Neteller, the DOJ, and the IRS

[MrX]

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Well considering taxes, I don't mind paying extra tax in Canada to get free health care.

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Nice free health care when buses of Canadians cross the border with cash in hand to pay for studies they have to wait months for in Canada (if they can ever even get it). MRI's are a great example.

[Troll_Inc]

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4. Anyone with a "large" amount of Neteller withdrawals without gambling income (large will probably mean six figures) will likely face an audit.

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A few years ago, I was involved with a non-profit and I cashed (into a 501c3 nonprofit bank account) just a $3,000 check. The problem was that the company who wrote the check attached my person SS# to the check.

Long story short, I was audited personally by the IRS.

The only way this was possible.

Company gave the IRS the info that they gave me (my SS#) a check for $3,000. (Note: I never cashed this check personally into my personal bank account!)

The IRS then cross checked it to my personal tax filing and saw that I didn't report this income..and believe me I had the most boring tax filing possible.

If Neteller has both your SS# and info that they sent you money, it will be very very easy for the IRS to track you down.

[matt holland]

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3. But I think a few individuals will face criminal prosecution; one or two for not reporting a foreign bank account (and, yes, if you received $10,000 from Neteller, you had a reportable foreign bank account; there was a thread on that last year), and one or two for not reporting large gambling income.

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Last year I declared my gambling winnings. I will again this year. If I never had >$10,000 in Neteller, but my lifetime poker earnings are ~$20,000, am I supposed to declare my Neteller foreign bank account? If yes, do I declare it in the same way I would if I had at any point in time had >$10,000 in Neteller. This is the first time I have seen it phrased as, "if you received $10,000 from Neteller." I did receive greater than $10,000 from Neteller, but I never had greater than $10,000 in my Neteller account.

Somewhere else, possibly in this thread or one of the many recent Neteller-tax threads I copy-pasted this,
"If you have a foreign bank account, and have $10,000 or more in a foreign bank account(s) at any one time, you are required to file Form TD F 90-22.1 by June 30th of the following year with the Department of the Treasury and check the box at the bottom of Schedule B."

That seems to contradict the if you have received definition above. Could anybody clarify this or point me towards some further information on it. If the definition is indeed received then it just means I would be following that above quoted advice right?

Thanks for any feedback.

[Catt]

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If I never had >$10,000 in Neteller, but my lifetime poker earnings are ~$20,000, am I supposed to declare my Neteller foreign bank account? If yes, do I declare it in the same way I would if I had at any point in time had >$10,000 in Neteller. This is the first time I have seen it phrased as, "if you received $10,000 from Neteller." I did receive greater than $10,000 from Neteller, but I never had greater than $10,000 in my Neteller account.

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I'll defer to Russ if he comes back into this thread (and I'm not an accountant or a tax attorney), but its easy to put too much weight on the words we're all using to describe things informally here (or in the blog posting that sounds like a client alert sort of marketing material). The Treasury's position is that the Form TDF 90.22.1 is required whenever " . . . a United States person . . . has a financial interest in or signature authority, or other authority over any financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year." The Treasury goes on to define "Financial Account" as generally including "any bank, securities, securities derivatives or other financial instruments accounts. [. . .] The term also means any savings, demand, checking, deposit, time deposit, or any other account maintained with a financial institution or other person engaged in the business of a financial institution." Once again I am no expert, but it seems to me that a conservative approach would be to determine whether you think your poker accounts and/or Neteller accounts are "financial accounts" within the meaning of the term in the Treasury's view (I think Neteller is a no-brainer and I believe Russ Fox and other accountants and tax professionals hold the same view), and determine whether you ever had more than $10K in the aggregate in the accounts that are "financial accounts."

I declared and paid taxes on all my poker income and took a very conservative approach with respect to the TDF 90.22.1 filing, listing Neteller and all my foreign poker accounts as "foreign financial accounts" on the Form 90.22.1 -- what do I expect for my trouble? Well, I actually expect to get at least a letter audit if not a more full-blown audit, simply because of the filing of the 90.22.1. If I hadn't filed a 90.22.1 would I be more worried? Not appreciably, though I'd be a bit dismayed that there are rumors that Neteller may be turning over some records relating to US members. If I had not declared my poker income on my tax return (and not filed a 90.22.1 but had numerous withdrawals from Neteller)? I'd be concerned, and I'd probably consult a CPA with some expertise in reporting gambling income; if I didn't do that, I'd try and file an amendment to my return and pay taxes and interest. Failing all that, I'd still count my most realistic serious downside (though not the most serious conceivably possible) as getting a letter or more invasive audit and owing taxes, interest and penalties. I really wouldn't worry too much about criminal penalties unless I made very large sums of money and/or showed a pattern that might be perceived as deliberate and conscious obscuring of potential income sources.

