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.
Interesting story Todd. I wonder if this will happen in other states?
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.
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.
Just because you spent $1000 on tickets for the $254.4 PowerBall drawing and only won $220 (https://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 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.
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.
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.)
I am just happy that Massachusetts lost!
The money grubbing, socialist & worthless politicians
from Massachusetts lost this time!
You made a good point about that. Thanks and I took back what i said.
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.
This story and another one (https://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.
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.
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.
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...
What Taxachusetts should do is just go door-to-door saying "Stick-em up!".
It would be more direct and in line with their attitude towards those who win more money than they play.
This entire story shows guilt on both sides. THis so called "professional gambler" is definitely not winning directly from the gaming industry...its a red herring to be sure. THe problem with the state's allegations is they didnt THINK or ACT to charge him with the correct and factual acts he is committing on a daily basis.
Burden of proof lays with the state..and they blew it big time. I would have nailed him to produce his so called Winning Method that created all these wins.
He can say that he asked his cousin to buy him some tickets in another area..its done all the time...he just better have ALOT of close friends and relatives willing to go before the courts to attest on that fact.
I dont cheer on anyone trying to evade taxes nor do I cheer on a state that creates rules and forgets that loopholes are abound .This guy covered his bases well enough to cause more leg work then the state was willing to persue.
this story is full of fail on state govt tax workers part
"suspected" no one trained these morons i see, suspect=guilty , their no Presumption of innocence in tax code word per say.
sadly the irs, and state level tax people, never, Ever use motto in their work of, innocent until proven guilty , their so assbackards, its a joke
they claim you did a crime,tax evade, and then its up to you to disprove their wild baseless claims. with facts and records. its a sick joke of united states law world.
and this story proves it
i mean, he kept records, , if he lawyer word to be trusted, a Lot , tons and tons of records.
and they never even showed up to look it at, or request it form lawyer office, omfg....................
so ofc, when the Appellate Tax Board discovered that revenue officials "virtually ignored" ever proof he hid to back up hes story, , and they just had a presumption of guilt , they Had to dismiss it, they must know the agents handleing hes case are morons and not fit for the office they hold in tax departments. or its even worst, they know their all idiots, but won't do a thing, case voters don't care. so they don't care....................... gasp.
T"he 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 whole thing just yells classic govt thinking, , we suspect you in our imaginations Only, of wrong doing, their by your guilty as charged, now pay up whatever we say you owe us.
these morons are beyond belief.......................... thanks for story tod,
this just goes to show, Kept your losing tickets always people, you can write off losers to winnings they try to tax in same tax year.
and if they have a issue with it, then they better get off their govt lazy butts and go look at your records for real. or tell them to stfu and go try to screw some other sucker out of their money. cease you refuse to let these monkeys change reality of cold hard facts.
The burden is on taxpayers to keep records backing up their deductions., but they didn't even check hes records when he hid them for f sakes.
govt , plz go screw your self , your unbelievable stupidly is hard to take all at once.
i love to be lawyer for case's like this, its such a easy win,
when your dealing with idiotic , unfit tax govt workers trying to claim , only via their wild imaginations, any and all records are bs, , they don't even brother to request to look it, or see real copy's of losing tickets in units, noooooooooooooo, its not real, their all no records here"jedi mind trick" now pay up. classic govt logic.
am loving it. score one for people writing off lose's, just save the proof, and let govt idiots try to disprove reality with their imagination ,
govt workers really do live in a world of imagination, how else can you have world of Presumption of Guilty to proven innocence . , my god.
my more insulted, that guy they charge of trying to get out of tax's , made sure to keep all losers, have all the proof, all records, knowing he needs Proof to write off losers, and is treated this way.
my god that lawyer must be telling hes other lawyer buddies how stupid these people are.
smart lottery winners are not many, so when tax people come, their not trained to handle smarter people then they are,
their trained to attack and try to get as much money, regardless of proof . they are scum bags.
am all for taking out guilty, but you must Never do harm to a innocence person. if even 1 innocence person gets screwed by state or irs tax people,1 out of 100 that is, , whole tax code should be destroyed and remade, what happened to treating people like you want to be treated
these govt workers are telling word by their actions, they treat others very badly, and don't give a <snip> about your innocence.
The state would much rather go after someone without all those tickets and records to go through - too much work. They gave it a shot without doing the work and got shot down. Tabulating and cataloging bins full of losing lottery tickets at the office isn't a very glamorous task, much nicer to be out in your taxpayer provided car pretending to be working and eating out on the expense account.
They'll find some less prepared schmuck or innocent citizen and nail him to the wall to avenge this embarrassment.
time*treat...your post reminded me of this video:
@TheGameGrl
"nor do I cheer on a state that creates rules and forgets that loopholes are abound ."
While I agree with your post, I do wish you (and others) would not call legitimate business deductions, "loopholes."
