I agree with you. i was merely expressing what's driving some to back this bill. Too bad we can't get lawmakers to vote our way by winning debates against them. That would be a lot easier.

My very extensive and long-winded "cliffs" so far, below.

Note: I find this bill to be extremely well written, with almost no ambiguity, and very well flushed out to cover everything it needs to cover in necessary detail. This bill is completely passable (unlike all prior bills that didn't really meet standards necessary for a modern robust bill). I don't mean that as a comment on whether or not current politics will allow this bill to pass, but just as a technical matter on the quality of the bill provisions.

If all you want to know is the general intent of the bill, then this summary of the Sense of Congress from the bill sums it up:

Here are specifics of the provisions I have read through so far. More to come.

Prohibition

Every form of gambling online that fits the definition of Class III gambling under the Indian Gaming Regulatory Act other than licensed horse race wagering, State or Tribal lottery ticket sales (has to be traditional lottery tickets, not scratch-offs, VLT games or such) and licensed online poker will be illegal in the US and punishable by fines, up to 10 years in prison or both.

Office of Online Poker Oversight [OOPO]

Not later than 180 days (6 months) after enactment, the Secretary of Commerce has to create the Office of Online Poker Oversight to:

1. Enact and oversee licensed and regulated online poker in the US.
2. Be a licensing and regulatory body for online poker.

Not later than 270 days (9 months) after enactment, the Secretary (or OOPO) has to publish regulations and standard for the licensing of online poker licensing and regulations for problem gaming (and these have to be equivalent to those adopted by the initial Qualified Bodies).

If the Secretary doesn’t meet that 270-day deadline, then these regulations and standards become the same as those adopted by the first Qualified Body.

Qualified Bodies

Not later than 150 days (5 months) after enactment, the Secretary has to publish in the Federal Register all the information necessary to submit an application to become a Qualified Body (State or Tribal agency authorized to license and regulate online poker).

State or Tribal agencies wishing to become a Benchmark Qualified Body must submit their application not later than 180 days (6 months) after enactment.

Not later than 270 days (9 months) after enactment, the Secretary (or OOPO) has to designate at least three Benchmark Qualified Bodies from those that applied by the 180-day deadline.

If the Secretary fails to designate three by the deadline, then by 300 days after enactment (10 months), the Secretary has to designate all qualified applicants who submitted an application not later than 270 days (9 months) after enactment as Benchmark Qualified Bodies.

Qualifications to become a Qualified Body must include reputation, experience, staffing, enforcement resources and “capabilities relevant to the online poker environment”; and includes consideration of years of regulatory experience, size of regulatory market, demonstrated capabilities, influence in the industry and experience working with Federal law enforcement and FinCen.

One year after appointment of the Benchmark Qualified Bodes, other State or Tribal agencies can apply to become a Qualified Body. They have to live up to the standards of the Benchmark Qualified Bodies to be accepted.

State or Tribal agencies cannot be accepted as a Benchmark Qualified Body or as a Qualified Body unless they:

1. Regulate at least 0.3 of total US gaming revenue (based on 2010 figures) for 3 out of the last 5 years.
2. Their State or Tribe has opted in.
3. None of the agency members has ties to owners of sites that haven’t yet been licensed or significant vendors that haven’t yet been found suitable, or to illegal gambling sites.

Site Licensing

Sites need one license from one Qualified Body to offer online poker to anyone located within any opt-in state or tribal lands.

Licensees can have separate operations outside the US for online poker and/or online gambling as long as there is no commingling of players, funds or records.

License applicants must agree to be subject to US courts as well as the courts of the State or Indian tribe where their Qualified Body is located.

The bill covers significant details of how a Qualified Body determines the suitability of the license applicant and their significant vendors.

A license application will be denied if any of these are true:

1. The applicant has been convicted of an offense subject to one year or more imprisonment.
2. Is delinquent in any Federal or State tax.
3. Took bets or wagers on sporting events in violation of State or Federal law (or affiliated with anyone who has done so).

The bill covers significant details of how a Qualified Body determines the suitably of significant vendors (service providers) of a license applicant, to receive a certificate of suitability as a vendor.

