The US Internal Revenue Service has rejected a claim for a $5.2 million (€4.5 million) tax refund from Limerick businessman JP McManus on gambling winnings from a three-day backgammon match with a billionaire in 2012 on the basis that he was not tax resident in Ireland.
In the latest development in the US legal action taken by the Limerick gambler and racehorse owner, the IRS claims Mr McManus does not qualify for a tax exemption on $17.4 million made from betting on a “serious backgammon match” as he was not a “resident of a contracting state” under the double taxation treaty between Ireland and the US.
Mr McManus has argued that his winnings should be exempt from US income tax under the treaty because he was an Irish citizen who paid the domicile levy of €200,000 to Ireland in 2012.
The businessman made the money playing against American private equity billionaire Alec Gores over three days in California in November 2012.
Mr Gores withheld the $5.2 million on the money paid to Mr McManus on the basis that the winnings might be subject to US federal income tax.
The IRS said in a filing submitted to the US Court of Federal Claims in Washington on Wednesday that Mr McManus, a tax resident of Switzerland, was "able to avoid Irish income tax by spending significant time outside Ireland in 2012, and thus he was not deemed a resident of Ireland for tax purposes."
The US government claims in the case brought by the Limerick businessman last August that although he admitted that he was not resident of Ireland under Irish tax law, he contends that he nevertheless qualifies for a tax exemption on his US gambling winnings as a resident of Ireland under the treaty.
It argues that because Mr McManus was not subject to “full or comprehensive taxation on his worldwide income in Ireland,” he did not qualify for “resident of a contracting state” under article four of the treaty.
‘Breaking point’
The IRS contends Mr McManus’s “legal position bends the law beyond its breaking point” based on his claim that the €200,000 levy amounts to a tax on his worldwide income and, as a result, qualifies him as a resident under the treaty.
In the latest filing, the US government includes questions asked of Mr McManus about the nature of the board game with Mr Gores. The businessman initially objected to the questions saying that it was “irrelevant” to the case but later provided more information.
“[Mr McManus] does not remember the number of games or the amounts wagered per game,” the businessman’s lawyers said in reply to the IRS.
“The wager was on the basis of points and the amounts to be wagered were altered during the competition at the request of the losing party.
“Several people came and went during the game serving food and beverages.[Mr McManus] does not remember their names.”