The word, Loopholes, creates the insinuation that business deductions should somehow be avoided. Flat taxes attempt to eliminate deductions - I've never seen a flat tax that I like or one that was fair. A major reason why Cain's 999 plan is doomed to failure.
I share your sentiments that no good comes from flat taxing.
I graciously disagree with your comments on the business tax write offs....Rubashkin was notorious for this for years . Now go do your homework or at best..consider it food for thought.
If a crook is a crook - then that is entirely different than someone taking legitimate deductions. If you could direct me to something more specific regarding Rubashkin, I'd be happy to reply. Although, with everything he (Rubashkin) was convicted on, it is hard to see the comparison between him and someone that obeyed the law and saved losing lottery tickets.
There are many that like to bend the tax laws for their own benefit - however, everyone knows that isn't legal. Business deductions that are allowed by law can't by definition be considered loopholes. At least in my opinion. A loophole would be something overlooked by the writers of the law and discovered by someone putting it to his/her advantage, does that sound correct to you? There was nothing overlooked here, in fact it is nothing more than standard business accounting. (Gross - Costs = Net Profit).
The State knows if they really go after guys like this, then they will be forced to go after soda/beer can collectors. And we all know what those people look like. It wouldn't be pretty. Don't be greety mr. state. Leave it alone.
My question is this; How would one go about starting up a 10 percent business
If you couldn't prove you were a professional lottery player you could end up paying regular taxes on the original winnings at the regular rate which is greater than 10%. I would think anyone cashing lottery tickets would keep at least 25% same as the state does when it cashes the tickets. After all the persons cashing lottery tickets that way is probably trying to avoid more than just paying taxes on his winnings.
I can almost picture this happpening in real like ..the I.R.S. keeps telling my good friend that his wife is still alive even though she's died about fifteen years aready..And i was at the wake..
Even if he is a ticket casher, which most likely he is, the state has no way of catching him. He probably wont cash a total strangers' winning tickets. And most people who go to him seem like the kind that do not like to deal with the state so they would not cooperate if they asked how come they were seen on the store camera buying the winning ticket and someone else going to the lottery commission to claim it.
I am glad that someone is winning this money because I sure am not. Megamillions 2011 I've won exactly $
Let the guy make his money. Too much government is suffocating!
Yep had the IRS audit me one time back in the 60s when I was self employed. Did not keep an accurate record of vehicle mileage to and from work. Nailed me for a whole $40.00 in additional taxes.
There is no where on the back of these scratch tickets in Mass that states you must be present when buying these tickets.example I give tickets all the time as gifts.So for the state to prove he did not buy these tickets would be impossible.I keep losing tickets all the time to write off on large winning tickets also get statements from casino's on play for the year.Problem is IRS or State plays the game of investigating people several years after these winning and losing happen,hoping you have not kept at least ten years worth of records and losing tickets.as Mr jones stated had records and boxes in paid storage unit,you would need something like this at your expense,State and IRS usually win most cases because people don't have the smarts or place and time to keep such things or the knowledge to save all this for many years.Glad to see some little guy beat the big guys for a change...Thing i would like to know is where does the money go when lottery tickets are lost or not claimed,with the big pots megabucks/megamillion/powerball, I think when time runs out and ticket not claimed it should go back into the next drawings of that game.And why in Mass are scratch tickets payouts getting fewer and fewer yet the same amount of tickets being produced per game.You have to laugh when you hear the Mass Lottery claim sales are down, poor babies,yet look at profit for the year into the BILLIONS sometime go to the mass lottery . com site and look at just how many scratch tickets are on sale at local stores.Have to love when the lottery claims how much is gives each town and city,the roads are the worst in Country and don't see the schools doing any better because of lottery,there have been several scandals involving the lottery in Mass. but gets swept under table and forgotten about.
Hummm, you sound like you speak from experience? Do we have a x-irs agent in our amist?
"My question is this; How would one go about starting up a 10 percent business "
On a much smaller scale, you'll find "10 percenters" at almost every race track in the U.S. They are usually people on Social Security that cash tickets requiring a W2-G form and get 10% or more of the winnings. Their yearly income including the W2-Gs is probably less than $40,000, they pay no state taxes and apparently in Massachusetts, the state tax people keep a list of them.
Anyone can claim gambling losses up to the amount of winnings when filing Federal taxes, but professional gamblers must keep records of all wagers and all winnings. Even though he is a professional gambler, Jones' name was on the list because he cashes lots of lottery tickets. Jones' records show he bought the tickets and the state tax people charged him without ever doing a thorough investigation.
Yep you always find them at race tracks. sometimes ive had regular players approach me at the local store asking if i needed tickets cashed. not hard to find.
By the looks of it this guy is a professional ticket casher with an extended network of connections.
Psssssss.....He's a member of Lottery Post! Keep it under your hat!
Wonderful story.
I learned a few things from this story.
I never would've thought to keep tickets from a decade ago.
WOW!! Great story Todd.