Wow!!!!!

"We recommend that the (Lottery) Bureau sufficiently identify and investigate lottery retail owners who repurchased winning lottery tickets, likely at a discount," the Office of the Auditor General said.

The Office of the Auditor General didn't say who was going to pay for the identification and investigation work.  Does he expect the lottery to pay for it out of their profits and pass the benefits to other state departments who job it is to do that?

They already know which retailers and forgot it's not against the law to purchase a lottery ticket for less than face value. I never did it, but if someone offered me a legitimate pick-4 $5000 winning ticket for $2000, I probably would.

There sure are lots of state agencies and reporters trying to get their five minutes of fame on something that is apparently legal.

Perhaps discounting is legal in the general sense, but it is still against lottery regulations which makes it illegal in terms of the retailer's agreement. So essentially, a breach in contract that would leave the door open for a lawsuit from the state. Not to mention aiding tax evasion, but that would be difficult to prove.

This takes the cake though:

Six store owners didn't report $509,211 in lottery winnings on their 2012 tax forms.

If they are not reporting winnings on their taxes (regardless how they acquired those "winnings"), we all know what happens next.

The only way they can combat this is to make it illegal until then people owing the goverment thousands in taxes,the same in chid support,will continue to do it,because its not illegal.

..13 Retailers were " disciplined" during the Audit. Oh Boy that had to hurt!!

*Scene at home..

Wife: Honey l know you did not get much sleep last night due to your meeting with the Auditors- how did that go?

Husband: Rather well my love- we were disciplined! 

Wife: Well what exactly does that mean?

Husband:Well l interpreted it to mean that our actions have caught the attention of the lottery Commission. .

Wife: So we stop altogether? 

Husband: No, just be cautious moving forward....that's all. 

Wife: Well that must come as a relief. 

The State better watch it before the retailers cut them off at the knees, that's who holds the real power with the lottery. Most if not all stores could stop selling lottery tomorrow and it would have little to no effect on their bottom lines. If you sell a $1 bag of chips you make 50 cents before all expenses. In comparison if you sell a $1 lottery ticket, you make 6 cents before expenses. The State is getting their money, the government is getting their taxes which they really should not since virtually no other country taxes their lotteries. This is a perfect example of people getting greedy and shooting themselves in the foot. They need the retailers a whole lot more than the retailers need them. If 70% of the retailers got together and boycotted them for a month, the lottery office would be shuttered.

This is what makes no sense. If you win anything over $500 it has to be claimed at the Lottery Office and taxes are taken out before hand, anything under that can be cashed by the retailer and that is not taxable, therefore that $509,211 had to be lottery winnings that were not taxable to begin with, prizes under $500, therefore the government would be illegally trying to get tax money that they were not entitled to in the first place. 

If I won a $100,000 in prizes from scratch-off tickets, as long as they are under $500, I am under no obligation to report my winnings to anyone, just like if you went to the casino, put $10 in the machine and won $100. If A wants to sell his winning ticket to B for a discount, then that is their business.

If I won a $100,000 in prizes from scratch-off tickets, as long as they are under $500, I am under no obligation to report my winnings to anyone, just like if you went to the casino, put $10 in the machine and won $100.

This is simply incorrect. Gambling winnings are taxed as regular income. This means that if you won $100,000 during the year, you owe taxes on $100,000, regardless the size or frequency of your individual wins. The lottery/casino is only required by law to withhold a certain percent above a certain amount, but this doesn't mean you won't owe additional (or less) taxes on the winnings. And technically, any income over $0 after deductions is taxable.

Without much proof, other state agencies are assuming all the tickets are being cashed at a discount. We really can't expect buyers to pay the winner the full value of a ticket before state and federal taxes are deducted. But that doesn't change the fact the taxes will eventually be deducted so it's not the tax people complaining.

Either I missed the memo saying our personal income tax returns which includes our SS number, are now public record or there is no way of knowing if the lottery winnings were on the tax forms or not. I know what happens when a W2-G is omitted, but that's between the person and the IRS and not someone writing an article.

The person writing the article probably got the tax informations from a state agency without ever questioned how that agency got it.

This sounds like a bizarre twist on the old " I can't cash the ticket I'm an illegal" scam, except that there is a payoff.

Sounds like some Michigan lottery retailers are the "J C Wentworth" of lotto!

Once again, still not true, only technically. If I win scratchoffs or jackpots that are under $500, I will get cash in my hand from the retailer and no one is the wiser. If you are not intelligent, you will deposit in the bank and file it with the IRS, but that is your choice and your problem. You can go to the casino everyday, win $100 and there is no documentation or paper trail which will require you to pay any taxes, and that is reality. If I win $100 on a scratchoff, I walk in, hand the retailer the ticket, he verifies it, gives me my cash and our business is concluded. 

