If you win the lottery, it’s kind of a bummer to have to pay taxes on your winnings, right? Well, TaxProf reports that some gamblers have gotten creative to avoid it.
Because they treat their activities as a business, gamblers deduct the cost of purchasing lottery tickets. The scam works like this: If a gambler wins $5,000, he or she will then go online and purchase $5,000 of old, losing tickets (at a steep discount, of course).
Instead of reporting the winnings, the gambler simply tucks the losing tickets away in a file drawer, ready to present to the IRS in the case of an audit. It’s safer to claim that you didn’t know you needed to report a sum-zero win, offering the “proof” when the auditor comes knocking, than it is put yourself on the IRS’s radar by actually reporting the income and taking the fabricated deduction.
Although the IRS hasn’t yet come up with a way to crack down on this scam, we wouldn’t recommend trying it.