United States v. Hom
2014 U.S. Dist. LEXIS 77489, 45 F. Supp. 3d 1175, 2014 WL 2527177 (2014)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Online accounts with foreign-based companies that hold and disburse funds on a customer's behalf are considered 'foreign financial accounts' under the Bank Secrecy Act. The location of such an account is determined by where the financial institution is domiciled, not the geographic location of the underlying funds.
Facts:
- During 2006 and 2007, John Horn gambled online using accounts with PokerStars.com and PartyPoker.com.
- Horn used an account with FirePay.com, an online financial organization, to fund his gambling accounts.
- FirePay was located in the United Kingdom, PokerStars was licensed and regulated by the government of the Isle of Man, and PartyPoker was headquartered in Gibraltar.
- Horn also transferred funds from his domestic Wells Fargo bank account to his online poker accounts via services like Western Union.
- At various points in both 2006 and 2007, the aggregate amount of funds in Horn's FirePay, PokerStars, and PartyPoker accounts exceeded $10,000.
- Horn did not file the required Foreign Bank and Financial Accounts Reports (FBARs) for 2006 and 2007 by their respective deadlines.
- When Horn belatedly filed his 2006 FBAR in 2010, he did not include his FirePay account.
Procedural Posture:
- The Internal Revenue Service (IRS) conducted a Foreign Bank and Financial Accounts Report (FBAR) examination of John Horn for the 2006 and 2007 tax years.
- On September 20, 2011, the IRS assessed civil penalties against Horn totaling $40,000 for his non-willful failure to timely file FBARs.
- The United States government filed a civil action against John Horn in the U.S. District Court for the Northern District of California to collect the assessed penalties and interest.
- The government then moved for summary judgment.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Do online gambling and payment processor accounts held with foreign-based companies qualify as 'financial accounts in a foreign country' under the Bank Secrecy Act, thus triggering the requirement to file a Foreign Bank and Financial Accounts Report (FBAR)?
Opinions:
Majority - Alsup, J.
Yes. Online gambling and payment processor accounts with foreign-based companies qualify as 'financial accounts in a foreign country' subject to FBAR reporting requirements. The court reasoned that these companies 'functioned as a bank' because they held funds for third parties and disbursed them at their direction, fitting within the broad definition of a 'financial institution' under the Bank Secrecy Act. Furthermore, the court held that an account's location is determined by the location of its host institution, not where the physical money might be stored. Because PokerStars, PartyPoker, and FirePay were all located and regulated outside the United States, Horn's accounts with them were foreign accounts. The court afforded Chevron deference to the Treasury Department's interpretation on this point and rejected Horn's argument based on FBAR instructions, stating that such pamphlets do not have the force of law.
Analysis:
This decision clarifies that the Bank Secrecy Act's reporting requirements, designed for traditional banking, extend to modern forms of online finance, including internet gambling and payment processing accounts. It establishes a key precedent for determining the 'location' of a digital financial account, focusing on the institution's domicile rather than the transitory location of funds. This broad interpretation makes it significantly harder for individuals using foreign online financial services to evade FBAR reporting obligations, strengthening the government's ability to monitor funds held by U.S. persons in a wide array of foreign-based digital platforms.
