News and opinion writer
What do you do with a losing lottery ticket? If you're like most people, you probably crumple it up and toss it in the trash. After all, what's the point of keeping something that has no value? However, while you may see a worthless piece of paper, some enterprising scammers see an opportunity.
For those willing to risk the wrath of the IRS, old lottery tickets represent an opportunity to save some real cash. The scheme is carried out in plain sight, and while it is illegal, it has the potential to save thousands of dollars in taxes for lottery winners.
This is how criminals turn losers into winners and reduce their federal tax bill…as long as they don't get caught.
The tax man
If you've ever spent time in a casino, you've seen it happen—the celebration and shouting after a big win. There might be flashing lights and ringing bells if the winner hits a slot machine for a big prize or cheering and backslapping if they get hot at a table game.
Either way, after the initial euphoria of the win settles in, another reality takes hold. Every jackpot has two winners. The first is the person who risked their money to win it, and the second is the federal government, which gets to tax it, and that tax rate isn't small.
The IRS considers money made by gambling or from the lottery income, similar to your paycheck. As of 2025, the federal tax rate for all gaming winnings is 24%. That means that if you win a $100,000 prize, you'll take home $76,000, and the feds will pocket $24,000.
While we would argue you should always pay your taxes whether you think they're fair or not, some people believe that if they took all the risk, they should keep all the reward. That's why some winners have devised a scheme (which, to be clear, is extremely illegal) to lower their tax bill by breathing new life into old lottery tickets.
The scheme
The plan itself has a few variations, but at its most basic level, it works like this: Let's say you buy a scratch-off ticket and win $5,000. Normally, the government would be entitled to $1,200 of your winnings; however, some unethical gamblers will try to avoid paying this tax by creating fake gambling losses.
When the government assesses how much you owe in taxes on your lottery winnings, they have to account for your total gambling income in a year. That means if you win $5,000 on a Monday but lose $10,000 on a Tuesday, your net gambling income would be negative $5,000, and you wouldn't owe any taxes.
Some gamblers have tried to exploit this provision by using other people's losing lottery tickets to make it appear that their gambling losses were greater than their wins. They accomplish this by going online to websites such as eBay and Craigslist and purchasing old lottery tickets in bulk.
They can then lower their tax liability by reporting the face value of the old tickets as gambling losses, and if the IRS audits them, they show them the old tickets to prove that they really lost the money.
A Craigslist seller based in Detroit offered $10,000 worth of losing lottery tickets for $500 with a caption that read, “So ya don't look like a xxxxx :) come tax time.”
A similar search on eBay brings up hundreds of listings for used lottery tickets, including one seller who offers $2,000 worth of used Texas scratch-off tickets for just $27.
Some enterprising hustlers have even been known to scavenge losing horse race tickets from the ground so they can resell them. Reece Morrel Jr., an Oklahoma-based CPA who files taxes for high-roller gamblers, told reporters:
There is a gray market out there for these lottery tickets. There are companies set up today to rent losing lottery tickets just for your audit.
Morrel added that most gamblers are unfamiliar with the taxes they have to pay on their winnings. When they find out how much they'll lose to the government, they often look for schemes, legal or not, that will allow them to keep more of their money.
To be clear, it's not illegal to buy used lottery tickets, but it is definitely illegal to claim those tickets on your taxes if you purchased them after they had been played.
The long arm of the law
While this idea may seem clever, the IRS is very aware of it, and they will prosecute anyone who commits tax fraud. The first such prosecution occurred in 1985 after Massachusetts resident Phil Cappella won $2.7 million from the state lottery Megabucks Game.
Cappella retained accountant and former IRS official Henry A. Denault to manage his taxes. Instead of paying what he legally owed, Capella and Denault worked together to create a scheme in which the lottery winner would claim that he had lost $65,000 for the year.
This immediately made the IRS suspicious, and Denault needed to provide evidence of these losses quickly. His great idea was to pay a man named William Jenner $500 to rent $200,000 worth of old lottery and racetrack tickets.
While his idea may have been clever, the IRS wasn't fooled. Both Denault and Cappella were charged with tax fraud, pled guilty, and spent time in prison for their schemes.
Daneault's lawyer, a veteran criminal attorney named James Krasnoo, admitted that the case was the first time he had heard of anyone attempting such a con: “I never had one where it involved fake tickets, meaning losers being used to offset wins,” he told reporters.
Go directly to jail
One issue that trips up many winners who attempt this scheme is that lottery tickets contain a lot of information, including the date and location where they were purchased. This makes it possible for the IRS to show that you weren't in the location where you purchased the ticket on the day you claimed to buy it.
So, while it may seem like a clever idea to purchase $2,000 of Texas state lottery tickets to offset your win, the IRS isn't going to be fooled if you actually live in Vermont. It's not enough just to possess the tickets; you need to be able to prove that you purchased them legitimately. Whittier Law School professor Nelson Rose explained:
You are going to run into trouble explaining why you have $25,000 worth of losing tickets from another state. There's no legitimate use for them.
Rose adds that if you have legitimate gambling losses that you plan to claim, it's wise to keep written records of your wins and losses so you can prove that your losses are legitimate. Rose stated:
There's good reason to keep a diary. For tax purposes, if you come into big winnings in December, how are you going to remember what you lost in February?
Rose also mentions that it's not just the person who uses the tickets that faces potential consequences. If you sell tickets with the knowledge that they'll be used for tax fraud, you could be charged as an accomplice, similar to how a get-away driver can be charged in a robbery even if they never set foot in the bank.
The fraud game
Claiming tickets that aren't yours is just one way people try to scam the IRS out of money. Another popular scheme involves small prize winners selling their tickets to professional ticket cashers.
In a recent case in Massachusetts, Ali Jaafar and his two sons, Mohamed and Youseff, were convicted of fraud after they cashed in over 13,000 winning lottery tickets with a total value of just over $22 million.
Their odds of winning were so statistically impossible that the state lottery commission launched an investigation into them and learned that they were working with a network of lottery ticket retailers to purchase winning tickets for under face value to help the real winner avoid paying taxes.
So if a player won $1,000 from an instant win game, a retailer would offer to buy it from him for $800, allowing the player to avoid the taxes. The retailer would then call the Jaafars, who would buy the ticket for $900 and cash it in for the full value.
The Jaafars would then claim to have lost massive amounts of money gambling to offset the taxes they would have had to pay on the winning tickets. They ran their scheme for almost ten years before being arrested by federal agents in 2019.
Just say no
They say that the only two things you can't avoid are death and taxes. That's why no matter how clever any tax avoidance scheme may seem on the surface, it's always a better idea just to pay your taxes.
Tax attorney Erb points out that if you're not a professional gambler and score a big win, you should just be grateful that you came out ahead and not try to play games with the IRS. She said:
I know no one likes to pay taxes. If I win $10,000 on a scratch-off ticket, going to the trouble to manufacture losses is ridiculous, and it's tax fraud.
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