For the first two years after enactment, licenses can only be issued to someone who owns or controls (and has done so for the 180-day period prior to enactment), or is owned by or controlled by someone that who owns or controls (and has done so for the 180-day period prior to enactment):

1. Casinos, riverboats or race tracks that are licensed for 500 or more gambling machines (not including pari-mutuel horse wagering) in one facility.
2. Poker rooms licensed for 250 or more tables.
3. Race tracks that have conduct live thoroughbred horse races which involved at least $225M of wagers during at least 3 of the past 5 years before enactment.
4. Licensed manufacturers who supplied facilities in #1 above throughout the 180-day period prior to enactment.

After two years, the Secretary (or OOPO) may expand licensing to other entities in any manner that is consistent with preventing public risk, subject to public notice and comment.

Licenses are for 5-year terms.

The Secretary (or OOPO) will maintain a list of all currently licensed sites, available publicly on the Internet.

Safeguards Required

No one under the age of 21, to a “reasonable degree of certainty”, “including by the use of biometric or other technologies of materially equivalent reliability at the time of registration and all logons.”

Must be physically located in an opt-in jurisdiction, to a “reasonable degree of certainty”, “including by the use of Global Positioning System or other location technologies of materially equivalent reliability in combination with screening of Internet Protocol addresses or similar techniques at the time of registration and all log ons.”

And others for: collection of site taxes; reporting of licensee fees; against financial crimes; privacy of player information; fair and honest games (including no cheating, collusion or bots); segregation of player funds and “are otherwise protected from corporate insolvency, financial risk, or criminal or civil actions against the licensee.”

Site gaming equipment must be located inside the US. Qualified Bodies can require their licensees to locate the equipment within their State or Tribal Land.

If a license is revoked, the licensee must return player funds within 30 days.

Site Penalties

For each violation of the provisions by a licensee, the Secretary (or OOPO) or a Qualified Body can assess a penalty up to the greater of:

1. The amount involved in the violation.
2. $250K for an individual; $750K for a corporation.
3. Whatever is applicable under State or Tribal law.

For operating without a license, the Secretary (or OOPO can assess a penalty up to the greater of:

1. The total bets or wagers of the players during the period of operation while unlicensed.
2. $1m per day that players place bets or wagers.

Is the current tax treatment for gambling (requiring keeping journals of sessions etc) an IRS regulation or is it coded in the IRC?

I see some of your points but I have to disagree about the federal government having the right to get into the gambling business. There is no way that goes unchallenged and when it does it will not be a fast process. Too many people are against that and there is no precedent for it. In fact, there is the opposite.

I have seen quite a few gambling injunctions that stopped governments over the years while the courts heard cases. I don't think it is far fetched that this would not go into effect until all court challenges were settled. Why develop this knowing you may lose and have to close it?

The main problem to me on a federal bill is tribal gaming. Commercial casinos are not going to agree to allow tribes tax free online poker. The tribes are going to have to give in and pay the same as everyone else or it fails. I saw the tribal bill that basically was going to give the tribes a basic monopoly to operate tax free. That never even got a reading AFAIK. They are the wild card that everyone seems to be forgetting.

There are quite a few states where there is both commercial and tribal gaming but tribes are given special taxable games. That cannot happen here as there is only one game, poker. How do we solve it? Would we just expect many states like MN, CA, WA, SD, FL, CO, NM, IA, and MT to just not opt in?

You say that you have talked to tribes, care to comment where they stand and where the compromise lies? I am sure there is some room for compromise to pay taxes but I would imagine there would need to be an almost complete agreement.

As far as challenging laws like the Wire Act, nobody has ever had a reason to fight sports betting laws until now. IMO Delaware goofed when they simply defended themselves against the sports leagues on the Bradley Act as opposed to taking on the feds to force a ruling on the law. They thought they were exempted completely and were wrong (even though I must say I was shocked by that ruling and agreed with lower courts).

As I am sure you know, NJ is fighting the Bradley Act. I would bet a good chunk of my bankroll that NJ prevails, just as a state fighting some of the other gambling laws on the federal books would prevail. The other laws were agreed upon by states with similar gaming interests. States with no horse racing or sports betting do not care and have no reason to go fight laws that do not pertain to them.

One last thought, the tax rate in this bill is much lower than many states are used to getting from gaming. You and I know that poker does not equal slots but there are plenty of politicians that think otherwise. How are you going to convince high casino tax states like PA that this is in their best interest?

It will be an interesting fight. There really are so many variables in this even after a bill might pass.

This might be a stupid question (Most are that start with that statement)

Would there be any kind of penalty for botting? Could this be added if not? Is this something the governing body would come up with?

