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IRS to Investigate Operators of Internet Gambling Businesses

I have to admit I recently fell victim, at least on this one occasion, to a Twitter-induced habit:  Reading the headline of a “breaking news” press release, and merely skimming the release itself.  Yep, I overlooked some juicy information in a “breaking news” press release from last week until earlier today.

A synopsis of the press release:

Last Monday, the U.S. Attorney’s Office for the District of Maryland unsealed two indictments charging two gambling businesses and three defendants with conducting an illegal gambling business and money laundering.  In addition, the domains of ten internet gambling sites were seized as part of a multiple U.S. government agency investigation.

I doubt anyone following the online gambling industry was surprised to learn of this news, considering the similar actions taken by the Department of Justice in the middle of April.  Earlier today, however, I found myself somewhat surprised after stumbling across this article, which mentions this portion of the press release:

“Internet gambling, along with other types of illegal e-commerce, is an area of great interest to IRS Criminal Investigation,” said IRS Special Agent in Charge Rebecca A. Sparkman. “Laundering money from illegal activity such as illegal internet gambling is a crime. Regardless of how the money changes hands – via cash, check, wire transfers or credit cards – and regardless of where the money is stored – in a United States financial institution or an offshore bank – we will trace the funds. IRS Criminal Investigation will vigorously investigate and recommend prosecution against the owners and operators of these illegal enterprises to the fullest extent possible.”

To my knowledge, this statement is the first public announcement revealing IRS involvement in this year’s series of indictments and seizures of internet gambling businesses.  It’s not that I’m surprised the IRS is involved.  It’s that I’m surprised this component to the press release hasn’t received much attention, if at all.

Some strong words delivered by the IRS Special Agent in Charge.  It remains to be seen whether this is merely a scare tactic or the so-called vigorous investigations are already underway.  A couple of points immediately come to mind suggesting the latter may be more likely: (1) Income earned pursuant to an illegal gambling operation is taxable income; and (2) The IRS has a marked history of aggressively pursuing U.S. taxpayers who earn substantial income abroad and don’t report it.

If the evidence isn’t strong enough to obtain convictions (or guilty pleas) for operating illegal gambling businesses, an alternative may be to pursue those indicted with charges of income tax evasion.  Sounds rather similar to the downfall of famous gangster Al Capone.

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