Court Cases Involving Online Gambling

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Opinion Summaries Archive FindLaw provides an archive with access to summaries of published opinions from 2000 to the present. Courts covered include the U.S. Supreme Court, U.S. Circuit Courts, and selected state supreme and appellate courts. You can also stay up to date on new cases with our Newsletters, Blogs or RSS Feeds. “Compulsive or pathological gamblers are those who sooner or later suffer heavy losses (often $100 or more at a time), borrow or steal money or write bad checks to pay gambling debts, avoid or can­ not pay their own gambling bills, and lie to their families, friends, and therapists about the extent of their gambling” As the cases below. Supreme Court Takes on Sports Gambling Case. Although Christie has had no wins out of the six times New Jersey has taken the case to court, some legal experts feel the tides are about to change. Legal overview. All national regulatory systems must respect EU law. In a series of judgments, the CJEU has provided general guidance on the interpretation of the fundamental freedoms of the Internal Market in the area of online gambling so that national courts can assess the circumstances under which restrictive national gambling laws are justified on grounds related to the general interest.

Supreme Court Cases Involving Police

Court
Baxter v. United States
United States District Court for the District of Nevada
Full case nameWilliam E. Baxter Jr. v. United States
Date decidedMarch 11, 1986
Docket nos.Civ. No. R-84-463 BRT
Citations633 F. Supp.912; 86-1 U.S. Tax Cas. (CCH) ¶ 9284
Judge sittingBruce Rutherford Thompson

Baxter v. United States, 633 F. Supp. 912 (D. Nev. 1986),[1] was a federal tax refund case, decided in 1986, regarding the U.S. federal income tax treatment of the gambling income of a professional gambler. Because of this case, gambling winnings in the United States can in certain cases be treated as business income for federal income tax purposes. This means that in some cases expenses and losses can be deducted from gambling winnings in arriving at the net earnings from self-employment, and that winnings can be placed into retirement funds.

History[edit]

William E. (Billy) Baxter, Jr., had been a gambler since the age of fourteen. For the tax years in question (years 1978 through 1981), both Baxter and the government agreed that Baxter was engaged in the activity of gambling as a 'professional gambler.'[1] The parties agreed that Baxter devoted a substantial amount of time to his gambling activity,[1] which was poker. Baxter was a pioneer in professional poker who later went on to win seven World Series of Pokerbracelets. He was inducted into the Poker Hall of Fame in 2006. Between 1978 and 1981, Baxter claimed $1.2 million in gambling winnings.

Background[edit]

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%. Closest casino to colorado springs. 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.

Trial court ruling[edit]

The Nevada judge who heard the case ruled in favor of Baxter, declaring 'I find the government's argument to be ludicrous. I just wish you had some money and could sit down with Mr. Baxter and play some poker.'[3]

The court stated:

[ . . . ] the Court finds that capital was not a meterial [sic]-income-producing factor in Baxter's gaming income. In fact, the Court finds that Baxter's income was derived entirely from his personal services and that the capital he used to finance his poker playing was merely a 'tool of the trade.' The money, once bet, would have produced no income without the application of Baxter's skills. [ . . . ] it was Baxter's extraordinary poker skills which generated his substantial gaming income, not the intrinsic value of the money he bet.[4]

Court Cases Involving Online Gambling

The trial court ruled in favor of Baxter's claims for tax refunds.[1]

Appeal[edit]

When the government appealed the ruling to the Ninth CircuitCourt of Appeals, that court ruled in Baxter's favor.[3] The government threatened to take the case to the United States Supreme Court, but eventually backed down.[3]

Impact[edit]

Because of this case, gambling winnings in the United States can be treated as earned income for federal income tax purposes, depending on the facts and circumstances of the case. This means that in some cases expenses and losses can be deducted from gambling winnings in arriving at the net earnings from self-employment, and that winnings can be placed into retirement funds.

The case of Baxter v. United States is currently being cited by opponents of the Unlawful Internet Gambling Enforcement Act (UIGEA). Opponents of the UIGEA argue that because poker is a game of skill, the UIGEA does not apply to online poker sites.[5]

Case

Other countries[edit]

Russia and Denmark have similarly declared poker to be a game of skill. In the Gutshot Poker Club case in England, the court ruled poker to be a game of luck and so subject to the Gaming Act (though this is currently[when?] under appeal).[6]

Court Cases Involving Online Gambling

Notes[edit]

  1. ^ abcdefghBaxter v. United States, 633 F. Supp. 912 (D. Nev. 1986).
  2. ^Sexton, Mike (August 9, 2005). 'Billy Baxter - The Man Who Made a Difference - He went heads up against the IRS - and won'. Cardplayer Magazine. Retrieved June 26, 2015.Italic or bold markup not allowed in: publisher= (help)
  3. ^ abcSexton, Mike (August 9, 2005). 'Billy Baxter - The Man Who Made a Difference - He went heads up against the IRS - and won'. Cardplayer Magazine. Retrieved March 1, 2008.Italic or bold markup not allowed in: publisher= (help)
  4. ^Baxter, 633 F. Supp. at 918-19.
  5. ^Bromberg, Gene This Guy Is A U.S. Senator? GeneBromberg.com May 1, 2007 Accessed 1 March 2008.
  6. ^Hintze, Haley. 'Skill vs. Chance' Battle Looms in Pennsylvania Poker Case PokerNews. August 21, 2007. Accessed 1 March 2008

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See also[edit]

External links[edit]

  • Text of Baxter v. United States, 633 F. Supp. 912 (D. Nev. 1986) is available from: CourtListenerGoogle ScholarJustia

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