I can't clear up where you are wrong since I have raised most of these issues myself, but I can give you the counter arguments:

1) and 3): Both IGRA and PASPA are precedent laws in which Congress put limitations on what States (or sovereign tribes) could do with gambling, prohibiting new sports gambling for all States and prohibiting Tribes from all gambling unless gambling is allowed in their State and house banked (Class III) gambling unless they have a compact with their State.

That's not very reassuring though since most Constitutional and gambling law scholars maintain that both of those laws are unconstitutional.

Many believe that this bill has an advantage in that it seeks to prohibit gambling on an interstate commerce facility (the internet), which bring us back to 1) where the bill essentially declares poker a game of skill:

So they are telling the courts that they aren't regulating gambling so much as they will be regulating an interstate sport, citing the precedent by which congress justified the Interstate Horseracing Act.

2) Conservative States are surely more likely to opt-in to a Federal system than they would be to dare propose internet gambling on their own, and liberal states who have already proposed (Illinois) or passed internet gambling legislation (Delaware) have done so by way of a lottery based monopoly, one site with casino skins.

I don't think expediency is much of an argument in favor of this bill since any advantages in getting States to opt in will be washed away by the black-out/litigation period, but certainly a Federal commercial casino (competitive) market is more worth waiting for than for States to pool their one site lottery monopolies together - assuming they even bother, with no threat of pending Federal legislation, States might just stick to house banked gaming, bingo, keno, etc.

4) Add Illinois, Georgia, Minnesota and NY to that list, there will definitely be legal battles, but I believe in the end SCOTUS would side with Congress as they did with most of the ACA - so long as no one is forced to opt-in and States like Delaware that already authorized online gaming, Minnesota that offers bingo, and daily lottery tickets in all States aren't preempted.

At worst, States will rush to pass their own legislation in hope that SCOTUS will rule that anything they authorize during the blackout/litigation period is also grandfathered in - which would be a positive for us.

5) It does seem odd that the Feds would even want any revenue, especially in the form of a % of the rake, I would think they would rely on fees from the licensees or licensing bodies to fund the program.

One reason to word it this way might be to take advantage of SCOTUS ACA ruling, where if something can be viewed as a tax it falls under the General Welfare Clause, giving Congress a back up in case their Commerce Clause argument doesn't hold.

6) What about Tribal gaming? This bill says it has no impact on existing IGRA compacts, Tribes in States that opt-in will be free to apply for licensing either through another Tribe that applies to be a licensing body (they can become licensing bodies even if their State doesn't opt-in) or one of the others.

7) Three years seems about right, but aside from the grandfather date which I believe the courts would move back to at least the date the bill is signed and more likely to the enactment date, the rest will likely prevail.

8) This one I've heard no justification for, nor can I think of one, this bill is already a Nevada entitlement program, the extra 30% they try to grab for themselves is beyond pork - that has to be removed or the bill will never pass, let alone would no States opt-in.

The reason to want it is that States - those that bother offering poker at all - would likely be unbeatable rake and pathetically small player pools, if nothing else, keeping the argument at the Federal level provides NV more time to get the geolocation problems worked out.

This bill is an extreme long shot to pass and survive an Obama veto unless we suffer a Cyber-Pearl harbor and Reid attaches it to a must pass Cyber-Security bill, but the threat of it accomplishes making all States aware of why it would be better if they just let one or two States handle regulation when they do authorize poker - and perhaps causes them to focus on poker since anything else might be Federally prohibited later.

The previous draft allowed existing gaming to continue to exist. Is that in this bill? For example, this would not outlaw existing online sports betting in Nevada would it? What about Georgia and Delaware online lottery games that are not live yet but are approved?

I think this section is going to anger a lot of states. I wonder if this part would stay. You can argue that the govt can regulate the internet but not allowing lotteries to offer online video lottery if they choose might be a problem.

It's in there.

Well written bill, much better than the House Bills.

Now, this whole deal of the Feds regulating is predicated on the Sports Betting Ban being challenged.

What is N.J. wins that, will this bill go away with it or AT THE LEAST the prohibition of states offering their own?
Will the commerce clause trump along with taxing authority?

Much to be answered if N.J. wins and IMO N.J. will.

obg

Thanks PokerXanadu.

Now if only that lame duck doesn't crap on it.

