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Many help lottery winners avoid taxes

Online advertisers sell losing tickets to offset profits, offer to cash in on others’ behalf

Efforts by online advertisers to buy or sell lottery tickets has given support to a sort of underground economy.

With few rules or law enforcement to stop it, a cottage industry has popped up to help lottery winners avoid taxes, child support, and other debts, potentially costing the state and federal governments millions in lost revenue.

Enterprising merchants — risking charges of aiding tax evasion — are openly hawking losing lottery tickets on Craigslist and eBay to help winners offset the profits with phony gambling losses.

“If you need the losers to write off for taxes,” read one ad, since removed, from Medford. “I have 2 boxes full of Mass. losing scratch tickets.”

Other Craigslist advertisers will gladly buy your winning tickets at a discount and claim the prizes themselves — allowing real winners to potentially avoid paying taxes on the prizes as well as any court orders to garnish the payments for other debts. One poster, who listed his first name and phone number, offered to buy a $1,000 ticket for $750 and “pay the taxes” himself.

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Such efforts all support a lottery-driven underground economy of sorts, one in which professional ticket cashers known as “Ten Percenters” will, for a fee, cash in winning tickets presumably so that the original owner can dodge taxes, child support payments, or other obligations. Since a Boston Globe investigation on suspected Ten Percenters was published last month, the extent of the practice has become more evident.

Critics say neither lawmakers nor agencies are doing nearly enough to discourage potential tax evasion, even though it directly reduces revenue to the state and federal governments.

“It’s outrageous,” said former inspector general Gregory Sullivan, who noted that state auditors first raised concerns about people cashing in large volumes of lottery tickets 15 years ago.

“Everyone knows what is going on, but nobody is doing anything about it,” Sullivan added.


Now, that could be changing. The Massachusetts attorney general’s office began looking into whether it could potentially prosecute Ten Percenters.

The Globe found that Clarance Jones, 76, of Lynn, has cashed in more than 1,700 winning tickets worth $600 or more since January 2013 alone. And Chelsea insurance broker Robert Brudnick and two of his children have cashed in 340 tickets in the past two years.

Lottery officials suspect Jones and the Brudnicks are cashing in other people’s tickets because it is improbable they won that many tickets just by chance.

The attorney general’s office is also looking at whether tougher laws are needed because it’s generally legal to buy and sell lottery tickets unless prosecutors can prove that fraud or tax evasion is involved, something that can be difficult.

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“The behavior of a few individuals cashing an unusually high number of lottery tickets raises many concerns,” said Brad Puffer, a spokesman for Attorney General Martha Coakley. “It is also clear that we must look at whether additional legislative tools are needed to effectively combat this behavior and hold people accountable.”

However, legislators have shown little interest in beefing up the statutes.

Lottery officials proposed a bill that would give them the ability to halt payments to people the Department of Revenue suspects may be Ten Percenters.

But the legislation appears unlikely to be approved this year, lottery spokesman Christian Teja said. The formal legislative session ended last month.

“It’s just frankly a matter of indifference,” state Auditor Suzanne Bump said, referring to legislators. “This issue has been kicking around for years.”


Colleen McGonagle, a spokeswoman for the House Ways and Means Committee, said the committee is still reviewing the proposal.

The state could also try other tactics.

Sullivan, the former inspector general who is now research director at the Pioneer Institute think tank, said the state could pass laws or regulations limiting the number of tickets a single person could cash.

A lottery spokesman, however, said officials don’t believe they have the authority to pass such a rule without legislation.

In addition, Bump said the state could launch more stings to try to catch suspected ticket cashers.

Lottery officials said they already do some checks. After a complaint from a customer, the lottery found that a clerk at the Richdale Food Shops in Randolph was telling customers their winning lottery tickets were worthless and then cashing them in herself.

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In April, the lottery suspended the convenience store’s license for a week and barred the worker from any further involvement with lottery sales. The store later fired the worker.

“Lottery sales agents are checked consistently,” said Teja, the lottery spokesman.

The lottery also requires winners to go to lottery offices to claim any tickets worth $600 or more. And it holds back a portion of the money for taxes — 5 percent for state taxes on tickets worth $600 or more, plus an additional 25 percent for federal taxes on tickets worth $5,000 or more — which could deter some people from cashing in tickets.


But savvy ticket cashers could potentially get back some or all of that money by claiming that their winnings are offset by gambling losses. And losing tickets are easy to find to generate phony losses.

Many lottery players ditch losing scratch tickets at stores, though others sell them online.

“It seems too easy for a taxpayer to collect a bunch of losing tickets,” said Kathleen DeLaney Thomas, an assistant law professor at the University of North Carolina, who specializes in tax law.

“The state/IRS should be auditing the people who are claiming a suspicious number of winning tickets in a year,” she said.

Thomas said she thought the state and federal government could make it much harder for Ten Percenters to claim losing scratch tickets on their taxes, however, by requiring gamblers to keep receipts showing their purchases.

Thomas also said she thought the Craigslist ads peddling losing tickets as tax write-offs likely violate several federal statutes against tax evasion but noted “the IRS doesn’t tend to bring criminal charges unless there’s a lot of money at stake.”

Federal prosecutors have also successfully targeted two Ten Percenters in the horse racing industry — including one in Massachusetts — for tax evasion and falsely signing forms claiming that they were the sole recipients of the prize winnings.

But officials couldn’t recall any similar cases against lottery ticket cashers, perhaps because it can be hard to prove that someone is knowingly cashing in someone else’s tickets to help them evade taxes — even though the lottery routinely sends reports of frequent winners to state and federal tax authorities.


In fact, lottery officials said there was nothing they could do to stop people from buying winning lottery tickets on Craigslist because it is legal to buy and sell used tickets — unless they can prove tax evasion or fraud is involved. (The ads have since expired or were removed after the Globe contacted the authors.)

One man offering to buy winning tickets on Craigslist said he has cashed in three or four winning lottery tickets in the last few months to earn extra cash.

But he said he had no idea why people are selling him the tickets at a discount instead of cashing them in themselves.

“I don’t even ask them the reason,” said the man, who would only talk on the condition that he not be named. “It’s not my business.”

The man said he has a full-time job at a diner and wouldn’t jeopardize his family by doing anything illegal.

Nor would be knowingly help someone avoid child support. But he acknowledged he would never know because he doesn’t ask.

“The less I know, the better I feel,” he said.

Related coverage:

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10 most prolific Massachusetts lottery winners

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Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.