Scamming the IRS With Losing Lottery Tickets

The Daily Beast, Scamming the IRS With Losing Lotto Tix:

Here’s one way to dodge the taxman—buy thousands of losing lottery tickets.

It’s true. Gamblers have concocted a scheme to repurpose the dud ducats to offset their winnings. A winner can go online and get $5,000 worth of losing lottery tickets to cover their $5,000 in gambling winnings. The lottery tickets serve as a sort of security blanket if the auditor comes calling.

Ads captured on Craigslist and eBay from Florida to California hawk the tickets so the potential lotto buyer can defraud Uncle Sam. ...

“There is a gray market out there for these lottery tickets,” said Reece Morrel Jr., an Oklahoma-based CPA who files taxes for some high rollers and oversees the online Lady Luck Diary website, where gamblers can get schooled on tax laws.

But hoarding stacks of scratchers or Powerball game tickets to prove that you suffered losses could very well land you in trouble with the IRS. ...

[T]he IRS isn’t likely to make a fuss about lottery tickets, said Nelson Rose, a professor at Whittier Law School and author of several gambling books. “If the IRS or the FBI really cared, they could go after [all] the people buying and using them to evade taxes by saying they’re losses.” ...

The Daily Beast asked the IRS to inform it about the lottery ticket loophole. As requested, this reporter promptly submitted a set of questions to the tax agency. In response, the IRS sent back bone-dry links to its website that barely touch on how to report gambling losses.