Some portions of the tax treatment of gambling are from the Code (e.g. non-deductibility of gambling losses), some are in regulations (e.g. contemporaneous written log--this actually dates back to the 1970s), and some come from court decisions (e.g. Groetzinger, which allows for professional gamblers).

-- Russ Fox

There are such additional exceptions. I'll be covering those coming up.

This is a really important point.

See here:

Players are not licensees.

Yes if my state opts in I'm definitely letting someone else be he guinea pig so I don't get a five figure tax bill.

Clear this up for me. Let's say you had $1,000,000 in winnings but $990,000 in losses, you would have to pay state income taxes (but not federal?) on $1,000,000?

SEC. 112. CHEATING AND OTHER FRAUD.

Worse than prison

Is it 100% standard and expected to see all this direct ties to the IRS business within the bill? Does anyone have any problems or reservations about having to give a SSN to play online poker?

Unrelated, but does that requirement rule out international players from entering the mix?

SEC. 204. BETTOR FORFEITURE.
They can still seize assets traceable (purchased through winnings withdrawn, e.g.) to playing on unlicensed sites, not a big deal since there likely won't be any though.

And here is the rest of the story.

Compulsive Gaming

The usual, but quite extensive, safeguarding regulations are required:

Sites make available materials on compulsive gaming at every login and by request.
Self-limiting options available to players.
Self-excluded players blocked on all licensed sites.
Self-exclusion list is kept private, except to significant vendors as required for blocking.
Prohibited persons (per court order, law, the Secretary or a Qualified Body) are blocked.

State Opt-Ins

States must opt-in to participate, by vote of their state legislature. The vote must be by “a majority of a quorum of each chamber of the legislature”. This is not the same as a majority vote of each chamber, as it would take only a majority of those congresscritters attending the voting session to pass it. Also note that the opt-in provision does not require that the state bill or resolution is also signed by the state governor to take effect.

Once a state is opted in, it would take a similar state vote to change to opt out status.

A state cannot pass its own law that changes any of these terms of opting in or out.

Tribal Opt-Ins

Any Indian tribe can opt in as long as their state has already opted in. A tribal opt in is by written notice to the Secretary by the tribe’s “principal chief or other chief executive officer or designated authority”.

Once a tribe is opted in, it can later opt out by the same method.

Tribes that are located in states which are not opted in can still be designated as a Qualified Body.

Unlicensed Intrastate/Intratribal-land Remote Wagering

Any intrastate or intratribal-land remote wagering (other than licensed online poker under this bill) cannot be authorized or operated by any state or tribe unless:

1. It doesn’t involve any facility or service provider located outside the state or tribal land;
2. It doesn’t involve any financial institution for deposits or withdrawals; and
3. The wagering activity, including routing over the communications facility, takes place wholly within the state or tribal land.

Legal exceptions are:

1. Remote wagering by players located on the casino gambling facility premises.
2. Remote wagering authorized by state or tribal law prior to May 1, 2012.

Sports Wagering

Sports wagering, including online, continues to be illegal with the exception of the grandfathered-in wagering under PASPA. Fantasy sports wagering continues to be legal as before under applicable State and Federal law.

Internet Poker Parlors

It will be illegal to operate an Internet poker parlor (where computers are available mainly for online play), including private clubs. The criminal penalty for operating one will be fines and/or up to 5 years imprisonment.

Cheating and Fraud

It is illegal to violate a site’s terms of play “for the purpose of obtaining prohibited or unfair advantage in any game”, or to us a device similarly.

It is illegal to use a cheating device (including a bot) to cheat or defraud a site or any player.

Criminal penalties are fines and/or up to 3 years imprisonment. Persons convicted can be banned from online poker.

Other Skill Games

Online wagering on other skill games is not considered online gambling under this bill, and continues to be lawful where not prohibited by law.

Superseding Law

The provisions of this bill supersede any existing state or tribal law.

Wire Act Amendment

This bill changes the Federal Wire Act extensively, to make all transmissions related to interstate or foreign Internet gambling, with the exception of legal horse race wagering, legal intrastate lottery ticket sales and licensed online poker, expressly criminally illegal. It also requires ISPs to close the accounts of any site where a Federal, State, tribal or local law enforcement agency with jurisdiction has given written notice to the ISP that the site is in violation.

Blackout Period

The first licenses will go into effect 450 days (15 months) after enactment. Existing sites must cease US operations within 30 days after enactment and return funds to US players. Criminal penalties for violation are fines up to 3x player balances and/or up to 2 years imprisonment.

