On September 20, 2011, the IRS assessed defendant with civil penalties under 31 U.S.C. 5321(a)(5) for his non-willful failure to submit FBARs, as required by 31 U.S.C. 5314, regarding his interest in his FirePay, PokerStars, and PartyPoker accounts. The IRS assessed a $30,000 penalty for 2006, which included a $10,000 penalty for each of the three accounts, and a $10,000 penalty for 2007 based solely on defendant's PokerStars account (Hendon Decl., Exh. 5, at 5). Interest and penalties continue to accrue until paid in full pursuant to 31 U.S.C. 3717.The two issues were: (1) whether the accounts with the three entities were "bank, securities or other financial account[s]" that must be reported on an FBAR; and (2) whether each of the three accounts was in a foreign country The Court answered both questions yes.
The Court's analysis of the first issue is probably most interesting for readers, so I quote in full:
The second element is whether defendant had a financial interest in, or authority over, a bank, securities, or other financial account in 2006 or 2007. Defendant does not contest in his opposition that he had a financial interest in his online FirePay, PokerStars, and PartyPoker accounts in 2006 and his online PokerStars account in 2007. Rather, defendant argues that those accounts are not a "bank or other financial accounts" for purposes of the applicable statute and regulations.
While our court of appeals has not yet answered what constitutes "other financial account[s]" under 31 C.F.R. 103.24, the Court of Appeals for the Fourth Circuit found that an account with a financial agency is a financial account under Section 5314. Clines, 958 F.2d at 582. Under Section 5312(a)(1), a "person acting for a person" as a "financial institution" or a person who is "acting in a similar way related to money" is considered a "financial agency." Section 5312(a)(2) lists 26 different types of entities that may qualify as a "financial institution." Based on the breadth of the definition, our court of appeals has held that "the term 'financial institution' is to be given a broad definition." United States v. Dela Espriella, 781 F.2d 1432, 1436 (9th Cir. 1986). The government claims that FirePay, PokerStars, and PartyPoker are all financial institutions because they function as "commercial bank[s]." Section 5312(a)(2)(B). The Fourth Circuit in Clines found that "[b]y holding funds for third parties and disbursing them at their direction, [the organization at issue] functioned as a bank [under Section 5314]." Clines, 958 F.2d at 582 (emphasis added).
So too here. Defendant admits that he opened up all three accounts in his name, controlled access to the accounts, deposited money into the accounts, withdrew or transferred money from the accounts to other entities at will, and could carry a balance on the accounts (Hom Dep. at 38, 40, 45-46, 110, 116). As FirePay, PokerStars, and PartyPoker functioned as banks, defendant's online accounts with them are reportable.
Defendant alternatively argues that his online accounts are not "other accounts" according to the current regulations. The current regulations define a reportable account as including "bank account[s] . . . [which means] a savings deposit, demand deposit, checking, or any other account maintained with a person engaged in the business of banking." 31 C.F.R. 1010.350. As explained above, FirePay, PokerStars, and PartyPoker function as institutions engaged in the business of banking. Accordingly, defendant's accounts are reportable even under the current regulations.Hom Represented Himself.
Hom, who apparently had resources for representation, chose to represent himself in the case. As noted in the quote above, the court apparently recognized that the issues were novel and important and perhaps not properly briefed from Hom's side. The court issued a general invitation for some attorney to brief the issues on a pro bono basis. No pro bone attorney came forward came forward, so the Court decided the case on the briefing it had from the U.S. and from Hom personally. The following is the Court's order seeking pro bono counsel.
Defendant John Hom is not indigent and therefore does not qualify for appointment of pro bono counsel with the Court’s federal pro bono project. This tax action, however, involves novel questions of law regarding the interpretation of the Bank Secrecy Act and related regulations. Accordingly, the Court seeks counsel to volunteer to represent defendant on a pro bono basis for the remainder of this action. Pro bono counsel will be allowed to re-brief the pending summary judgment motion, which is currently held under submission. In addition, a case management schedule has not yet been set.
If any counsel is willing to volunteer to represent defendant, please email the undersigned judge’s courtroom deputy, Dawn Toland, at firstname.lastname@example.org by JUNE 12, 2014.Scope of the Holding
The court based its holding upon a fair interpretation of the words of the statute. Of course, most of us would not think of an online poker company as being a financial institution or the like. But, certainly, it can be imagined that it could so operate. The Court applied the statutory construction iteration of the familiar duck test ("If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck,"). see Wikipedia, here),
Of course, online poker accounts are not marketed as the equivalent of financial accounts as we think of Swiss or other financial accounts where the main goal is the invest and protect assets (setting aside any tax avoidance goals). Rather, the online gambling accounts are there to facilitate gambling. But still, those accounts operated like financial accounts -- deposits, withdrawals, etc.
This raises a host of related questions. For example, when is an insurance policy issued by a foreign insurer a financial account? When is a lawyer's trust account in an offshore location a financial account?