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Professional lottery player wins tax dispute

Massachusetts LotteryMassachusetts Lottery: Professional lottery player wins tax dispute
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Big winnings, tiny taxes

Several times a week, Clarance W. Jones does something most people can only dream of: He cashes in bunches of winning lottery tickets.

And even better, he has found a way to pay barely any taxes on the massive take.

Over the past decade, the 73-year-old from Lynn has redeemed more than 10,000 tickets from the state lottery — more than any other person — worth a total of more than $18 million.

He has also long fought efforts by the state to collect considerable taxes on his winnings, saying he is a professional gambler who spends millions of dollars betting on the lottery and other games, offsetting almost all his winnings.

And last month, the state Appellate Tax Board agreed with him, virtually wiping out any state taxes he owed on the prizes and allowing him to get back more than $200,000 that the lottery had withheld for taxes. Professional gamblers are entitled to deduct their losses under federal and state tax rules. The state doesn't plan to appeal.

The tax case is the latest setback to state efforts to crack down on a small group of people, including Jones, who the state believes aren't professional gamblers but professional ticket cashers who make their money redeeming winning tickets for others. They're called "10 percenters" because they are thought to keep 10 percent of the winning amounts for themselves.

The state suspects that these individuals are in the business of helping other people evade taxes, child support, and other debts — all accounts for which lottery proceeds could be tapped.

It is not illegal to cash in someone else's winning ticket, but it is illegal to do so to help them evade taxes or other legal obligations.

This is the first case of its kind to go before the Appellate Tax Board, revealingthe trouble the state and federal government have had collecting taxes from some of the lottery's most familiar customers.

Jones, who declined to be interviewed, has been in the state's sights for years. In 1999, then-auditor Joseph DeNucci included him on a list of suspected professional ticket cashers, and the state treasurer at the time, Shannon P. O'Brien, called him an apparent "10 percenter" after he claimed $844,626 in prizes during a three-year period.

But Jones has dramatically ramped up his lottery winnings since then. Last year alone, Jones claimed 1,131 prizes worth $2.2 million, more than any other frequent winner, according to the lottery. Ordinarily, lottery officials say, someone would have to spend millions of dollars on lottery tickets to win that many prizes.

"The odds are not in his favor," said Beth Bresnahan, a spokeswoman for the Massachusetts State Lottery Commission. "For the amount he is cashing, he would have to invest a great deal of money."

But Jones's attorney dismissed suggestions he cashed in other gamblers' tickets.

"What they're claiming is speculation," said attorney Domenic Finelli of Revere. "There's no proof."

State Department of Revenue spokesman Robert Bliss said the agency decided to audit Jones in 2004 after he recorded lottery winnings "far in excess of what seemed humanly, or mathematically, possible" and offset them with gambling losses scattered across the state.

The state wound up billing Jones for back taxes for years 2001 through 2007.

Jones first appealed to the Department of Revenue and then the state tax board in February 2009.

Jones, a former president of the NAACP in Lynn, told the board he is a professional gambler, spending 60 to 80 hours a week betting on everything from the lottery to casino games to racing.

He testified that he has gambled full time since he sold his industrial cleaning company in 1986 and used several strategies to gain an edge in the lottery, including buying scratch tickets in the middle of a packand visiting stores where patrons recently racked up wins, on the hunch that those outlets likely had other winning tickets to sell.

"He has a formula," said Finelli, Jones's attorney.

But Finelli said Jones has won only slightly more than he has lost in gambling. Indeed, Jones claimed so little net income in 2001 and 2002 that he paid no state income taxes. He rents a 680-square-foot condo in Lynn, according to his attorney and city records.

"He makes some money, but it's not huge," Finelli said. "He's not wealthy."

Jones, according to his lawyer, kept extensive records to document his gambling activities and expenses, including log books and 200 boxes stuffed with losing tickets, racetrack programs, and other records, which he kept in self-storage units in Lynn.

The Department of Revenue challenged Jones's losses, saying his records were incomplete and the totals in his logs did not match amounts he claimed on returns. The Department of Revenue said it even doubted he purchased all the losing gambling tickets kept in storage, because of the "sheer volume of tickets" from locations across the state.

But the Appellate Tax Board found that revenue officials "virtually ignored" Jones's own records, failing to visit Jones's storage facility in Lynn to sort through the boxes of losing documents or have Jones's attorney deliver the records to the agency's offices.

"The auditors never conducted a field audit to gain a better understanding of how thorough his records of losses were, nor even a desk audit," the board concluded.

The board also said the Department of Revenue raised the possibility that Jones was a professional ticket casher only at the "11th hour" and didn't provide any concrete evidence to back up their claims.

