Background
To Baxter, the 50% versus 70% maximum marginal tax rates meant the difference of $178,000. At first, Baxter refused to pay. His Certified Public Accountant, E.J. Maddocks, advised Baxter that to avoid potential penalties and interest, Baxter should instead pay the tax asserted by the government, and later sue the government for a tax refund. [2]
The preliminary issue presented to the trial court was whether Baxter, as a professional gambler, was engaged in a "trade or business" for federal income tax purposes. [1] If Baxter was engaged in a trade or business, then his income would be taxed at what was then a maximum rate of 50% for "personal service income" (as that term was defined in the Internal Revenue Code at the time). If, however, Baxter was not engaged in a trade or business, the income would not be "personal service income," and the maximum tax rate would be 70%. The tax law at the time defined "personal service income" to be "earned" income within the meaning of what was then section 911(b) of the Internal Revenue Code. [1] The court noted that "if Baxter derived his gaming income actively from his expenditure of time, energy, and skill rather than passively from his use of his property, then his gaming income constitutes 'earned income'." [1]
The trial court analyzed two alternative tests for determining whether an activity constitutes a "trade or business" for federal income tax purposes: the "goods and services" test, and the "facts and circumstances" test. [1] The government conceded that if the "facts and circumstances" test was the appropriate test, then Baxter's activity would constitute a trade or business, resulting in the lower tax rate and a lower tax liability.
Online poker is the game of poker played over the Internet. It has been partly responsible for a huge increase in the number of poker players worldwide. Christiansen Capital Advisors stated online poker revenues grew from $82.7 million in 2001 to $2.4 billion in 2005, while a survey carried out by DrKW and Global Betting and Gaming Consultants asserted online poker revenues in 2004 were at $1.4 billion. In a testimony before the United States Senate regarding Internet Gaming, Grant Eve, a Certified Public Accountant representing the US Accounting Firm Joseph Eve, Certified Public Accountants, estimated that one in every four dollars gambled is gambled online.
The Poker Hall of Fame is the hall of fame of professional poker in the United States. Founded in Las Vegas, it was created in 1979 by Benny Binion, the owner of the Horseshoe Casino, to preserve the names and legacies of the world's greatest poker players and to serve as a tourist attraction to his casino. Binion was known for the creative ways in which he marketed his casino. In 1949, he convinced Johnny Moss and Nick "The Greek" Dandolos to play high-stakes poker heads up where the public could watch them. In 1970, he invited a group of poker players to compete in what would be the first World Series of Poker (WSOP). When Harrah's Entertainment, later known as Caesars Entertainment, acquired the rights to the WSOP in 2004, it also assumed ownership of the Poker Hall of Fame. Currently, membership in the Poker Hall of Fame is handled directly by the WSOP.
Gregory Raymer, nicknamed "Fossilman," is a professional poker player and author. He is best known for winning the 2004 World Series of Poker Main Event.
Online gambling is any kind of gambling conducted on the internet. This includes virtual poker, casinos and sports betting. The first online gambling venue opened to the general public was ticketing for the Liechtenstein International Lottery in October 1994. Today the market is worth around $40 billion globally each year, according to various estimates.
William E. Baxter, Jr. is an American professional poker player and sports bettor. He has won numerous tournament titles in his career as a professional poker player, including seven World Series of Poker bracelets.
In the United States, gambling is subject to a variety of legal restrictions. In 2008, gambling activities generated gross revenues of $92.27 billion in the United States.
Russell Aaron Boyd, commonly known as Dutch Boyd, is an American professional poker player from Culver City, California.
Income taxes in Canada constitute the majority of the annual revenues of the Government of Canada, and of the governments of the Provinces of Canada. In the fiscal year ending 31 March 2018, the federal government collected just over three times more revenue from personal income taxes than it did from corporate income taxes.
The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) is United States legislation regulating online gambling. It was added as Title VIII to the SAFE Port Act which otherwise regulated port security. The UIGEA prohibits gambling businesses from "knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law." The act specifically excludes fantasy sports that meet certain requirements, skill games, and legal intrastate and intertribal gaming. The law does not expressly mention state lotteries, nor does it clarify whether interstate wagering on horse racing is legal.
The Poker Players Alliance (PPA) is an American nonprofit Interest group formed to emphasize the rights of poker players, and to protect the players' liberties." The PPA formed to serve as an advocacy group to Washington to establish rights and protections for U.S. poker players. Within the first year of its existence, the PPA garnered over 600,000 members. In April 2008, the PPA claimed to have signed up its one millionth member. Membership growth has been due in part to promotional activities by online poker cardrooms like Party Poker.
