Home > Gambling, IRS > Offshore Online Casino-U.S. Casino Partnerships Could Facilitate Online Gambling Tax Audits

Offshore Online Casino-U.S. Casino Partnerships Could Facilitate Online Gambling Tax Audits

I have been asked countless times the following question:  How can the IRS discover my gambling winnings from online poker?

As it stands, it’s not easy for the IRS to find out.  Either (1) you tell them on your tax return, (2) someone else tells them, or (3) you raise a flag by exhibiting a striking irreconcilability between your lavish lifestyle and your reported income.  With the increasing likelihood of federal legalization of online poker in the United States, however, the scope of risk of the second possibility, someone else telling them, may broaden exponentially.

As many of you know, the online pokerverse is abuzz following the announcement of a partnership between Wynn Resorts Ltd. and PokerStars late last week.  In short, here’s why:

“We are convinced that the lack of regulation of Internet gaming within the US must change,” said [Steve] Wynn, chief executive of Las Vegas casino company Wynn Resorts, in a statement. “We must recognize that this activity is occurring and that law enforcement does not have the tools to stop it.”

PokerStars and Wynn Resorts plan to work together to secure the passage of federal legislation that will regulate online poker in the U.S. with an eye toward setting up a joint venture, PokerStarsWynn.com, that will offer for-money online poker play in the U.S.

Other partnerships with similar intentions have also formed recently.  It’s clear that the movement towards federal Internet gaming legislation is getting closer to becoming a reality, and many online poker players are rightfully excited.  Yet, this same legislation will likely someday serve as a major buzzkill for many others.

If PokerStars, Full Tilt, or any other offshore online casino brings its operations to the U.S., then the IRS may be able to subpoena such entity for records of, among other things, consumer activity.  Alternatively, the IRS may enter into information sharing agreements with these entities, as part of the implementation of federal Internet gaming legislation.  Essentially, the avenues through which the IRS could learn of online poker activity could suddenly skyrocket.

It won’t take very long for IRS auditors to then ascertain which taxpayers have been and which have not been properly reporting their online gambling income (including past, present and future activity).  If you are among the latter group, I strongly advise you to consult a tax professional now to discuss your options.  Taxpayers are typically treated more favorably by a tax agency when they voluntarily disclose reporting errors, rather than being caught later.

Past activity, present activity, and future activity.
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