UIGEA

Persons who accepted online wagers in violation of Federal or State law after December 31, 2006 will not be eligible for licensing for 5 years. Licensees cannot use assets (database, software, etc.) of such persons (including business entities) for 5 years.

Amendments to the UIGEA incorporate changes to what is legalized under this bill, and include the site whitelist for use by transaction providers.

Asset Forfeiture

This provision in the bill specifically addresses “Bettor Forfeiture”. It states that any property, real or personal, that is involved in a transaction or attempted transaction that violates this Act is subject to forfeiture. As well, any property traceable to such property is similarly subject to forfeiture.

So, after all, I interpret this to mean that any money you have on an illegal site, any property (including your home, your computer, your bank account, etc.) that you use for online play at such a site, and anything you buy with your winnings are all subject to forfeiture.

Here is the provision, word for word:

Here is a link to the referenced section of the US Code. The exact legal implications are a bit beyond me, but need serious scrutiny by legal minds. I suspect that this provision is about as bad as I assumed from the leaked summary, which led me to state opposition to the bill. I am not ready to make such a statement again – yet. Legal interpretation and feedback are needed.

Site Fees and Taxes

License applicants, significant vendors and licensed sites are assessed fees to cover the costs of operations of the Qualified Bodies and the OOPO.

Sites pay a site tax of 16% of their gross revenues (rake & fees) on a monthly basis. Of that, 14% goes to the States and Tribes and the remaining 2% to the Federal govt. The States and Tribes share gets split, 70% to the location of the players, 30% to the location of the corresponding Qualified Bodies of the sites.

Bonuses and promotional credits are excluded from revenue taxes, but I’m not sure from the wording if it means that any rake generated off them are excluded from the gross revenue figure, or that it means the total amounts of bonuses and credits are deducted from gross revenue, or something else.

$3M per year from the Federal share of the site taxes is paid out for Native American Programs. $2M per year for five years from the Federal share of the site taxes is paid out for Responsible Gaming programs. Expenses by Commerce for enforcement of this Act and the expenses by Treasury for enforcement of this Act and the UIGEA are paid from the federal share. Anything left at the end of the year in the federal share is paid out to the States and Tribes, in the same 70%/30% split.

Unlicensed and illegal sites owe a site tax of 50% of their gross revenues (in addition to any criminal penalties). Significant vendors for such sites are equally liable for this tax.

States and Tribes cannot impose additional site or wager taxes, with the exception of income taxes on sites located within their jurisdiction. States and Tribes must spend at least the lesser of ½ percent of their receipts from the site taxes or $1M per year on problem gaming programs.

Player Taxes

The bill does not change how players are assessed federal or state income tax on their winnings. There are provisions to conform reporting and withholding for online play to existing Federal tax code. Withholding will apply to net wins when withdrawing if you do not provide your Taxpayer ID (e.g., social security number) to the site or if you are not a US resident and owe US taxes on your winnings (or don’t provide proper US tax documents). Sites will report each player’s gross wins, gross wagers, gross losses, net wins, account balances and other information after the end of each year to the Federal govt (probably a 1099 form), with a copy to the player.

Expansion to Other Gaming

It will take a vote of 3/5 of the Members of the US Senate to change the Congressional procedural rules in regards to any future bill on Internet gambling, as established in this bill, before such a bill could be introduced in Congress.

WTO

The US Trade Representative must complete withdrawal of US commitments for regarding Internet or remote gambling under GATS within 180 days (6 months). If unable to do so, the Trade Representative must proceed with arbitration per the terms of GATS to complete the withdrawal.

In many States as the laws currently stand, yes, they would simply look at reported winnings and expect you to pay taxes on that, since they don't allow deduction of losses.

Obviously that would be resolved long before sites ever go online - or certainly before any tax bills went out - Spain had the same issue, people were afraid to play at first but it was corrected and back-dated so no one was effected.

It's not ideal but it was inevitable. The relationship with an online poker site is pretty close to that of a bank and you can't open a bank account (or stock brokerage account or all sorts of other things) without giving your SSN.

The IRS was not going to let hundreds of millions/billions of electronic dollars fly around without an easy way to get their hands on it...

Players aren't required to provide their SSN, but refusal to do so makes you subject to backup withholding (28%) of your winnings.