Default Major Victory for Online Gambling Could Pave Way For Future
Major Victory for Online Gambling Could Pave Way For Future
May 1, 2008
Court documents from the US District Court of Missouri relating to the case brought by the US government against Betonsports founder Gary Kaplan on tax evasion charges, reveal that Kaplan is arguing that he did not violate tax laws because ?no wagering excise tax was owed by him because the wagers either were not accepted in the Unites States or were not placed by a person who was in the United States?. The document adds: ?Questions of venue in criminal cases are not merely matters of former legal procedure. They raise deep issues of public policy.? The response from the prosecution adds that while the US government ?argues that the defendant was subject to the wagering excise tax pursuant to defendant?s status as owner and operator of various specified gambling entities doing business in the United States?, the court found ?the defendant?s arguments persuasive?.
We've also copied the first few pages below:
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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
UNITED STATES OF AMERICA
Plaintiff,
vs. ) Case No. SI-4:06CR337CEJ(MLM)
GARY STEPHEN KAPLAN,
Defendant.
REPORT AND RECOMMENDATION
OF UNITED STATES MAGISTRATE JUDGE CONCERNING
GARY KAPLAN?S MOTION TO DISMISS COUNTS 14-22
Defendant Gary Kaplan filed a Motion to Dismiss Counts 14-22 of the Superseding Indictment. [Doc. 450] The government responded. [Doc. 528] Defendant replied.
[Doc. 556]
Counts 14-22 of the Superseding Indictment deal with alleged violations of tax laws by defendant Gary Kaplan (?defendant? or ?Kaplan?). Counts 14-16 allege that defendant wilfully attempted to evade and defeat the wagering excise tax in violation of 26 U.S.C. ?7201 which criminalizes attempting to ?evade or defeat any tax. . . or the payment thereof.?
Counts 17-22 allege that defendant corruptly obstructed and impeded and endeavored to obstruct and impede the due administration of the revenue laws in violation of 26 U.S.C.
? 7212(a).
I. COUNTS 14-16
A. Whether the Wagering Excise Tax was Owed by Defendant Gary
Kaplan
1. Defendant argues he did not violate 26 U.S.C. ? 7201 (?? 7201")
because no wagering excise tax was owed by him because the wagers either were not accepted in the United States or were not placed by a person who was in the United States
1 The Superseding Indictment does not allege that wagers were placed in a
wagering pool or lottery under 26 U.S.C. ? 4404(2)(B). This sub-section is not at issue.
2 with a person who was a citizen or resident of the United States as required by 26 U.S.C.
? 4404.
The parties agree that 26 U.S.C. ? 4401(a) (?? 4401") provides for a 0.2% excise tax on wagers which are authorized by state law and a 2% excise tax on unauthorized wagers. The parties further agree that the wagers at issue in this case were not authorized by state law. There is a territorial limit on the excise tax on wagering pursuant to 26 U.S.C. ?4404. It states:
The tax imposed by this sub chapter shall apply only to wagers
(1) accepted in the United States, or
(2) placed by a person who is in the United States
(A) with a person who is a citizen or resident of the United
States, or
(B) in a wagering pool or lottery conducted by a person who
is a citizen of the United States .
The government argues that defendant was subject to the wagering excise tax pursuant to ? 4404 based on defendant?s status as owner and operator of various specified gambling entities doing business in the United States.1 Response (Doc. 528) at 2.
Defendant argues that it is clear from the face of the Superseding Indictment that all of the wagers at issue were placed with foreign corporations and not with ?a person who is a citizen or resident of the United States? and thus, no tax was due that could have been evaded. Counts 14-16 only allege that ?entities doing business in the United States, had and received taxable wagers.? Merely doing business in the United States does not overcome
the specific territorial restriction of ? 4404, which, in relevant part, requires that wagers be accepted in the United States. Section 4404 makes it clear that a wager can be ?placed?
2 ?Person? as defined in 26 U.S.C. ? 7701(a)(1) includes companies and
corporations. ?Foreign? as defined in 26 U.S.C. ? 7701(a)(5) when applied to a corporation means a corporation not operated or organized under the laws of the United States or any state.
3 and ?accepted? in two different places. Wagers that are accepted in the United States are covered by ? 4404(1) but only certain wagers ?placed? in the United States are covered by ? 4404(2). Therefore, it is clear that the statute contemplates that wagers can be ?placed? in the United States and ?accepted? outside the United States. Wagers placed by a person in one jurisdiction with an entity in another jurisdiction are ?accepted? in the latter jurisdiction. See United States v. Truesdale, 152 F.3d 443 (5th
Cir. 1998) (bets placed by persons in the United States by dialing phone numbers in the Carribean were not accepted in the United States regardless of the fact that financial transactions related to those bets were conducted in the United States); see also State v. Oldham, 98 S.W. 497, 500 (Mo. 1906) (wagers telephoned by person in Missouri to Kansas are accepted in Kansas).
Counts 14-16 deal with wagers that were placed in the United States with telephone numbers or internet servers in Antigua and Costa Rica and accordingly were accepted in Antigua or Costa Rica. Truesdale made clear that the existence of other related business activities in the United States has no effect on the location where wagers are accepted.
Truesdale, 152 F.3d at 444-45, 448. All of the operations for receiving wagers described in the Superseding Indictment are alleged to have been located outside of the United States and that is where any alleged wagers were accepted for purposes of the excise tax statute.
The wagers do not fall within the territorial limitation of 26 U.S.C. ? 4404(1).
The territorial reach of ? 4404(2)(A) is dependent on wagers being placed with a person who is a United States citizen or resident.