In the end, the board decided to allow Jones to count his gambling losses and wiped out more than $465,000 in taxes the Department of Revenue claimed he owed for 2001 through 2006. After factoring in withholding and refunds, Jones will wind up paying only about $2,600 in state income taxes for the period, despite collecting more than $7 million in lottery prizes in those years.

Boston attorney William J. Lovett, a former prosecutor in the US Department of Justice's tax division, said it is typically easier for tax agencies to show that ticket cashers do not have enough legitimate gambling losses to offset their winnings than to prove the winnings belonged to someone else. The burden is on taxpayers to keep records backing up their deductions.

But tax auditors must spend time sifting through those records to demonstrate the deductions are improper.

"The DOR has to do better than say 'No, they're not real,' " said Lovett, who handles civil and criminal white-collar crime cases for Collora LLP in Boston.

Jones's attorney said his client has been equally successful in using his gambling losses to minimize his federal tax bill. Indeed, Jones told the tax board he has consistently received refunds from the Internal Revenue Service since 1988.

Boston Globe

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33 comments. Last comment 5 years ago by PERDUE.
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Slick Nick's avatar - Lottery-035.jpg
Rochester
United States
Member #103282
January 1, 2011
603 Posts
Offline
Posted: November 5, 2011, 10:19 am - IP Logged

Interesting story Todd. I wonder if this will happen in other states?   US Flag

Money is a terrible master, but a great servant...Smile


    United States
    Member #117706
    October 12, 2011
    18 Posts
    Offline
    Posted: November 5, 2011, 11:06 am - IP Logged

    This story is not true. There is no way someone gonna win 10,000 times. This news is made up as a way to get people play the lottery. Thanks God I have my secret sources.

      Avatar
      Los Angeles CA
      United States
      Member #55727
      October 16, 2007
      195 Posts
      Offline
      Posted: November 5, 2011, 11:34 am - IP Logged

      Wouldn't it be possible to track the locations and time of sale of the ticket purchases and deduce if it is him actually buying the tickets. And if this is all true, this guy might have a bit of a gambling addiction.

      EXMECHANIC

      "My dollar buys hope, what does yours do?" 

        RJOh's avatar - chipmunk
        mid-Ohio
        United States
        Member #9
        March 24, 2001
        19816 Posts
        Online
        Posted: November 5, 2011, 11:37 am - IP Logged

        This story is not true. There is no way someone gonna win 10,000 times. This news is made up as a way to get people play the lottery. Thanks God I have my secret sources.

        Just because you spent $1000 on tickets for the $254.4 PowerBall drawing and only won $220 (http://www.lotterypost.com/news/238584/2274608) doesn't mean all professional gamblers suffer the same fate. 

        It just shows that when you are gambling in games where the odds of winning are in the millions only gambling a $1000 is like bringing a pea shooter to a gun fight.

        It may be true that he was just cashing tickets for other players but the state didn't spend much effort trying to prove it.

         * you don't need to buy more tickets, just buy a winning ticket * 
           
                     Evil Looking       

          Todd's avatar - Cylon 2.gif
          Chief Bottle Washer
          New Jersey
          United States
          Member #1
          May 31, 2000
          23259 Posts
          Offline
          Posted: November 5, 2011, 12:20 pm - IP Logged

          This story is not true. There is no way someone gonna win 10,000 times. This news is made up as a way to get people play the lottery. Thanks God I have my secret sources.

          You either did not fully read the story, or else you don't understand it.

          In order to think it's "made up", you would also have to think that the entire Massachusetts court system, the IRS, and the Massachusetts department of taxation are also trying to make up something about a lottery winner.

           

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

           

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

            L J1's avatar - chi jpeg.jpg
            Michigan
            United States
            Member #54181
            August 8, 2007
            123 Posts
            Offline
            Posted: November 5, 2011, 12:32 pm - IP Logged

            An AWSOME story!

            I'd love to read more of the kind.

            Hats of to you Mr. Jones for a job well done.

            Hey... just as the story says, Mr. Jones claims he had all of the proof.

            Perhaps the Tax Man had better things to do other than investigate the busy work.

            Balance is Key

              Avatar

              United States
              Member #115803
              August 28, 2011
              127 Posts
              Offline
              Posted: November 5, 2011, 1:22 pm - IP Logged

              I save my losing tickets in a manilla envelope.  That way, if I win a big prize during that tax year, I could use them to prove my gambling losses.  I toss the envelope at the end of each tax year once I don't need the proof any more.

              (Learned that trick from my father-in-law who bets the horse races as a side hobby and occasionally hits a decent sized prize.)

                dpoly1's avatar - driver
                PA
                United States
                Member #66141
                October 16, 2008
                1672 Posts
                Offline
                Posted: November 5, 2011, 1:30 pm - IP Logged

                I am just happy that Massachusetts lost!

