Gamblers Buying Losing Lottery Tickets to Offset Taxes: Is It Fraud?

Gamblers are increasingly buying losing lottery tickets to offset the tax they pay on their gambling winnings. This practice has gained traction on platforms like eBay, where bundles of losing tickets are sold for relatively low prices. The idea is to deduct these losses from the tax payable on winnings, a strategy that has become popular among gamblers.

The IRS allows gamblers to deduct gambling losses up to the amount of gambling income reported on their return. However, the IRS has clear rules on deducting gambling losses, requiring gamblers to itemize deductions on Schedule A (Form 1040) and keep records of 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."

Jeffrey Hoopes, a professor of accounting at the University of North Carolina's Kenan-Flagler Business School, has called this practice "clearly tax fraud." He notes that while some buyers might be collecting these tickets as "collectibles," the primary intent is often to use them for tax deductions. The One Big Beautiful Bill Act has made this practice more challenging, as gamblers may only offset up to 90% of their losses, leaving 10% subject to tax. Additionally, the Treasury Inspector General for Tax Administration reported in 2024 that at least 149,000 people won $15,000 or more but never reported it, resulting in an estimated $13.2bn in unreported winnings.