If I don't deposit the money, and never had to fill out any forms when I collected winnings, how exactly are you going to prove what I won and collect taxes on it?

In your original post, you said, "that is not taxable," in reference to a large accumulation of small wins.

I showed the contrary, and that was really the only purpose of my post. If you win any sum of measurable amount you will have to put it through the system at some point, and that is where they would nab you. The saying goes, even drug dealers pay their taxes. The IRS is not one to mess with.

You, like most casino/lottery players, may win $100 here and there, but at the end of the day, are the net winnings enough to exceed your deductions and actually trigger a tax? Probably not. Again, I am referring to significant cumulative winnings over the year.

P.S. Most casinos now require IDs (either player's card or DL), and therefore a paper trail would likely exist even on small wins. But as I said above, small wins are irrelevant if they don't exceed your deductions, so I digress.

I made it pretty clear in my original post that I was talking about wins in amounts under $500 that would not be subject to tax or any kind of documentation. Casinos kind of sort of require IDs but that has no bearing on what you win and if it is taxed. You don't have to have a player's card as a requirement at any casino that I have ever been to and even then I have no idea how much information the player's cards have and if the IRS even has the right to the access of the info on them seeing as most casinos are owned by the Native Americans, not to mention that if the casinos divulged that information, that would pretty much be the end of their business.

I don't disagree that one or two $500 wins wouldn't subject you to tax; however, it is simply wrong that many MULTIPLE $500 wins accumulating a taxable amount would not be subject to tax (which is what your original post was saying in response to the hundreds of thousands not reported by the retailers).

I'm not sure why you don't understand this. It is taxed as regular income. If you get a paycheck of $500 a week, do you then say that isn't taxable? It doesn't matter if you chop it into little pieces, if the whole pie is big enough then it is taxable. If you can't understand that then feel to call the IRS.

In case you didn't know, even if you don't use a player's card, the casino records your play. Why do you think the pit boss takes your DL at the tables then give it back? Usually it's for comps, but they are monitoring your play. It's not age verification, they do that at the door.

They are required by law to support the IRS in a player investigation. Yes, even the Indians (IRS has its own committee with the tribes).

Most casinos are actually not owned by Native Americans, but like your position on the taxation, believing this isn't uncommon.

Lottery retailers cash tickets for the lottery and any unreported winnings (under $600) is included with all the tickets. The audit is implying every ticket cashed belongs to the store and the owners are taxed on that amount.

And none of casinos required ID to cash out my chips. Where did you see that "most" casinos require ID?

If you hit for $500, taxes are already taken out. You can hit under $500 as many times as you wish and not be taxed. Technically state lottery should payout $1,000 for cash 3 winners instead of $500. The government get their 50% before you get your money.

Anything under $500 is not taxable so I agree with Stack. Any smart player would not mark the same straight or straight/box bet on the same cash 3 or 4 ticket. Anything on the same ticket over $500 is taxable.

In all reality, players are taxed twice on pick 4 games. Winners for a straight bet should recieve $10,000 in prize money. The government doesn't reveal the "real" truth behind your winning tickets.

Stack47 you can win $100,000 for many small wins under $500 without paying taxes. You can win for $509,000 without paying taxes. As long as they are from winnings under $500. Michigan Auditors should  dip their noses into finding work for people in the State. They should stop making up jobs to keep themselves in business. Their investigations are so bogus.

Lottery retailers cash tickets for the lottery and any unreported winnings (under $600) is included with all the tickets.

Are you a lottery retailer? If you mean including it on their taxes, I don't believe this is true at all. It isn't in my state at least. If you can provide documentation or some clarification on that it would be great.

I don't think the auditors are stupid. The store owners didn't report $509,211 in winnings on their tax forms. Not their sales forms. Not winnings of other players. This seems to be a key point supporting the fact that store owners are higher ranked in the top winners, so not sure why else they would include it in the report. 

And none of casinos required ID to cash out my chips. Where did you see that "most" casinos require ID?

I never said they require ID to cash out. There is a difference that I think you are missing. It is well known in the blackjack AP community and from my own casino experience, they simply won't let you get any play unless you fork up some sort of personal, trackable information. You can avoid using a player's card, but then they will get your DL. There's really no way to weasel out of it. There are a few casinos you may sneak past but eventually they will catch on.

GAMan:

If you hit for $500, taxes are already taken out. You can hit under $500 as many times as you wish and not be taxed.

Again, nothing could be further from the truth. Just because they don't deduct withholding doesn't mean you don't owe taxes. But I give up. If you want to believe this, then be my guest. Have fun when the IRS comes knocking.

