Lotto Ticket Scam Lets People Dodge Taxes. The Old Trick But Creative!

How to Minimize Your Taxes with the Lottery Tickets?

When it comes to avoiding paying your taxes, people are very creative. One of these scams is as old as the lottery itself! This scam allows people to dodge paying their taxes by claiming losing lottery tickets when they file their taxes.

A search conducted by Business Insider of Craigslist and eBay found people who are selling thousands of dollars’ worth of losing tickets for just a few pennies on the dollar. Then the people who purchase these tickets will claim the full amount that the ticket is worth on tax forms.

The Premise

It is believed that the people who purchase these losing tickets are trying to offset some of the taxes that are owed on their winnings with a gambling loss. Kelly Phillips Erb, a tax attorney who writes for Forbes and is known as the “Tax Girl,” reports that it is mandatory that taxpayers report all of their income, which includes any winnings from gambling. Lottery and racetrack tickets usually do not have a paper trail, unlike when you lose in a casino. So, in essence, people can find a lottery ticket on the floor, pick it up and claim it as a gambling loss when they file their taxes.

The Sellers and Buyers

The Business Insider found a Craigslist ad in the Detroit area where the seller was offering $1,100 worth of losing lottery tickets for only $70. The seller writes in the ad that it is “Good for a tax write-off for your 2014 taxes to offset your winnings.”

Of course, where you will find people openly advertising the sale of losing lottery tickets and using them to “offset your winnings,” you will find people who post ads on Craigslist asking to buy your losing tickets.

One ad from Knoxville, Tennessee asks to purchase “loser lottery tickets” and the buyer goes on to say, “I would like the ones your [sic] tossing in the trash.”

“There is a gray market out there for these lottery tickets,” said Reece Morrel Jr., an Oklahoma-based CPA who does the taxes for some big players and oversees the online Lady Luck Diary website, where gamblers can learn about tax laws.

The Consequences

While you may think it is a genius plan to avoid paying taxes, hoarding these tickets can land you in some serious hot water with the IRS. The first case of this scam comes from (ironically) an accountant whose client won $2.7 million jackpot. The pair came together, and they got greedy.

The accountant claimed the client suffered $65,000 in losses for the year, in which the IRS flagged the case. Having to think fast, the accountant had to substantiate the massive write-off. After paying a Massachusetts man $500, the accountant rented $200,000 worth of losing lottery tickets.

Long story short, both the accountant and client plead guilty to tax fraud and served time in prison. Yes, jail.

Although it may seem fishy, not all lottery ticket sellers are trying to cooperate in a scam. Many ads are offering collector’s tickets, which is above board.