either the site is located in the US or the player is playing from the US (but not if the gambling packets just happen to be routed through the US).

I'd think if you were located in the US when the gambling occured you'd have to count it as US income.

[/ QUOTE ]

I'm not so sure that the UIGEA's language has anything to do with the IRS and their sourcing guidelines for foreign-source income.

I've often wondered this same thing, and I'm not so sure that it's "Independent Personal Services"...yes, that's without a doubt the closest category, that is >> if we were forced to pick one, that's clearly more relevant than the others, but it reminds me a bit of that family guy episode:

<font color="blue">
Lawyer Your Honor, Peter Griffin would like to take the stand.
Lawyer Which of the following two phrases best describes Brian Griffin?
Lawyer "Problem drinker" or "African-American haberdasher"?
Peter Griffin I guess "problem drinker." But that's...
Lawyer Thank you. "Sexual deviant" or "magic picture that you stare at till you see something"?
Peter Griffin "Sexual deviant," but that other one's... </font>

I guess another relevant question is just "how good" a case would one have to make to the IRS to avoid a particular intepretation being categorized as "tax evasion"?? Sure, while I think a foreign player could take an aggressive stance, and make an argument to the IRS, just how compelling does it have to be to make the IRS not pursue criminal actions??

[TheMetetron]

The IRS is rarely going to take criminal action in this case.

In reality, you can probably get away with it, especially if you are depositing to the bank in your home country in a non US Dollar account. In fact, they'd likely never know.

And if they do find out, it's most likely fines + interest, not anything criminal.

[Poker CPA]

Have you gone through the actual Canadian/US tax calculation? You may find it has very little tax effect?

Tax evasion? Criminal? NEVER

[TorontoCFE]

The US/Canada tax treaty means you don't have to worry about US tax as long as you plan on returning to Canada.