YMMV and there is lots of missing information out there -- but at the very least if you're concerned about your personal circumstances don't rely on advice like "it's not income if the IRS doesn't know about it" or "it's not income unless I withdraw it" or "I have no income becuase I lost an awful lot at the track or in live play even though I don't have any real documentation for it."

BTW -- HERE is a link to the IRS form related to foreign financial accounts -- the instructions follow the form (and while the instructions aren't conclusively binding -- i.e., you could attack the IRS' view as to what it is empowered to do or require -- the instructions do represent the Treasury Department's position on legal requirements and you should not expect an IRS auditor or any supervisor to react to your arguments with a "by golly, you're right that it doesn't make much sense; never mind.") Obligatory disclaimer: this post is not intended as legal, tax, or financial advice; it represents my personal thoughts and opinions. You should consult a professional regarding questions regarding your tax or other legal concerns.

[Russ Fox]

Last year the issue of whether or not Neteller is considered a foreign bank account appeared. My standard saying to people is, if it looks like a duck, quacks like a duck, and walks like a duck, it's a duck. Neteller looks like a foreign financial institution (it's in the Isle of Man), it acts like a foreign financial institution (it offers credit/debit cards), and it's regulated like a foreign financial institution (and it is); it is a foreign financial institution.

From a post last year:

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There was a post in the zoo ( REDRAIN's post ) where someone received correspondance from the IRS stating that Neteller accounts did not have to be reported on Schedule B or using Form TD F 90-22.1. That didn't sound correct to me, and I corresponded both locally with the IRS and with the FBAR group. They responded today:

"I stated that the initial response given on March 30th was based on incomplete information. I have since learned that Neteller is more than a fund transfer system. Neteller is a bank, regulated by UK banking authorities, providing a wide range of financial services for the poker accounts.

Therefore, Treasury has determined these accounts should be reported on form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR)." Note that foreign bank accounts must also be reported on Schedule B of Form 1040.

Given that the penalties for not reporting a foreign bank account are quite large (the minimum penalty is $25,000) and can include jail time, I urge anyone who has a foreign bank account to bite the bullet and report it. Yes, you'll almost certainly be audited but an audit is much better than hard prison time.

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Hopefully, this will put an end to the legal question on whether Neteller accounts have to be reported.

-- Russ Fox
co-author, "Why You Lose at Poker"

[fleece_me]

Russ, can I ask on what set of facts, or what your expertise is that would you lead you to state this conclusion:

"Yes, you'll almost certainly be audited but an audit is much better than hard prison time."

In your experience, does everyone that files the foreign bank account form get audited?

Also, when Paypal paid the big fine to the DOJ, there wasn't one person that reported being audited over gambling income not declared in Paypal. I am not saying you are wrong, but you are clearly speculating, yet speaking from a position of authority which gives you more credibility than you might deserve since you are speculating.

[gonebroke2]

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-- Russ Fox
co-author, "Why You Lose at Poker"

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I hope your tax advice is better than your poker game. I saw you play on Live at the Bike a few times and no offense, but you are a donkey. Check the archives for confirmation. Not sure if you should be giving out tax advice regarding gambling because you probably never booked a profit.

[Synergistic Explosions]

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Just remember the state laws vary on this. I live in a state that taxes winnings but doesn't allow deductions for losses. This makes the definition of a "session" very important.

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This state should legalize as much gambling as possible. They'd have every gamblers entire net worth before to long.

Nice!

[JohnGalt69]

So what can I do now if I didn't know about the foreign account thing? Can I amend my tax return for past years to include that? Is that going to guarantee an audit?

[chaz64]

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So what can I do now if I didn't know about the foreign account thing? Can I amend my tax return for past years to include that? Is that going to guarantee an audit?

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If you paid taxes on your winnings why go back and amend the return to report the account? It's not like you owe them any money. If you had over 10K just report it this year. If they ever ask about previous years tell them the truth - you did not know about the requirement until this year. If you don't owe them anything they have no good reason to assess penalties.

Of course I am now trying to be logical while discussing a beaurocracy... [img]/images/graemlins/tongue.gif[/img]

BTW John I assume you are an Ayn Rand fan? This fiasco is especially painful to libertarian types (like me).