From the original report (emphasis added):

"Although the Bureau reported the retail owners' winnings to the Department of Treasury for income tax reporting purposes, 6 (40%) of the 16 20/20 winners for calendar year 2012, who were licensed lottery retail owners, did not report $509,211 of their lottery prize winnings on their State income tax returns for calendar year 2012. Section 206.30(6) of the Michigan Complied Laws indicates that lottery prize winnings must not be excluded from a taxpayer's taxable income."

So I gather from this that indeed those are store owner winnings going unreported, but only the State and not necessarily the IRS is pursuing them.

Below the paragraph I posted above, amusingly the report goes on to say that their treasurer is taking action to collect the taxes on those unreported winnings.

Btw, the average prize amount of these retailers' winnings in the audit was $3000+, which means most aren't cashing little $500 prizes. In the case of discounting they are cashing prizes from players intending to avoid tax withholding or other triggers in the system (as we all know). It also seems that there may be some non-retailers engaging in discounting....one player cashed 238 prizes worth over $700,000 in 2012 and another (the same possibility) cashed 299 prizes worth over $1 million in 2013. That is a reportable prize nearly every single day, which means they have to be buying a lot of tickets otherwise.

Stores are probably scaring their lottery buyers purposefully and unnecessarily. I mean, many debts, like for mortgage, for example, long cancelled if they are over 7 years old.  Also, if one won million they can easily cover their debts. Of course, if those people ow millions, they don't even need to win lottery.

You're exactly right, and this is part of the reason I mentioned "net" winnings.....in all likelihood there will only be a few people who would ever fall into this category.

It kinda boils down to the ethics and technicality of it; the reality is that most people either wouldn't know or care that X beyond your deductions is actually taxable.

I mean, if I won a bunch of Pick3 pairs would I reallllly go out of my way to pay Uncle Sam? Does the IRS care about a small fry? Probably not. Most likely, as you pointed out, I would find some creative way to deduct against the win(s). On the other hand, if I'm raking in tens to hundreds of thousands, it's obvious I can't really offset that (at least normally), and left unreported that would probably get their attention. All it takes is one little goof and you're on their radar.

I'm starting to wonder if all of us are discussing different topics because as you said, there is a huge difference between cashing $509,000 worth of tickets and cashing one ticket worth that amount. I just handed a clerk a Keno bet slip that cost $12 and then handed him a Keno ticket worth $18 and he paid me $6. Some people will say I "won" $6 by forgetting or ignoring I was out $12 before the transaction. The IRS requires us to report gambling winnings and that usually means winnings that require a W2-G unless we are professional gamblers.

I don't know the total yearly payout by that store, but it takes on average about $1500 worth of tickets per day to get $500,000 a year. Each state probably has several stores cashing $500,000 worth of tickets a year without cashing one ticket worth over $600, but for some reason the Michigan auditors believe the store owner is cashing all the tickets.

"Their investigations are so bogus."

If these retailers really weren't reporting over $500,000 in income, why isn't the IRS going after them?

"If you mean including it on their taxes, I don't believe this is true at all."

Some stores cash tickets all day long in amounts under $600 and most probably don't require players to sign the back of winning ticket. The auditors only know the store cashed tickets worth an amount, but don't know who was paid.

"I don't think the auditors are stupid. The store owners didn't report $509,211 in winnings on their tax forms."

How exactly did auditors determine the $509,211 was gambling winnings and how did they know it wasn't reported on the store owner's 1040?

I can understand whomever is reporting this story isn't lottery savvy, but I thought you were. Take a look at the payout schedule of a $1 scratch-off with a top prize of $500 and it clearly shows millions will be paid out without one ticket requiring a W2-G. Basically the auditors and apparently you expect the store owners to pay taxes on all unsigned tickets.

"It is well know in the blackjack AP community and from my own casino experience, they simply won't let you get any pay unless you fork up some sort of personable, trackable information."

Maybe Coin Toss is reading this thread and will tell us how many people he carded in his years as a Craps dealer. Casinos are not working for the IRS and when I put five $100 bills on Blackjack or Craps table, the dealer gives me $500 worth of casino chips no questions asked. In the past, at the smaller casinos, a floormen or the pit boss would call the cage to find out how much a player cashed if the player didn't color up. With the today's mega size casinos, it would be difficult at best.

The rules for cashing chips is basically the same as at a bank; ID with SS is required on amounts over $10,000. One time I was asked for "any name for their records" by a cashier when cashing over $3000 worth of chips at the downtown Vegas Station casino and cashed for about the same amount the next night at Texas Station, no questioned asked. The casinos apply their own cashing rules for their Whales and don't report the buy-ins or cash-outs to the IRS unless they want to risk losing the business.

I've been to lots of different casinos in many locations and never required to show ID when buying chips or when cashing chips.

How exactly did auditors determine the $509,211 was gambling winnings and how did they know it wasn't reported on the store owner's 1040?

