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Cottage industry helps lottery winners dodge taxes

Massachusetts LotteryMassachusetts Lottery: Cottage industry helps lottery winners dodge taxes
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With few rules or law enforcement to stop it, a cottage industry has popped up to help lottery winners avoid taxes, child support, and other debts, potentially costing the state and federal governments millions in lost revenue.

Enterprising merchants — risking charges of aiding tax evasion — are openly hawking losing lottery tickets on Craigslist and eBay to help winners offset the profits with phony gambling losses.

"If you need the losers to write off for taxes," read one ad, since removed, from Medford. "I have 2 boxes full of Mass. losing scratch tickets."

Other Craigslist advertisers will gladly buy your winning tickets at a discount and claim the prizes themselves — allowing real winners to potentially avoid paying taxes on the prizes as well as any court orders to garnish the payments for other debts. One poster, who listed his first name and phone number, offered to buy a $1,000 ticket for $750 and "pay the taxes" himself.

Such efforts all support a lottery-driven underground economy of sorts, one in which professional ticket cashers known as "Ten Percenters" will, for a fee, cash in winning tickets presumably so that the original owner can dodge taxes, child support payments, or other obligations. Since an investigation on suspected Ten Percenters was published last month, the extent of the practice has become more evident.  (See Some lottery winning streaks have defied belief, Lottery Post, July 20, 2014.)

Critics say neither lawmakers nor agencies are doing nearly enough to discourage potential tax evasion, even though it directly reduces revenue to the state and federal governments.

"It's outrageous," said former inspector general Gregory Sullivan, who noted that state auditors first raised concerns about people cashing in large volumes of lottery tickets 15 years ago.

"Everyone knows what is going on, but nobody is doing anything about it," Sullivan added.

Now, that could be changing. The Massachusetts attorney general's office began looking into whether it could potentially prosecute Ten Percenters.

Clarance Jones, 76, of Lynn, has cashed in more than 1,700 winning tickets worth $600 or more since January 2013 alone. And Chelsea insurance broker Robert Brudnick and two of his children have cashed in 340 tickets in the past two years.

Lottery officials suspect Jones and the Brudnicks are cashing in other people's tickets because it is improbable they won that many tickets just by chance.

The attorney general's office is also looking at whether tougher laws are needed because it's generally legal to buy and sell lottery tickets unless prosecutors can prove that fraud or tax evasion is involved, something that can be difficult.

"The behavior of a few individuals cashing an unusually high number of lottery tickets raises many concerns," said Brad Puffer, a spokesman for Attorney General Martha Coakley. "It is also clear that we must look at whether additional legislative tools are needed to effectively combat this behavior and hold people accountable."

However, legislators have shown little interest in beefing up the statutes.

Lottery officials proposed a bill that would give them the ability to halt payments to people the Department of Revenue suspects may be Ten Percenters.

But the legislation appears unlikely to be approved this year, lottery spokesman Christian Teja said. The formal legislative session ended last month.

"It's just frankly a matter of indifference," state Auditor Suzanne Bump said, referring to legislators. "This issue has been kicking around for years."

Colleen McGonagle, a spokeswoman for the House Ways and Means Committee, said the committee is still reviewing the proposal.

The state could also try other tactics.

Sullivan, the former inspector general who is now research director at the Pioneer Institute think tank, said the state could pass laws or regulations limiting the number of tickets a single person could cash.

A lottery spokesman, however, said officials don't believe they have the authority to pass such a rule without legislation.

In addition, Bump said the state could launch more stings to try to catch suspected ticket cashers.

Lottery officials said they already do some checks. After a complaint from a customer, the lottery found that a clerk at the Richdale Food Shops in Randolph was telling customers their winning lottery tickets were worthless and then cashing them in herself.

In April, the lottery suspended the convenience store's license for a week and barred the worker from any further involvement with lottery sales. The store later fired the worker.

"Lottery sales agents are checked consistently," said Teja, the lottery spokesman.

