Marketwatch: Online gambling law goes into effect

Monday, November 23, 2009  

"California resident J.D. won over $50,000 playing video poker online this year. Wow! She couldn't do that well in Las Vegas, and at home she can play anytime without having to drive for hours. Plus, she can play any number of different "machines" without waiting for one of them to be free. But J.D. spent over $40,000 before cashing out $50,000. Are her losses deductible?

First, a brief overview.

Online gambling offers advantages to both casual hobbyists and serious gamblers. After all, you never have to sit next to a smoker, you aren't subject to the casino cacophony, and you can take a break without worrying about someone stealing your machine.

But the legality of online gambling in the U.S. is not really clear. There is no overall federal law that defines illegal gambling. So whether your playing is legal is defined at the state level. Some states -- including Illinois, Indiana, Louisiana, South Dakota and Washington -- have explicitly outlawed online gambling or some form of it. Other states have no specific law addressing Internet gambling.

You've probably heard of the Unlawful Internet Gambling Enforcement Act and Regulation GG which became law in 2006 and become effective on Dec. 1. That certainly sounds like a federal law that makes Internet gambling illegal, doesn't it?

Ironically, this law turns bankers into policemen and forces them to enforce a non-law. Banks are required to return or block illegal-gambling deposits into their clients' accounts, or even to close accounts.

However, the UIGEA doesn't define unlawful Internet gambling. In fact, there is so much dispute over the definition that the House financial services committee wrote to Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke asking them to delay enforcement of the UIGEA for one year, until Dec. 1, 2010. See the letter.

Congress is battling over outlawing online gambling altogether, or limiting it to certain games. At present, the only thing that's clear is that online sports betting is illegal."

Get the Story:
Marketwatch:Online Gambling Poses Tax Conundrum (The Wall Street Journal 11/23)