BetOnSports Founder Kaplan’s $36M Back-Taxes Bill

BetOnSports Founder Kaplan’s $36M Back-Taxes Bill

Among the stories buried in the wake of the recent Sheldon Adelson-led onslaught of proposed federal iGaming legislation is a return to the news of one of the oldest tales of all, the rise and fall of BetOnSports and its founder, Gary Kaplan.

Kaplan’s two-decade saga as the force behind what was, for years, likely the largest US-facing online sportsbook, BOS, ended as these things usually do — with US authorities managing to get hold of Kaplan and extradite him to the US to face gambling charges.

The heyday of BetOnSports spanned the advent of computer gaming itself.  Kaplan started his underground company in New York in 1989, moved it to Florida in 1995, and then , seeking a legal haven, jumped offshore to Antigua in 1997 and on to Costa Rica in 1998.  BOS even spun up its own online poker skin, BOSpoker, and actively marketed to online poker players; your loyal FlushDraw scribe received BOS junk mailers for years, despite never betting or playing there.

A decade ago, the BOS logo was everywhere on the Internet.  Now one can barely find it.

A decade ago, the BOS logo was everywhere on the Internet. Now one can barely find it.

Of course, BOS’s sportsbetting business had always been illegal, and though it took the US feds years to catch up with him, when they finally did they threw the virtual “book”.  Kaplan was indicted in 2006 and finally arrested and extradited in 2007, whereupon he faced the threat of $180 million in criminal forfeitures and a possible prison term of 75 to 150 years for assorted RICO (racketeering-related) crimes.

Kaplan, as any sane person would do, finally accepted a deal — a $43.65 million fine and a prison term of 41-51 months.  It was Kaplan’s plea deal that established the foundation for how i-gaming defendants have been dealt with by the US ever since — a heavy hit to the wallet and a somewhat briefer stint in Club Fed.

So Kaplan did his time and paid his fine.  The old BOS players lost nearly everything, receiving a 4.63% refund of their remaining balances in 2011, once all seized BOS assets had been liquidated.  The headline-grabbing Full Tilt remission story of the past three years wasn’t the first such refund tale involving US players, nor is it likely to be the last.  And, absent the unusual Full Tilt situation of an influx of settlement funds from PokerStars, the BOS saga remains relevant as a likely measure of how much the Cereus Network players are likely to receive from a remissions/refunds process, should one ever occur — between 3% and 10%.

These things usually result in victimized consumers getting back pennies on the dollar; whether some form of internet gambling is involved in that part of the equation.

But the BOS tale isn’t done.  Just last week, a decision was issued in one of the final loose threads in the Kaplan case, an additional civil tax charge levied by the IRS against all those years of unreported income.

Kaplan’s plea deal, it turned out, was intended to be airtight and binding on the court, whereas most plea deals are only really recommendations, and can be altered by the presiding judge.  Yet Kaplan and his attorneys, in closing the door on all criminal matters, couldn’t do the same on the civil-tax exemption, and the IRS swooped in for another $36.5 million swipe.

A recent memo of the latest appellate decision even includes the relevant testimony from Kaplan’s initial plea hearing, where he agreed that the criminal case was dealt with in the plea deal, possible civil sanctions still existed:

[Court:] Do you understand, Mr. Kaplan, that there is a difference between a criminal tax proceeding and a civil tax
proceeding?

[Petitioner:] Yes I do, Your Honor.

[Court:] And in this document, the U.S. Attorney’s Office has agreed it will not bring any criminal tax proceeding against you; however, that doesn’t preclude the initiation of any civil tax proceeding or administrative action against you.

[Petitioner:] I understand that. And we’ve agreed to that.

Case closed.  Whether or not Kaplan has an extra $36.5 million with which to pay the IRS isn’t really part of the story.  The feds were never going to let him come back to the US, to live freely off the the tens of millions he presumably squirreled away while running a major offshore, US-facing sportsbetting shop.

And that may be the final takeaway from the BOS / Gary Kaplan story.

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