In Legal Advice issued by the Chief Counsel's office in 2020-009 ("Memo"), the IRS has determined that an organization operating daily fantasy sports (DFS) games is liable for the excise tax on wagers and the occupation excise tax on wagering businesses and is required to register as a wagering business with the IRS. 

IRC §4401(a) generally imposes a tax on "wagers." A wager is (A) any wager with respect to a sports event or a contest placed with a person engaged in the business of accepting such wagers, (B) any wager placed in a “wagering pool” with respect to a sports event or a contest, if such pool is conducted for profit, and (C) any wager placed in a lottery conducted for profit. The tax on wagers is imposed on the person engaged in the business of accepting wagers ("wagering business"). (IRC §4401(C)).

Each person engaged in the wagering business must pay a $500 annual “occupation tax.” Generally, every person required to pay the tax on wagers is required to register with the IRS. 

Generally, traditional fantasy sports are games where participants assemble simulated, “fantasy” teams with rosters of actual players from the real teams in a sports league (such as the National Football League (NFL) or the National Basketball Association (NBA)). The participants accumulate points based on the actual game performances of the selected players. Scoring is based on the selected players’ performance statistics or measures that are converted into points. Each participant then receives a “total fantasy score” that is determined by compiling the individual fantasy scores of each player in the participant’s roster or lineup. The participants compete against one another based on their total fantasy score. (Humphrey v. Viacom, Inc., (DC NJ 2007) 2007 WL 1797648)

A version of fantasy sports, daily fantasy sports (DFS), takes place on a DFS operator’s website and is accessed via computer or mobile software applications. DFS operators’ offerings cover several actual professional sports leagues, as well as college sports, and some e-sports. 

DFS has many key differences from traditional fantasy sports games. For example, unlike traditional fantasy sports games, DFS contests are not tied to a specific sporting event, but typically occur daily, and the participants tend to be a much larger group of strangers.

Also, rather than drafting players as they do in traditional fantasy sports games, each DFS participant is given an equal amount of fictitious money known as a “salary cap.” The DFS operator sets each player’s “salary” or “price” commensurate with the player’s perceived value, not unlike how bookmakers set wagering odds in traditional sports gambling. A participant may select the same players for their fantasy team as other participants so long as those selections do not exceed that participant’s salary cap.

Another important distinction between traditional fantasy sports and DFS is the treatment of the entry fee associated with each. Although participants in both types of fantasy sports typically pay a fee to participate, the pool of money generated by entry fees is generally given entirely to the winner or winners of the traditional fantasy league. In contrast, in DFS a portion of the fees collected is not paid out to the winner or winners but is retained by the DFS operator. 

The office of Chief Counsel has determined that a DFS operator is liable for (1) the excise tax on wagers; and (2) the wagering occupation excise tax and, therefore, is required to register as a wagering business with the IRS. 

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Rep. Richard Neal, D-Massachusetts, who chairs the tax-writing House Ways and Means Committee, asked the Internal Revenue Service to quit mailing notices for unpaid taxes to taxpayers who may have been affected by the mail backlog at the agency due to the COVID-19 pandemic.

Many taxpayers have been receiving balance-due notices from the IRS even though they sent in their tax payments to the IRS months ago, because trailers full of mail have remained unopened since the start of the pandemic. 

This Spring, as Many IRS Offices Were Shuttered,
a Backlog of Millions of Pieces of
Unopened Mail Accumulated 
in Trailers Set Up Outside Agency Facilities.

As more IRS employees returned to work to deal with tax season, they began to sort through and process the mail, but that hasn’t stopped more correspondence from coming in every day.

“IRS officials reported that, due to office closures, the IRS has accumulated a staggering backlog of unopened mail,” Neal wrote in a letter Wednesday to IRS Commissioner Charles Rettig. 

At One Point This Summer,
The IRS Had Approximately 12 Million Pieces
of Unopened Correspondence in its Inventory.

Despite this unprocessed mail, the IRS reportedly has been sending notices to taxpayers whose correspondence and payments remain unopened. Therefore, many of the taxpayers receiving these notices already have made the payments that the IRS seeks.

On August 21, 2020, the IRS announced that it has suspended the mailing of three notices – the CP501, the CP503 and the CP504 – that go to taxpayers who have a balance due on their taxes. Although the IRS continues to make significant reductions in the backlog of unopened mail that developed while most IRS operations were closed due to COVID-19, this temporary adjustment to processing is intended to lessen any possible confusion that might be associated with delays in processing correspondence received from taxpayers.

These automatic follow-up notices will be temporarily stopped until the backlog of mail is reduced. The IRS will continue to assess the mail inventory to determine the appropriate time to resume the follow-up notices. 

