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A couple more articles on the NETeller debacle from Russell Fox's website. The tax information is outdated, but still informative, and could possibly help forum members.
http://www.taxabletalk.com/posts/chain_1170966022.shtml
More on Neteller Posted by Russ on Wednesday March 21, 2007 at 7:15am.
Neteller, the beleaguered Isle of Man financial intermediary firm whose two founders were arrested on money laundering charges in the United States, announced that they have come to an agreement with the US Attorney's Office for the Southern District of New York (where the potential prosecution will take place). While it's very unlikely the agreement with the DOJ will be made public, Neteller's press release notes that:
* Within the next 75 days (by June 4th) they will announce a plan for the return of funds of their American customers;
* A consulting firm, http://www.navigantconsulting.com/A5...nForm&Cat1=LA0, will, according to the press release, "...provide a report to the USAO on the Group’s current financial condition."
* Neteller "is continuing to cooperate with the USAO’s investigation, under the advice of its legal advisers and in accordance with court orders in the Isle of Man"
So what does this mean for a Neteller customer?
1. Neteller is cooperating with the US Attorney's Office (the Department of Justice). What is the DOJ interested in? Money laundering, of course. Large accounts with activity. Individuals (and entities) that haven't reported their foreign bank accounts. Individuals and entities that haven't filed tax returns on income earned overseas.
2. If you have a Neteller account, and you had $10,000 in it at any time during 2006, you should make sure that you mark the box on Schedule B of your tax return that indicates you have a foreign bank account. The IRS will likely, by year-end, have balance information on every Neteller account. You also need to file Form TD F 90-22.1 with the Department of the Treasury (not the IRS) by June 30, 2007.
3. If prior to 2006 you had $10,000 at Neteller and you didn't file the TD F 90-22.1, you should consider filing it today, attaching a note that says you weren't aware of the law requiring notification of a foreign bank account. The penalty for not filing the form is $10,000 (minimum), and it's a felony—you can go to prison for this. Do realize you are likely going to have your tax return audited, but if you're choosing between an audit and jail time, I know which one I'd choose.
4. A client asked me over the weekend when I thought he'd see his Neteller funds. I told him late Summer or Fall. I think a July to September time frame is a reasonable estimate.
So the Neteller saga continues, but the ending is clear. American customers will almost certainly see their funds this year, and the DOJ (and later, the Treasury Department and the IRS) will see Neteller's records this Spring or Summer.
http://www.taxabletalk.com/posts/chain_1170966022.shtml
Neteller and Constructive Receipt
Posted by Russ on Tuesday March 27, 2007 at 8:39pm.
As the saga of Neteller, the Isle of Man based financial intermediary, drags on, I've gotten many questions regarding the money that's tied up. For those who are unaware, some of the Neteller money was seized by the US government as it was moving over the wires between Neteller's banks and customers' banks, and some is sitting in customer accounts at Neteller. All of it, though, remains out-of-reach of American customers of Neteller. So the question is, do customers of Neteller have to pay tax on gambling proceeds won in 2006 that are stuck at Neteller?
Yes.
When an American must pay tax on income is governed by the doctrine of "constructive receipt." Suppose you gamble on an online poker site, and you win $1000. However, right when you win that money the poker site goes out of business, and you never collect a penny of the $1000. You've never had access to the money—you never were able to use it. You didn't have constructive receipt of the money.
Now suppose you win $1000 on December 31, 2006, and the money is immediately put in your account. On January 16, 2007, you withdrew the money into Neteller. You immediately requested Neteller to transfer the money into your American bank account. On January 17th that money was either seized or is stuck at Neteller.
That individual has $1000 of gambling income in 2006. The gambler could have withdrew the money on January 1, 2007 or he could have gambled with it on January 1. He had constructive receipt of the money. That he was unlucky in that the money was seized or stuck at Neteller is unfortunate. He or she must pay tax on the $1000.
So what should an individual do who has significant funds stuck at Neteller—so significant that he may not be able to pay what he owes in taxes? Talk to a professional tax advisor now; don't wait until April 10th. Most tax preparers are very busy between now and April 17th. We're not (in general) going to be able to give you specific advice if you wait until the very last minute.
Realize that you owe the money. Find out what your total tax is (including your state income tax, if applicable). Determine what you can afford to pay. Options include going on extension and installment plans. But not filing a tax return (or at least an extension) by April 17th will subject you to the failure to file penalty!
The phrase caveat emptor (let the buyer beware) applies to many offshore entities. The IRS considers online gambling to be just another tax avoidance scheme, http://www.irs.gov/businesses/small/...106559,00.html. They're not going to be very sympathetic to taxpayers using a financial intermediary that serviced offshore online gambling firms.
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Originally Posted by Mousey
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