Gamblers are buying losing lottery tickets - is it tax fraud?

• Gamblers may be turning to losing lottery tickets to present them to the taxman
• This way, gamblers may later itemize and deduct losses from their gambling winnings
• Yet, this is not the only problem the IRS faces in enforcing tax collection on gamblers - some may never report their wins

Gamblers are turning to losing lottery tickets to offset the tax they pay, as gambling losses are deductible. The new trend has garnered popularity on eBay, where tickets carrying a total value of hundreds to thousands go for as little as $10, $30, or more, depending on how many losing tickets are being sold.

Got a losing ticket - there may be someone willing to buy it

The idea is simple - if you have gambled and lostmore than you have won, you can deduct those losses from the tax payable on your winnings. However, if you are in the black, the government is coming to take a slice out of this.

The way many people seem to have worked out is to simply mischaracterize how much they have won and lost gambling, presenting someone else's tickets (hundreds of someone's, it appears) as their own. The Internal Revenue Service has clear rules on that:

"You may deduct gambling losses only if you itemize your deductions on Schedule A (Form 1040) and keep a record of your winnings and losses. The amount of losses you deduct can't be more than the amount of gambling income you reported on your return. Claim your gambling losses up to the amount of winnings, as "Other Itemized Deductions."

The platform's vendors mark these as "collectibles" in an attempt to hide the buyer's true intention. Jeffrey Hoopes, a professor of accounting at the University of North Carolina's Kenan-Flagler Business School and research director of the UNC Tax Center, has called the practice "clearly tax fraud" commenting for Fortune.com, the outlet that did the original reporting.

Hoopes does acknowledge, though, that the categorization as "collectibles" is not entirely misplaced, and there may indeed be people who may be buying these tickets to do just that - collect.

Deducting gambling losses faces new reality under One Big Beautiful Bill Act

But, of course, this practice - assuming there is fraud going on - has been hindered by the passage of the One Big Beautiful Bill Act, which means that gamblers may only offset up to 90% of their losses, meaning that 10% is still subject to tax, no matter how many receipts a person may present to offset losses.

Hoopes went even a step further, tracking listings on eBay for losing lottery tickets between2014 and 2017, and finding out that those listings spiked around April when a tax return filing was due. Those listings would drop off on the platform right after the deadline was over.

In 2024, the Treasury Inspector General for Tax Administration actually dug up an even more jarring offense - that at least 149,000 people have won $15,000 or more but never reported it, an estimated $13.2bn in unreported winnings.