Stop Predatory Gambling

Professional lottery ticket cashers provide a window into another reason why state lotteries are a failed public policy

by Les

The Boston Herald’s Hillary Chabot breaks a major story this morning about the prevalance of  “professional lottery ticket cashers.”  These individuals hand in multiple winning lottery tickets given to them by people who want to avoid back taxes, evade child support payments or, as Wired Magazine reported in February, launder money from illicit sources.

Read her excellent story below:

The Boston Herald, March 15, 2011

The spotlight is on a few “lucky” individuals who have cashed in thousands of winning lottery tickets in what the state auditor said may be a legal practice, but could result in tax losses for Massachusetts.

A state auditor’s report slams the Lottery for having “ineffective’’ policing of ‘‘professional” ticket cashers.

But Lottery officials say they need a new law to back them up.

“There’s no legislation right now that restricts these customer-cashing activities,” said state Lottery spokeswoman Beth Bresnahan.

Here’s how the lottery loophole has worked since at least 1999, according to a recent state auditor’s report: A lottery winner who owes back taxes or overdue child support gives the winning tickets to a middleman to cash so the Department of Revenue is not aware of the real winner’s identity. Traditionally taking a 10 percent cut, the middleman may cash hundreds of tickets worth millions of dollars year after year — and that’s not illegal, since according to state law, lottery tickets belong to the person who holds the ticket.

This winter, the state auditor’s office put out a list of communities where the top winners lived in 2007. The office does not say that any of the “winners” on the list are middlemen, but they have won mind-boggling sums. An updated list from the Lottery for 2010, obtained by the Herald, shows similar results.

The winners have raked in eye-popping cash prizes — some more than $1 million — and in some cases turned in up to a thousand tickets.

“I play a lot, and I’ve got a lot of luck,” said one serial winner tracked down by the Herald.

“Obviously it defies all logic,” said Michael Widmer, executive director of the Massachusetts Taxpayers Foundation, of the winners. “The public is getting cheated in one of at least two ways in terms of tax payments.”

That’s because while the Department of Revenue is missing out on back taxes and child support from the real winners, the ticket-casher routinely claims a large number of losing lottery tickets on tax returns to offset the income from the winnings.

Bresnahan said the Lottery records the names of people who win more than $20,000 a year on more than 20 tickets — known as 20/20 winners — and sends a monthly list to the IRS as well as the state Department of Revenue, the attorney general and the inspector general. In 2010, 20/20 winners took home a total of $26 million — but that included people taking “for life” payments and others who are not professional cashers.

Department of Revenue spokesman Bob Bliss couldn’t say whether the tracking has resulted in any recovered tax money, but one winner said he’s been audited twice in the past two years and never had to write an extra check to the taxman.

“I do all the right things and they didn’t find anything there, but now they audited me again for this year,” the man told the Herald. “I didn’t make the laws. I just follow them.”

Richard Weir contributed to this report.