US appeals court rejects founder's $36 million tax appeal by online gambling firm's founder

A federal appeals court has rejected attempts by the founder of a former online betting site to avoid paying $36 million in delinquent taxes and penalties, dismissing claims that his plea deal in a related criminal case precluded the government from pursuing the debt.

A three-judge panel with the St. Louis-based 8th U.S. Circuit Court of Appeals scuttled Gary Kaplan's legal challenge Wednesday involving his taxes for 2004 and 2005 during his affiliation with BetOnSports, which once was among the world's biggest offshore sports gambling companies.

In 2006, Kaplan, the company, its chief executive and other employees were indicted in St. Louis on federal counts accusing them of running an illegal gambling operation. Prosecutors said the business handled more than $1 billion in wagers a year through websites and phone lines.

Prosecutors have said the company misled gamblers into believing that money transferred to BetOnSports was safe and available to withdraw at any time when, in fact, the money was used to expand operations. When BetOnSports folded, customers lost more than $16 million, the government said.

As part of a 2006 civil settlement, the company agreed to stop taking U.S. bets. BetOnSports later was sentenced to probation and a $28.2 million fine that lawyers on both sides said probably would never be paid.

Kaplan, a 56-year-old high-school dropout who started out as a New York bookie, pleaded guilty in 2008 to conspiracy, racketeering conspiracy and violating the Wire Wager Act. He was sentenced the next year in St. Louis to four years and three months in federal prison, along with court-ordered forfeiture of $43.65 million. The federal Bureau of Prisons website shows that Kaplan was released from prison in December 2010.

On appeal in the tax matter, Kaplan insisted his plea deal barred the U.S. government from pursuing the back taxes — $25.5 million for 2004, $11.2 million for 2005 — and that the statute of limitations had run out on the government's ability to collect.

The U.S. Tax Court had ruled that Kaplan's plea deal was unambiguous in leaving him open to civil tax proceedings, and the 8th Circuit on Wednesday agreed.