Tuesday, July 26, 2016

Ninth Circuit Rejects Argument that Offshore Gambling Accounts Are Banks for FBAR Purposes (6/26/16)

I previously blogged a district court holding that accounts related to online poker playing were FBAR reportable.  See United States v. Hom, 2014 U.S. Dist. LEXIS 77489 (N.D. CA 2014), here; and Court Holds Online Poker Accounts are FBAR Reportable (Federal Tax Crimes Blog 6/9/14), here.  Today, the Ninth Circuit affirmed the lower holding that one account -- the FirePay account -- was reportable, but reversed the lower court holding that the other two -- PokerStars and PartyPoker -- were not.  United States v. Hom, 2016 U.S. App. LEXIS 13269 (9th Cir. 2016), here.

In the Ninth Circuit, the issue turned  on whether the accounts were foreign financial accounts, which turned upon whether the organizations were financial institutions.  FirePay was a financial institution, the Ninth Circuit held, because it met the definition of money transmitter.  The other two were not money transmitters or otherwise financial institutions as defined.  The Ninth Circuit rejected the Government's argument that they should be treated as banks (a type of financial institution requiring an FBAR) because they functioned as banks, applying the plain meaning of the term bank to exclude these services.

Two caveats about the opinion.  First, the panel described it as nonprecedential under Ninth Circuit rules.  Second, the Government made an argument -- which the Court declined to consider because too late (see p. 4 fn. 1) -- that PokerStars and PartyPoker were casinos, another category of financial institution which, if foreign, requires FBARs for accounts.

With those caveats, this is a nice victory for the taxpayer and, while not precedential in the Ninth Circuit, does offer hope that others may avoid expansive definitions of foreign financial institutions requiring FBAR reporting.

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