Gambling in India varies by state; states in India are entitled to formulate their own laws for gambling activities. Some states like Goa have legalised casinos. Common gambling activities like organized betting are restricted except for selective categories including lottery and horse racing.
Rules concerning income tax and gambling vary internationally.
Commissioner v. Groetzinger, 480 U.S. 23 (1987), is a decision of the Supreme Court of the United States, which addressed the issue of what qualifies as being either a trade or business under Section 162(a) of the Internal Revenue Code. Under the terms of § 162(a), tax deductions should be granted "for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business for tax purposes." However, the term "trade or Business" is not defined anywhere in the Internal Revenue Code. The case of Commissioner v. Groetzinger examined what is required for an activity to rise to the level of a "trade or business" for tax purposes. The particular question presented in this case was whether a full-time gambler who made wagers for his own account was engaged in a "trade or business."
Commonwealth v. Dent, 2010 PA Super 47, 992 A.2d 190 (2010), was a Pennsylvania court case wherein a Columbia County Court ruled that poker was a game of skill not luck, thus not illegal gambling per the state statutes. Later, On April 2, 2010, a Pennsylvania Superior Court overturned the ruling declaring poker to be a game of luck.
The Southern District of New York (SDNY) Action Against Online Poker Players was a legal action taken by the Department of Justice in an effort to crack down on online poker. The action occurred around June 8, 2009, when the government ordered four banks to freeze over 34 million dollars in payments owed to about 27,000 poker players. According to the Poker Players Alliance, a grass-roots organization for poker players, federal prosecutors ordered Citibank, Wells Fargo and Goldwater Bank and Alliance Bank of Arizona to freeze the accounts of Allied Systems and Account Services. Allied Systems and Account Services are two of the account-management companies that Full Tilt Poker, Absolute Poker, Ultimate Bet and PokerStars use for the disbursement of funds.
The Dominant Factor Test is the principle that most U.S. jurisdictions use in determining, legally, what is and is not gambling. The California Supreme Court said:
Town of Mt. Pleasant v. Chimento was a South Carolina case that ruled that while poker was a game of skill, the Dominant Factor Test is not demonstrably a legal standard in South Carolina and thus poker is still subject to the laws related to gambling. The case was later appealed to a higher South Carolina district court where the Judge overturned the trial court's convictions, stating that Dominant Factor Test was the appropriate legal standard and therefore participating in a private home poker game is not illegal, nor is it gambling. The Judge further declared sections of the 207-year-old statute unconstitutionally vague and therefore void. In 2012, the South Carolina Supreme Court upheld the statute and reinstated the convictions of the defendants.
The Internet Gambling Regulation, Consumer Protection, and Enforcement Act was a proposed 2009 bill in the United States House of Representatives that is intended "to provide for the licensing of Internet gambling activities by the Secretary of the Treasury, to provide for consumer protections on the Internet, to enforce the tax code, and for other purposes." The bill was originally introduced by Representative Barney Frank (D-MA) on June 12, 2009 and as of July 20, 2009 had bipartisan support from 47 co-sponsors. The bill was held in the House Financial Services Committee.
Jonathan Duhamel is a Canadian poker professional from Boucherville, Quebec, best known as the winner of the Main Event at the 2010 World Series of Poker (WSOP). He has won 3 WSOP bracelets in his career.
United States v. Scheinberg, No. 1:10-cr-00336 (2011), is a United States federal criminal case against the founders of the three largest online poker companies, PokerStars, Full Tilt Poker and Cereus, and a handful of their associates, which alleges that the defendants violated the Unlawful Internet Gambling Enforcement Act (UIGEA) and engaged in bank fraud and money laundering to process transfers to and from their customers. A companion civil case, United States v. PokerStars, et al., 11 Civ. 2564 (2011), included Full Tilt and Cereus as defendants and seeks the recovery of forfeiture equalling approximately $3 billion in assets belonging to the companies. After the indictment was unsealed on April 15, 2011, a date quickly dubbed Black Friday by the online poker community, PokerStars and Full Tilt stopped offering real money play to their United States customers. Three years after the start of the poker boom in 2003, the U.S. Congress passed UIGEA to extend existing gambling laws into cyberspace. The law made processing payments for illegal online gambling a crime; however, the defendant companies remained in the U.S. market in the belief that the law did not cover poker. A former payment processor for the companies turned state's evidence after initially being charged with violating UIGEA himself. On September 20, the civil suit was amended claiming individual fraud by Howard Lederer, Chris Ferguson and Rafael Furst.