The lottery also requires winners to go to lottery offices to claim any tickets worth $600 or more. And it holds back a portion of the money for taxes — 5 percent for state taxes on tickets worth $600 or more, plus an additional 25 percent for federal taxes on tickets worth $5,000 or more — which could deter some people from cashing in tickets.

But savvy ticket cashers could potentially get back some or all of that money by claiming that their winnings are offset by gambling losses. And losing tickets are easy to find to generate phony losses.

Many lottery players ditch losing scratch tickets at stores, though others sell them online.

"It seems too easy for a taxpayer to collect a bunch of losing tickets," said Kathleen DeLaney Thomas, an assistant law professor at the University of North Carolina, who specializes in tax law.

"The state/IRS should be auditing the people who are claiming a suspicious number of winning tickets in a year," she said.

Thomas said she thought the state and federal government could make it much harder for Ten Percenters to claim losing scratch tickets on their taxes, however, by requiring gamblers to keep receipts showing their purchases.

Thomas also said she thought the Craigslist ads peddling losing tickets as tax write-offs likely violate several federal statutes against tax evasion but noted "the IRS doesn't tend to bring criminal charges unless there's a lot of money at stake."

Federal prosecutors have also successfully targeted two Ten Percenters in the horse racing industry — including one in Massachusetts — for tax evasion and falsely signing forms claiming that they were the sole recipients of the prize winnings.

But officials couldn't recall any similar cases against lottery ticket cashers, perhaps because it can be hard to prove that someone is knowingly cashing in someone else's tickets to help them evade taxes — even though the lottery routinely sends reports of frequent winners to state and federal tax authorities.

In fact, lottery officials said there was nothing they could do to stop people from buying winning lottery tickets on Craigslist because it is legal to buy and sell used tickets — unless they can prove tax evasion or fraud is involved. (The ads have since expired or were removed after the authors were contacted.)

One man offering to buy winning tickets on Craigslist said he has cashed in three or four winning lottery tickets in the last few months to earn extra cash.

But he said he had no idea why people are selling him the tickets at a discount instead of cashing them in themselves.

"I don't even ask them the reason," said the man, who would only talk on the condition that he not be named. "It's not my business."

The man said he has a full-time job at a diner and wouldn't jeopardize his family by doing anything illegal.

Nor would be knowingly help someone avoid child support. But he acknowledged he would never know because he doesn't ask.

"The less I know, the better I feel," he said.

Boston Globe

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32 comments. Last comment 1 month ago by Teddi.
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mypiemaster's avatar - peace
He who dies with the most toys WINS!!!.

United States
Member #141039
April 2, 2013
722 Posts
Offline
Posted: August 7, 2014, 11:45 am - IP Logged

What's wrong with these people?.

Seekand ye shall find -Matt. 7:7 ...Ask and ye shall receive -John 16:24 ...Give and it shall be given unto you -Luke 6:38 ...Be careful what you ask for!!! -Mypiemaster 1:1

Having Money Solves Problems That Not Having Money Creates Yes Nod ****John Carlton****

    RJOh's avatar - chipmunk
    mid-Ohio
    United States
    Member #9
    March 24, 2001
    17906 Posts
    Offline
    Posted: August 7, 2014, 12:03 pm - IP Logged

    I maintain a record of all my ticket purchases and losses because I thought it would be necessary to have if I ever won enough to claim loses equal to my wins.  It sounds like I been wasting my time because such audits are never made if they only involve a few thousand dollars per individual because it would cost more money than they would collect.

    * you don't need more tickets, just the right ticket * 
    * your best chance at winning a lottery jackpot is to buy a ticket * 
         Wink 

      maringoman's avatar - kobold
      Massachusetts
      United States
      Member #37433
      April 14, 2006
      2051 Posts
      Offline
      Posted: August 7, 2014, 2:09 pm - IP Logged

      When you tax people to death this happens. It's a form of civil disobedience. I haven't done it. Yet. Wink

      It's a futile effort.