In addition, the IRS has previously announced that these payments in the unopened mail will be posted and credited on the date the IRS received them – rather than the date the agency opened and processed them. The IRS reminds taxpayers in this situation they should not cancel their checks and should ensure funds continue to be available so the IRS can process them to avoid potential penalties and interest. To provide fair and equitable treatment, the IRS is also providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in this IRS processing.

As the IRS works to stop these mailings at our processing centers, some taxpayers and tax professionals may still receive these notices during the next few weeks due to delivery of existing mailings.

Due to high call volumes, the IRS suggests waiting to contact the agency about any unprocessed paper payments still pending.

Have IRS Tax Problem?

 Contact the Tax Lawyers at
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for a FREE Tax HELP Contact us at:
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or Toll Free at 888 8TAXAID (888-882-9243) 

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According to DoJ, a Florida man was sentenced to 36 months in prison today for corruptly obstructing the due administration of the internal revenue laws. 

When the IRS attempted to collect Nagle’s unpaid taxes by filing liens and levying his paychecks and pension, Nagle obstructed the IRS’s collection efforts. Nagle submitted false forms to his employer claiming he was exempt from federal tax withholding, attempted to pay off his tax debts with checks written on a closed bank account, and threatened to file criminal complaints against IRS collection officers. 

Have IRS Tax Problem?

 Contact the Tax Lawyers at
Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

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According to DoJ, Ronald Olson, a vice president and deputy operation manager for Turner Construction Company (“Turner”), pled guilty on July 29, 2020, to charges of evading taxes on more than $1.5 million in bribes he received from building sub-contractors and is scheduled to be sentenced on December 9, 2020.

In related proceedings, co-conspirator Michael Campana, a subordinate construction manager at Bloomberg, LLC (“Bloomberg”), was sentenced last Friday, July 24, 2020 to 24 months in prison, for evading taxes on more than $420,000 in the same scheme. 

In addition, two managers of a construction contractor – Anthony Guzzone and Vito NiGro – were respectively charged on July 14 and July 22, 2020, for evading taxes on more than $1.4 million and $1.8 million in bribes that they respectively received in the same scheme.

 

“When Bribery Is Coupled With Tax Evasion,
Both The Bribery Victims And The Taxpaying Public 
Are Forced To Bear The Hidden,
Unfair Costs Of Corruption."

Between 2011 and 2017, Guzzone was a construction project manager for Bloomberg, a global financial firm that was engaged in various building projects in New York City and elsewhere, while Olson and Nigro were executives at Turner, which performed construction projects for Bloomberg.  For most of that time, beginning in 2013, Campana was also a construction manager at Bloomberg.  Each of the defendants participated in a scheme to obtain bribes from construction sub-contractors, who paid kickbacks to the defendants in exchange for being awarded various construction contracts and sub-contracts performed for Bloomberg.

 

In all, the defendants are charged with failing to pay taxes, between 2010 and 2017, on bribes exceeding $5.1 million.  The defendants received such bribes in various forms, including millions of dollars in cash, as well as construction labor and materials for work on their individual homes and properties, and the direct payment of personal expenses.  Such personal expenses included charges related to Campana’s 2017 wedding, such as approximately $40,000 paid by sub-contractors to a catering hall in New Jersey, over $13,000 to a photography studio, and over $23,000 to a travel agent for airline tickets purchased in connection with Campana’s honeymoon, as well as Super Bowl tickets worth almost $8,000 provided to Guzzone.  Each of the defendants evaded federal income tax on this bribery income, by failing to declare it on income tax returns for various years between 2010 and 2017.

 

The taxpayers should have reported this income on their Form 1040, Schedule C. As ridiculous as it sounds, the federal government requires that money acquired through illegal means be reported and taxed just like legitimate income. It's right there on the official IRS tax instructions: 

"Income From Illegal Activities, Such As Money From Dealing Illegal Drugs, Must Be Included In Your Income on Form 1040,  Line 21, or on Schedule C or Schedule C-EZ (Form 1040) if From Your Self-Employment Activity."

Not surprisingly, very few criminals ever declare this type of income. However some do, when they have either been caught during that tax year or think they are about to be caught. Their goal is to avoid getting charged twice: once for their initial crime and again for evading the taxes on their ill-gotten gains. Don't forget that it was tax charges that ultimately put away Al Capone.

 

Where a taxpayer informs the IRS that they made millions from embezzling, stealing money or dealing drugs; legally the IRS can't inform law enforcement, unless a law-enforcement agency gets a court order granting it access to a specific taxpayer's return. 

The IRS is prohibited from proactively alerting other agencies about criminal activity, unless terrorism is involved. And even in that case, it still needs a court order to disclose anything, but the IRS can initiate the legal process on its own. The rules are all spelled out in an IRS guide to "section 6103," the law that covers tax-return confidentiality. Like many legal statutes, it's complex and filled with loopholes. 

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Read more at: Tax Times blog