Hi,

I won a half decent amount this last year and am planning on reporting the full amount. After doing some research, however, I noticed that the state that I live in, Louisiana, has an express prohibition on internet gambling (up to 6 months in prison or a $500 fine). There are, however, many riverboats here where legal gambling is allowed. What rights would I have under the 5th amendment to simply declare my winnings as "gambling income" without mentioning that it was specifically won on the internet?

It seems to me that while I have a legal obligation to report and pay taxes on my income I have no legal obligation to provide information to the authorities which incriminate me in illegal activity. I guess if I filed and wasn't audited this would never come up, but if I was audited and asked to provide details on the exact location I won my money in, what rights would I have to refuse to provide details? Could I provide details under the assumption that the information I provide would not be used to prosecute me under Louisiana gambling statutes?

Regards,
DHCPRogue

You don't have to write "online poker" anywhere on your tax return. Just call it "gambling winnings." Your gambling diary (the IRS term) will have to include sources. I'll leave it to others to discuss your rights regarding that if you're audited.

Is it the state law that makes your accountant concerned about writing off home office type expenses? (As discussed in the other thread.) That has some merit. It won't cause problems on your federal return, but has the potential to create questions if you were audited by the state. However I don't believe audits by states happen very often.

Regarding your specific concerns from this thread - As TE said, nothing on your return is going to specify internet gambling. If your return gets audited by the IRS they are going to be concerned with adequate documentation. If they are aware of the state law I believe they aren't allowed to report anything to the state indicating potential violations of any law except tax laws. They would also report any adjustments to your return based on the audit.

I don't believe anyone has actually been charged under that law in Louisiana, but can understand that you wouldn't want to be the test case. Maybe one of the tax or legal experts will have some advice for you in the event of a state audit.

Yeah, my accountant didn't specify why she was concerned about legality (i.e. whether it was state or federal) but I don't want to be the test case obviously. I mean I've read 30 million Americans play poker online, but most of those are either:

(A)Overall losers
(B)Overall small winners who don't declare because they figure their winnings are so small they would never fall under scrutiny
(C)Overall winners who don't declare because they figure they won't get caught

Out of the 30 million the number who are winners and declare is probably just around 10,000. Now, how many of those live in states with an express internet prohibition? Maybe 500 a year. So it seems to me we're probably talking about a pretty small pool of people and if you're in it you have a decent chance of being the "test case". My accountant was of the opinion that the test case would probably be a small fish like myself who can't fight back rather than a big name that can hire a fancy attorney.

Then again, I declared last year and nothing happened. But last year, I had a full time job where I made 3 times what I made gambling. This year my gambling winnings were about 6 times higher than my income from my other work.

Regards,
DHCPRogue

What did you put for occupation (for the gamblign winnings) on your state return last year?

I was a teacher last year which was legitimately true.

I'm probably worrying about nothing as Nevada has an express internet prohibition and there are a ton of big time pros living there who openly blog about their online play and nothing seems to happen to them. Then again, I haven't looked at the Nevada statute-the Louisiana one is certainly crystal clear though and in my view any of the following statements would incriminate me:

(A)That I am a professional gambler resident in Louisiana (an audit would reveal that my winnings were online rather than live as live casinos don't pay you in checks that have vague sounding origins).
(B)A daily game log.
(C)An attempt to deduct office expenses associated with being a professional gambler.

The mere fact that I won online would not incriminate me as there would be no proof that I won that money online while gambling in Louisiana. I did spend about two months this last year out of state.

I believe in paying my taxes and am going to. But in my view I am within my rights not revealing my daily game log. I don't believe this issue has been tested in court yet with specific reference to online poker, and I'm certainly not a lawyer, but I don't see why a 5th amendment claim would be totally without merit. The little bit of research I've done all dealt with cases where the taxpayer refused to declare income on 5th amendment grounds. I'm not advocating that. One of the cases I saw even said that the taxpayer had no 5th amendment claim because the IRS has the right to know the amount of the income, if not the exact source.

In any case, I don't feel like I would be shafting the government. I feel like the whole thing would be their own fault for not legalizing and regulating the industry like they should have a long time ago. The moment they do that, then I will be glad to share all my game logs with them, along with anything else they would like to have.

Regards,
DHCPRogue

I think I might be worried about civil forfeiture in your case. Would OP have any recourse in the event that his winnings forfeited to the state w/o any criminal suit? He'd have to prove they came from legal sources, which he won't be able to do?

I'd be way more worried about this than some stupid $500 fine

Right. To do that, they'd have to prove that I gambled in Louisiana. Unless I incriminate myself by giving them a daily game log or some such thing I just don't see how they could do that. As it is, they'd have no proof that I didn't win the money in an online tourney when I was traveling out of state. Because of the problems of getting the evidence against me, I don't see them bringing a civil forfeiture suit. That is, unless I hand them the evidence on a silver platter.

Regards,
DHCPRogue

While I understand the concern that OP has with filing his taxes it is highly unlikely he has anything to worry about. currently the state(s) don't seem to be trying enforce any criminal/civil forfeiture laws against individuals online poker players.

Ask yourself which is more likely to cause you trouble OP. Paying my taxes and having my state prosecute me for playing online poker, even though they have never done so to anyone else so I'm worried I'll be the test case (very unlikely). 2nd choice is you decide not to pay taxes but in this scenario we do know that some % of people who evade paying taxes are prosecuted. IMO your more likely to be prosecuted
for tax evasion then by your state for playing online poker.