        Todd's avatar - Cylon 2.gif
        Chief Bottle Washer
        New Jersey
        United States
        Member #1
        May 31, 2000
        21555 Posts
        Offline
        Posted: August 7, 2014, 4:45 pm - IP Logged

        When you tax people to death this happens. It's a form of civil disobedience. I haven't done it. Yet. Wink

        Don't be silly.  Paying lots of taxes is patriotic, right?

         

        Check the State Lottery Report Card
        What grade did your lottery earn?

         

        Sign the Petition for True Lottery Drawings
        Help eliminate computerized drawings!

          maringoman's avatar - kobold
          Massachusetts
          United States
          Member #37433
          April 14, 2006
          2051 Posts
          Offline
          Posted: August 7, 2014, 5:08 pm - IP Logged

          Don't be silly.  Paying lots of taxes is patriotic, right?

            LOL freeloaders and the misguided souls would call that patriotism. I call it a money grab Chair

          It's a futile effort.

            Avatar
            New Member
            Atlanta, GA
            United States
            Member #156810
            June 30, 2014
            7 Posts
            Offline
            Posted: August 7, 2014, 7:15 pm - IP Logged

            God D----IT!------MUST THE GOVERNMENT TRY TO BE THAT NOSY AND BLEED EVERYONE?

            This story makes no sense....the darn government don't care about homelessness and poverty, but they are concerned with someone trying to get some money for themselves that they wouldn't otherwise be able to get any other way.  Anytime someone comes up with a creative way to make a dollar, like people cashing lottery tickets for someone else, the stinkin' government always has to stick its smelly behind where it doesn't belong.  They keep inventing new ways to criminalize people for things that make little or no difference to the rest of society.  Man, just give people a break and leave them alone.  I wish we didn't have a "Big Brother"...this is the end product of people wanting a government to regulate everything and "keep everyone safe".

            Now with me, I have unpaid student loan debts and if I knew someone I could trust, I would gladly sell them my winning lottery tickets if the amounts ranged from $5,000 to $100,000.  Anything over $100,000 I'm not concerned with as I will have a bit of money left over after taxes and garnishments.  If the winning amount is say $5-$10,000 I will definitely sell the ticket so that I can continue receiving food stamps, as I'm unemployed right now.  No use in taking a winning ticket to the lottery and having the amount garnished and having my food stamps being cut off and starving as a result.  Lottery winnings will automatically cut food stamps.  No money and no food would really suck.  I'd rather take it to a trustworthy friend, he/she cashes it, saves me from filing a tax return and reporting the payment to the food stamp office.  Our government expects us to be honest and have integrity, but they don't show any honesty and integrity towards the people.

            As the government tends to get bigger and bigger, so will the underground economy.  Underground economies are the product of big, tyrannical, unrepenting and controlling governments.

            IN ALL: BIG GOVERNMENT STAY OUT OF MY BUSINESS!

            Icebuster, 

            Master Programmer, Designer, and Reverse Engineer

              DoctorWhy's avatar - 04 05.jpg
              Indianapolis, IN
              United States
              Member #151849
              January 28, 2014
              55 Posts
              Offline
              Posted: August 7, 2014, 8:44 pm - IP Logged

              What is the big deal? A ticket is worthless until it has a bearer. If a person wants to sell their ticket, they should be able to do that.

              Think amongst Chaos. Play in Order.

                Todd's avatar - Cylon 2.gif
                Chief Bottle Washer
                New Jersey
                United States
                Member #1
                May 31, 2000
                21555 Posts
                Offline
                Posted: August 7, 2014, 11:43 pm - IP Logged

                What is the big deal? A ticket is worthless until it has a bearer. If a person wants to sell their ticket, they should be able to do that.

                I don't think there's anything wrong with selling your winning lottery ticket to someone.  But if you do, you are supposed to pay taxes on the money you made from the sale.  Even if it is a private sale to someone.