                The money grubbing, socialist & worthless politicians Red Devil from  Massachusetts lost this time!


                  United States
                  Member #117706
                  October 12, 2011
                  18 Posts
                  Offline
                  Posted: November 5, 2011, 2:16 pm - IP Logged

                  You either did not fully read the story, or else you don't understand it.

                  In order to think it's "made up", you would also have to think that the entire Massachusetts court system, the IRS, and the Massachusetts department of taxation are also trying to make up something about a lottery winner.

                  You made a good point about that. Thanks and I took back what i said.Smile


                    United States
                    Member #117706
                    October 12, 2011
                    18 Posts
                    Offline
                    Posted: November 5, 2011, 2:20 pm - IP Logged

                    Just because you spent $1000 on tickets for the $254.4 PowerBall drawing and only won $220 (http://www.lotterypost.com/news/238584/2274608) doesn't mean all professional gamblers suffer the same fate. 

                    It just shows that when you are gambling in games where the odds of winning are in the millions only gambling a $1000 is like bringing a pea shooter to a gun fight.

                    It may be true that he was just cashing tickets for other players but the state didn't spend much effort trying to prove it.

                    Youa made a pretty good point about that. I was upset that I spent a $1,000 dollar and win nothing in return, and a perso probably spent a $1 and win the whole thing. It is true that evrybody has different luck. Some people are lucky  and other not so lucky. I took what I said back, and I'm going to play smarter by playing smaller amount.I Agree!

                      RJOh's avatar - chipmunk
                      mid-Ohio
                      United States
                      Member #9
                      March 24, 2001
                      19816 Posts
                      Online
                      Posted: November 5, 2011, 3:00 pm - IP Logged

                      Youa made a pretty good point about that. I was upset that I spent a $1,000 dollar and win nothing in return, and a perso probably spent a $1 and win the whole thing. It is true that evrybody has different luck. Some people are lucky  and other not so lucky. I took what I said back, and I'm going to play smarter by playing smaller amount.I Agree!

                      This story and another one (http://www.lotterypost.com/news/237882) give the impression that Massachusetts frown on high-stakes gamblers breaking even or making money playing their games.

                      Spending a lot of money playing lottery isn't dumb if you've done your home work,  know the most likely outcome and can accept it, that's gambling.  The gamblers in these stories spent more time strategizing than most people spend working a full time job so it was like a business for them. 

                      Personally I find strategizing about how to win a lottery as enjoyable as playing.  When ever I buy more than $10 worth of tickets I know and is willing to accept the most likely outcome.  If I thought I would have any regrets, I wouldn't play.

                       * you don't need to buy more tickets, just buy a winning ticket * 
                         
                                   Evil Looking       

                        GiveFive's avatar - Lottery-026.jpg
                        NY State
                        United States
                        Member #92609
                        June 10, 2010
                        3685 Posts
                        Offline
                        Posted: November 5, 2011, 3:20 pm - IP Logged

                        News articles like this one published here are why I enjoy The Lottery Post so much.  Call me naive, but I've never heard of "10 percenters", so I learned a little something from reading the story. 

                        For my part, I'm inclined to believe The Commonwealth of Massachusetts's theory of the guy being in the business of cashing other peoples winning tickets. Maybe he isnt, but if he is, then my hat is off to him for his entrenpeneurial creativity.

                        My question is this; How would one go about starting up a 10 percent business, and then grow it to the size the guy obviously has?  It aint like ya could advertize in the local paper.

                        About playing the lottery --  You will lose more than you win. Until you hit a jackpot.  Then everything changes!

                          Jack-C's avatar - us
                          San Diego, CA
                          United States
                          Member #61467
                          May 24, 2008
                          28146 Posts
                          Offline
                          Posted: November 5, 2011, 3:23 pm - IP Logged

                          There's a member of LP that posts a lot of predictions each day and hits a lot each day.  Now and then he will win $50,000 or so and everyone congratulates him (rightfully so), but look at his stats and you will see that month after month he loses about 60% of what he bets.  So, the big wins look impressive until you look at how much was bet.  The same is true in this story.

                            Kidzmom's avatar - cold
                            NC
                            United States
                            Member #11741
                            February 23, 2005
                            1233 Posts
                            Offline
                            Posted: November 5, 2011, 3:59 pm - IP Logged

                            Why is it that when a person consistently wins in whatever state they live in, why does the state or the lottery think they are lying or cheating?! Isn't this what the game was made for..to win it...Lol... OMG!

                            if the courts found in favor of the lottery player then enough said...

                            Be kind to a stranger because you never know when you are talking to an angel.Blue Angel

                             

                            KZM