FBAR Required for Many U.S. Online Poker Players
The U.S. Bank Secrecy Act generally requires U.S. persons holding any financial interest in financial accounts in a foreign country to report these accounts to the government. The report, popularly known as the FBAR (Foreign Bank Account Reporting), is made on Form TD F 90.221 and is filed with the Treasury Department in Detroit, MI; also, a taxpayer’s interest in such financial accounts must be indicated on Schedule B of his/her tax return.
The bottom line rule:
If the total maximum balances of all foreign bank accounts of a U.S. person during the tax year exceed $10,000, then that person must file the FBAR by June 30 of the following tax year.
A “U.S. person” includes citizens and residents of the United States, or persons in or doing business in the United States. Besides the provided instructions on the FBAR form, there is little official guidance with respect to FBAR reporting. What we do know:
- The U.S. Treasury has said deposits with offshore (non-U.S.) online casinos ARE considered interests in foreign financial accounts; and
- Penalties for failure to file the FBAR are severe.
Back to the FBAR requirement threshold. To fully understand the rule, an example is necessary. Suppose in 2010 all of your online poker play was on PokerStars and Full Tilt. The maximum balance in your PokerStars account was $8,000 on June 2nd, and the maximum balance in your Full Tilt account was $3,000 on January 22nd. Because the total maximum balances of these accounts from the year exceed $10,000, you must file the FBAR by June 30, 2011, and report these accounts on Schedule B of your tax return.
As you can see, you don’t have to be a big money online poker player to be subject to FBAR reporting. The purpose of the FBAR is to help the feds identify taxpayers using foreign financial accounts for illicit purposes or generating unreported income abroad. The FBAR is not filed with the tax return, and does not impose additional tax.
The severity of FBAR penalties has baffled tax practitioners since institution of the reporting requirement. There are both civil and criminal penalties. The penalty for a willful violation of FBAR requirements is equal to the greater of (i) $100,000 or (ii) 50% of the balance in the account in question at the time of the violation. The penalty for non-willful violations is $10,000. These penalties are for each violation. So, for example, if you don’t file an FBAR for three consecutive years and get caught, three separate penalties can be imposed. For an organized compilation of all FBAR-related penalties, check out this chart.
If you have a lot of money sitting in PokerStars or Full Tilt accounts, it’s advisable to submit the FBAR before the feds find out. If the feds find out about you first, it’s far more likely you’ll be subject to the willful violation, a minimum $100,000 penalty. That six figure number is not a typo.
Not surprisingly, there’s also a five year recordkeeping requirement:
- Name maintained on each account;
- Number or other designation of the account;
- Name and address of the foreign bank or other person with whom the account is maintained;
- Type of account; and
- Maximum value of each account during the reporting period.
Currently, practitioners and taxpayers are strongly advocating the implementation of a Voluntary Disclosure program that offers reduced (or completely abated) penalties for non-filers who come forward and disclose their interests in foreign financial accounts. If and/or when such a program is enacted is anybody’s guess.
If you believe you are subject to the FBAR rules, I strongly recommend consulting a tax professional to discuss your particular situation.