                If you don't like that concept of paying taxes when you privately sell your lottery ticket, then perhaps you are in agreement that HIGH TAXES ARE NO GOOD FOR ANYONE.  All that money the government gives away "for free" to people has to come from somewhere.  It comes from TAXES.  And if you try to avoid paying taxes, you are subject to jail time.

                It's always easy to say "tax the rich" when you're not one of the people getting socked with the outrageous tax bills.  But then when you win the lottery, don't complain when you are taxed like a rich person.  Or, just join the people who say that high taxes are bad for ANYONE to pay.

                 

                Check the State Lottery Report Card
                What grade did your lottery earn?

                 

                Sign the Petition for True Lottery Drawings
                Help eliminate computerized drawings!

                  RedStang's avatar - 20130829 151641_zps3qbxhhqb.jpg
                  Dutchess NY
                  United States
                  Member #121966
                  January 21, 2012
                  2642 Posts
                  Online
                  Posted: August 8, 2014, 1:03 am - IP Logged

                  Any system that rips the Government or State off has my vote. It's just wrong how badly they get to waste our money. I will give our Governor credit for asking why they bought new Highway equipment when the old stuff is still good.

                    Coin Toss's avatar - shape barbed.jpg
                    Zeta Reticuli Star System
                    United States
                    Member #30470
                    January 17, 2006
                    9081 Posts
                    Offline
                    Posted: August 8, 2014, 2:30 am - IP Logged

                    From the OP:

                    "If you need the losers to write off for taxes," read one ad, since removed, from Medford. "I have 2 boxes full of Mass. losing scratch tickets."

                    Maybe that should actually read New Hampshire losing tickets. Lots and lots and lots of NH losing tickets, and not just scratchers.

                    That's all I'm saying.

                    Those who run the lotteries love it when players look for consistency in something that's designed not to have any.

                    Lep

                    There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

                      Marilyn222's avatar - 528509 449915025049782_794386330_n.jpg
                      Denver
                      United States
                      Member #117688
                      October 12, 2011
                      430 Posts
                      Offline
                      Posted: August 8, 2014, 4:45 am - IP Logged

                      What is the big deal? A ticket is worthless until it has a bearer. If a person wants to sell their ticket, they should be able to do that.

                      That's one way of helping money laundering, doesn't it?Smile


                        United States
                        Member #155418
                        May 17, 2014
                        1857 Posts
                        Offline
                        Posted: August 8, 2014, 4:51 am - IP Logged

                        I don't think there's anything wrong with selling your winning lottery ticket to someone.  But if you do, you are supposed to pay taxes on the money you made from the sale.  Even if it is a private sale to someone.

                        If you don't like that concept of paying taxes when you privately sell your lottery ticket, then perhaps you are in agreement that HIGH TAXES ARE NO GOOD FOR ANYONE.  All that money the government gives away "for free" to people has to come from somewhere.  It comes from TAXES.  And if you try to avoid paying taxes, you are subject to jail time.

                        It's always easy to say "tax the rich" when you're not one of the people getting socked with the outrageous tax bills.  But then when you win the lottery, don't complain when you are taxed like a rich person.  Or, just join the people who say that high taxes are bad for ANYONE to pay.

                          Marilyn222's avatar - 528509 449915025049782_794386330_n.jpg
                          Denver
                          United States
                          Member #117688
                          October 12, 2011
                          430 Posts
                          Offline
                          Posted: August 8, 2014, 5:06 am - IP Logged

                          Don't be silly.  Paying lots of taxes is patriotic, right?

                          The question is, why do we have to pay taxes at the embassies with monies that are not earned in the United States as an American?Smile

                            Nikkicute's avatar - nnjx1k
                            RIGHT HERE!!
                            United States
                            Member #123295
                            February 17, 2012
                            2193 Posts
                            Offline
                            Posted: August 8, 2014, 5:38 am - IP Logged

                            No such postings on my local Craiglist, probably because we have 2nd Chance drawings where

                            you send $10 worth of losing tickets for a chance to win $1,000

                            I see listings in Chicago though.