Cache Your Chips
Q: I've won a hefty amount betting on sports through an online casino, which is based outside the U.S. Now I'd like to collect my winnings and, Honest Joe that I am, report them on next year's taxes. But will doing so land me in hot water? Online gambling seems to be in some sort of legal gray area.
Not according to New York law, which forbids placing sports bets online. State Attorney General Eliot Spitzer is a particularly vocal opponent of Internet gambling, which he derides as "pernicious" and "illegal," regardless of whether the casinos in question are based in Curaçao or Belize. Still, the most recent government crusades against online wagering have tended to ignore small fry such as yourself. Go ahead and claim your cash, and pray that the Internal Revenue Service doesn't turn you into a test case.
No offense, but you're probably not worth the effort. Online casinos will earn roughly $4 billion this year, which means that millions of usersprimarily Americansare logging on to take the Jets plus-3 over whomever. Pursuing even a fraction of those scofflaws would be a logistical nightmare for prosecutors, who've got more pressing mattersyou know, murder, corporate fraud, that sort of thingto attend to.
That doesn't mean that the offshore casinos aren't getting hassled. Federal and state officials have been going after Internet gambling operations ever since the first few opened their cyber-doors back in 1995. Because these casinos operate outside U.S. territory, they're not subject to American gaming laws, which are among the Western world's most puritanical. New York, for example, lets you bet on the ponies, buy a lottery ticket, or play blackjack on Indian reservations, but you need to go underground if you want to wager a tenner on the Oscars. Contrast that to the United Kingdom, where punters can mosey on down to the corner betting shop and put five quid on the exact day Madonna will split from Guy Ritchie.
Internet gambling's wild success really rankles authorities, who argue that placing bets via modems violates the 1961 Federal Interstate Wireline Act, which outlawed over-the-phone wagering. Their revenge has been to make it as difficult as possible for potential bettors to join the action. Spitzer, for example, has pressed major credit-card issuers like Citibank to block payments to online casinos. He also investigated PayPal, the Internet payment service, on suspicion of abetting illegal gambling; PayPal eventually agreed to sever its ties with gaming sites and pay the state $200,000.
The most popular way around these roadblocks has been for bettors to simply wire cash into a foreign bank account. Losses are automatically deducted from the accounts, and winnings automatically added. Since all financial transactions are going through an overseas-based third party, the bookmakers avoid U.S. jurisdiction. Which means they'll never have to worry about FBI agents invading their Caribbean enclaves.
This will be a tough loophole to close. The Christian Coalition talked up a ban during its recent "Road to Victory" legislative conference, and the U.S. House just passed a billthe Leach-LaFalce Internet Gambling Enforcement Actthat would ostensibly make it tougher for offshore casinos to receive wire transfers. Given the feds' woeful track record of stopping illicit drug proceeds from flowing out of the country, skepticism over Leach-LaFalce abounds.
So, will a frustrated government go after you instead? Spitzer's office didn't respond to a request for comment, but Mr. Roboto was able to catch up with David Carruthers, CEO of BETonSPORTS.com, an online gaming giant with outposts in Costa Rica, Antigua, and the U.K. "I personally know of not one individual who has been prosecuted for reporting their winnings," he says with utmost confidence. "The possibility of it happening is very, very, very remote. . . . It would be politically dangerous for any attorney general to attempt such a prosecution."
Never say never, of course. Mr. Roboto's willing to give you 300,000-to-1 odds that if you fill out your 1040 honestly, you'll never spend a night in jail. And if you do, how about double or nothing on the Knicks' reaching the playoffs?
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