The prizes that these owners were cashing were not little $500 prizes. If you read the rest of my post, you should have seen where I mentioned the average prize was about $3,000. Who knows how many little prizes the owner's cashed but didn't report. What they DO know is that lottery records showed prizes claimed by these owners that were not reported on their state tax returns. That's how they got caught. The lottery said, "Hey our records show these guys won X amount, but the Department of Revenue says they only reported Y amount. WTF?" That pretty much sums it up.

I am well aware of what triggers report requirements for the casino and so forth....this is not what I was referring to in my mentioning of the ID requirement. I said that casinos track play, typically for their own purposes. That is the main reason they require the IDs, but in the event of an IRS investigation they would have to surrender this information (just like ANY other business that gets audited).

I can't speak for all the casinos on the planet, but in the past 3 years of me visiting them, I and every other player in the room has been required to show ID at the tables regardless how much money we put down and regardless if we leave for 30 minutes and come back (unless you leave your chips and tell the dealer of course). If you can get away with not having to show it, then consider yourself blessed. Cause APs literally spend months searching for casinos that are too lazy to ask, and they typically aren't welcome there long. Cashing chips, I am almost never asked. But buying them, always. It doesn't matter at what point they take your ID, because they are still tracking your play. That's also pretty much the only way they can issue P&L statements at the end of the year.

I just re-read my response to the highlighted portion and realized it probably wasn't clear:

They likely determine it by as I said, a record comparison. If Bob reported income of $100,000 but the lottery says he won $200,000, he obviously didn't report $100,000 in winnings. At the very least he should have reported $200,000 in income, showed an offset of $100,000 for AGI of $100,000 (minus std. deductions of course but you get the idea). The methodology isn't in the report, just the findings. In reality, it doesn't matter if the unreported amount was from gambling or not, since prizes are taxed as regular income. What does matter to the state is that these retailers were not reporting all their income, and because discounting had been suspected previously (4 investigations were ongoing prior to the audit), they concluded it was from claimed prizes and used data to support this (as mentioned in the first line of this paragraph). They actually admit in the report that it's not really their place to prosecute tax evaders, so they forwarded the findings to the IRS.

I also discovered that it is in fact against the law to "discount" in Michigan if you operate a retail store; the auditors cite Michigan Administrative Code R 432.6(1)(c) and R 432.6(1)(k), which prohibits retail owners from repurchasing lottery tickets from the original owner.

Unrelated note, but apparently the lottery has been transferring winner tax data to the IRS unencrypted. The incompetence is astounding, so players beware!

The casinos requiring ID started with Regulation 6A. At first it was for any cash transaction over $10,000. Then the amount changed a few times.

Go to nvbar.org and do a search for Goodbye 6A Hello BSA.

As far as asking for personal information the casinos know they are in the ego business as much as the gaming business. The information requests are for marketing so then can send tournament invitations out, etc... ad nauseam.  Every gambler thinks the are a 'good' player and that's what the players' cards and everything are appealing to. Plus the house has to 'justify' comps. Just because someone saw some hype show on A & E and goes to Casesar's and loses $5 on a hand of 21 doesn't mean they've got comps to the better restaurants coming.

The days of a pit boss only knowing someone as 'Mr. B." and comping them to the best the house had are long over. Now everything is computerized, all departments are supposed to show a profit, and it takes so many points to get any particular comp.

I did read the "rest of your post"and started wondering if we're discussing the same thing. If the average prize is about $3000, Federal law requires the Michigan Lottery to issue a W2-G for prizes over $600. In Michigan players with winning tickets valued $601 to $50,000 must go to a regional office, lottery headquarters, or a designated bank in the Northern part of the state and the Upper Peninsula. If you, me, a lottery retailer, or anybody buys a ticket valued over $601 at a discount, to collect in Michigan (and in every state) we are issued a W2-G.

If the retailers mentioned in the article failed to report the amount on the W2-G on their 1040, the IRS will send them a letter. If they did report the amount on their 1040, it would be part of the state taxable income. The Michigan Lottery won't payoff any ticket valued over $601 without issuing a W2-G.

It doesn't matter how many prizes under $601 any retailer cashes as long as their books balance. Retailers validate those tickets on their terminal and get a reciect showing the transaction, but there is no paper trail showing who collected the winnings because it's not required. Which part of lottery retailers are paid a commission for cashing tickets by the lottery confused the auditors into believing the retailers must pay taxes on all the non-taxable tickets they cashed?

I'm more than willing to give a small list of casinos I gambled in that never required ID at any table in Vegas, AC, Reno, Illinois, Indiana, WVA, Windsor, Ontario, and a few other states that you can check. Instead of saying "visiting them", how about the name and location of those casinos you visited that required ID.