Yeah, I do intend to pay my taxes and what you said is exactly the way I look at it. The chance that this will end up biting me is probably something like 0.0000001% and even if it did I'd have no problem dealing with the $500 fine, although the 6 month prison sentence would be pretty ugly and definitely not something I would want to deal with. The civil forfeiture would be pretty ugly too, but at least if this happened I would only have to deal with it once and I think I would just leave the country if that happened until onlike poker was legalized and regulated. At this point in my life, I'm not going to go get some rinky dink job making $25,000 a year when I know I can do much better playing poker.

Regards,
DHCPRogue

I remember reading a case law study that stated that the defendant could not claim 5th amendment privilage because he had not declared his "other income" as 5th amendment specifically. Simply right in 5th amendment on the line where you report your "other income" and then you can claim that right.

The State would be hard pressed to claim a right to civil forfeiture or civil/criminal prosecution without violating your civil and constitutional rights if they were using the info you provided on your Fed Return.


The State would have an obligaton to prove that they came by the information that they want to use to prosecute you by other means (unlikely) that did not involve the info you provided on your Fed return.

Just put the magic words in the right place on your Fed return and you should be golden against either Fed or State prosecution.

By the way my State does not provide any means for paying State taxes on monies won at any form of gambling not sanctioned by the State without exposing myself to incriminaton.

State sanctioned gaming licensee's provide paper documenting wins and losses and because my internet poker site is not licensed by the State to provide that paper I will not be declaring those winnings to the State. I will pay the Fed tax due but the State loses out at a time when they really need every dollar they can get!

This is interesting, but it would appear to be a problem here in that gambling income is treated differently than other types of income. For example, if a hobbyist has $50k winning sessions and $45k losing sessions, he must file $50k in Gambling Winnings and deduct $45k in Gambling Losses in order for the taxes to be calculated correctly. If he were to write $5k and "5th amendment", the tax amount would likely be different, which seems like it would be a problem.

As TheEngineer said, I think you would be much better off just filing it as "Gambling Winnings", as no further specification is needed for your tax return. If you did go on to get audited and were then in a situation where you didn't want to incriminate yourself by admitting to the felonious act of playing online poker, I would think that's where you could invoke your 5th amendment rights.

I am also not sure that your rationale for avoiding State taxes is sound. You're paying Fed taxes on your "undocumented" gambling winnings, but not State taxes? I am pretty sure individual gambling winnings are taxable in every state where "documented" gambling winnings are taxable, but I may be wrong. I also thought it was a big problem to have a Fed return that didn't match one's State return.

I am not suggesting that he not write in the correct dollar amounts on his Fed return. Only that he should be sure to include the words "5th Amendment" on the line where his "other income" is listed.

Attempting to invoke the 5th amendment after the fact is what the case law I referred to was all about. The fellow was determined to have already incriminated himself by not specifically declaring in writing on his return that the figures he had provided on that return were protected.

The Judge opined that had he simply written 5th amendment on the line where that income was declared he would have been golden.

Regarding the State tax issue. I had not considered the Fed and State return mismatch. Time for a consultation with my accountant.

Thanks

Thanks for this. I did some research on this and found the following on Wikipedia. Do any lawyers have any comment on the feasibility/advisability of this?:

In some cases, individuals may be legally required to file reports that call for information that may be used against them in criminal cases. In United States v. Sullivan, 274 U.S. 259 (1927), the United States Supreme Court ruled that a taxpayer could not invoke the Fifth Amendment's protections as the basis for refusing to file a required federal income tax return. The Court stated: "If the form of return provided called for answers that the defendant was privileged from making[,] he could have raised the objection in the return, but could not on that account refuse to make any return at all. We are not called on to decide what, if anything, he might have withheld."

In Garner v. United States, 424 U.S. 648 (1976) the defendant was convicted of crimes involving a conspiracy to "fix” sporting contests and to transmit illegal bets. During the trial the prosecutor introduced, as evidence, the taxpayer's Federal income tax returns for various years. In one return the taxpayer had showed his occupation to be “professional gambler.” In various returns the taxpayer had reported income from “gambling” or “wagering.” The prosecution used this to help contradict the taxpayer's argument that his involvement was innocent. The taxpayer tried unsuccessfully to keep the prosecutor from introducing the tax returns as evidence, arguing that since the taxpayer was legally required to report the illegal income on the returns, he was being compelled to be a witness against himself. The Supreme Court agreed that he was legally required to report the illegal income on the returns, but ruled that the privilege against self-incrimination still did not apply. The Court stated that "if a witness under compulsion to testify makes disclosures instead of claiming the privilege, the Government has not 'compelled' him to incriminate himself."

Sullivan and Garner are viewed by some legal scholars as standing, in tandem, for the proposition that on a required Federal income tax return a taxpayer would probably have to report the amount of the illegal income, but might validly claim the privilege by labeling the item "Fifth Amendment" (instead of "illegal gambling income," "illegal drug sales," etc.)

I would suggest caution, however, as any state with an anti-gambling law is probably more likely to set to trigger an audit for a self-employed gambler, no matter what the source.

To say nothing of this:

"Sullivan and Garner are viewed by some legal scholars as standing, in tandem, for the proposition that on a required Federal income tax return a taxpayer would probably have to report the amount of the illegal income, but might validly claim the privilege by labeling the item "Fifth Amendment" (instead of "illegal gambling income," "illegal drug sales," etc.)"

Russ or others- any thoughts on the likelihood of triggering an audit, using this method?