Major Victory for Online Gambling Could Pave Way For Future
May 1, 2008
Court documents from the US District Court of Missouri relating to the case brought by the US government against Betonsports founder Gary Kaplan on tax evasion charges, reveal that Kaplan is arguing that he did not violate tax laws because ?no wagering excise tax was owed by him because the wagers either were not accepted in the Unites States or were not placed by a person who was in the United States?. The document adds: ?Questions of venue in criminal cases are not merely matters of former legal procedure. They raise deep issues of public policy.? The response from the prosecution adds that while the US government ?argues that the defendant was subject to the wagering excise tax pursuant to defendant?s status as owner and operator of various specified gambling entities doing business in the United States?, the court found ?the defendant?s arguments persuasive?.
We've also copied the first few pages below:
-----
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
UNITED STATES OF AMERICA
Plaintiff,
vs. ) Case No. SI-4:06CR337CEJ(MLM)
GARY STEPHEN KAPLAN,
Defendant.
REPORT AND RECOMMENDATION
OF UNITED STATES MAGISTRATE JUDGE CONCERNING
GARY KAPLAN?S MOTION TO DISMISS COUNTS 14-22
Defendant Gary Kaplan filed a Motion to Dismiss Counts 14-22 of the Superseding Indictment. [Doc. 450] The government responded. [Doc. 528] Defendant replied.
[Doc. 556]
Counts 14-22 of the Superseding Indictment deal with alleged violations of tax laws by defendant Gary Kaplan (?defendant? or ?Kaplan?). Counts 14-16 allege that defendant wilfully attempted to evade and defeat the wagering excise tax in violation of 26 U.S.C. ?7201 which criminalizes attempting to ?evade or defeat any tax. . . or the payment thereof.?
Counts 17-22 allege that defendant corruptly obstructed and impeded and endeavored to obstruct and impede the due administration of the revenue laws in violation of 26 U.S.C.
? 7212(a).
I. COUNTS 14-16
A. Whether the Wagering Excise Tax was Owed by Defendant Gary
Kaplan
1. Defendant argues he did not violate 26 U.S.C. ? 7201 (?? 7201")
because no wagering excise tax was owed by him because the wagers either were not accepted in the United States or were not placed by a person who was in the United States
1 The Superseding Indictment does not allege that wagers were placed in a
wagering pool or lottery under 26 U.S.C. ? 4404(2)(B). This sub-section is not at issue.
2 with a person who was a citizen or resident of the United States as required by 26 U.S.C.
? 4404.
The parties agree that 26 U.S.C. ? 4401(a) (?? 4401") provides for a 0.2% excise tax on wagers which are authorized by state law and a 2% excise tax on unauthorized wagers. The parties further agree that the wagers at issue in this case were not authorized by state law. There is a territorial limit on the excise tax on wagering pursuant to 26 U.S.C. ?4404. It states:
The tax imposed by this sub chapter shall apply only to wagers
(1) accepted in the United States, or
(2) placed by a person who is in the United States
(A) with a person who is a citizen or resident of the United
States, or
(B) in a wagering pool or lottery conducted by a person who
is a citizen of the United States .
The government argues that defendant was subject to the wagering excise tax pursuant to ? 4404 based on defendant?s status as owner and operator of various specified gambling entities doing business in the United States.1 Response (Doc. 528) at 2.
Defendant argues that it is clear from the face of the Superseding Indictment that all of the wagers at issue were placed with foreign corporations and not with ?a person who is a citizen or resident of the United States? and thus, no tax was due that could have been evaded. Counts 14-16 only allege that ?entities doing business in the United States, had and received taxable wagers.? Merely doing business in the United States does not overcome
the specific territorial restriction of ? 4404, which, in relevant part, requires that wagers be accepted in the United States. Section 4404 makes it clear that a wager can be ?placed?
2 ?Person? as defined in 26 U.S.C. ? 7701(a)(1) includes companies and
corporations. ?Foreign? as defined in 26 U.S.C. ? 7701(a)(5) when applied to a corporation means a corporation not operated or organized under the laws of the United States or any state.
3 and ?accepted? in two different places. Wagers that are accepted in the United States are covered by ? 4404(1) but only certain wagers ?placed? in the United States are covered by ? 4404(2). Therefore, it is clear that the statute contemplates that wagers can be ?placed? in the United States and ?accepted? outside the United States. Wagers placed by a person in one jurisdiction with an entity in another jurisdiction are ?accepted? in the latter jurisdiction. See United States v. Truesdale, 152 F.3d 443 (5th
Cir. 1998) (bets placed by persons in the United States by dialing phone numbers in the Carribean were not accepted in the United States regardless of the fact that financial transactions related to those bets were conducted in the United States); see also State v. Oldham, 98 S.W. 497, 500 (Mo. 1906) (wagers telephoned by person in Missouri to Kansas are accepted in Kansas).
Counts 14-16 deal with wagers that were placed in the United States with telephone numbers or internet servers in Antigua and Costa Rica and accordingly were accepted in Antigua or Costa Rica. Truesdale made clear that the existence of other related business activities in the United States has no effect on the location where wagers are accepted.
Truesdale, 152 F.3d at 444-45, 448. All of the operations for receiving wagers described in the Superseding Indictment are alleged to have been located outside of the United States and that is where any alleged wagers were accepted for purposes of the excise tax statute.
The wagers do not fall within the territorial limitation of 26 U.S.C. ? 4404(1).
The territorial reach of ? 4404(2)(A) is dependent on wagers being placed with a person who is a United States citizen or resident.
