Search "losing lottery tickets" on eBay and the site turns up something odd: stacks of worthless scratch-offs and instant tickets. Your choice if you want to pay by value or by weight: some listings offer a pound's worth of losing lottery tickets from Pennsylvania for just $10, while others offer thousands of dollars' worth of losing tickets, like Ohio lottery tickets worth $5,200 in losses, for $29.99. One listing even boasts $90,000 worth of losing Florida tickets for $575.
Why would anyone drop more than five Benjamins for $90,000 worth of losing lottery tickets? Most of the listings you'll see on eBay will be entitled along the lines of "collectibles" or for "arts and crafts" purposes. You'll see the word "vintage" brandished about here and there, a "rare" or "no value" dropped in others.
But search long enough and you'll see the words "tax write offs" or "tax deduction" in the titles of listings that somehow made it past eBay's filters. "This is a way to offset your taxes—clearly tax fraud," said 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. "There's lots of ways to commit tax fraud.
This is just an interesting one, and usually you don't buy it on eBay, so it's an interesting example." All earnings from lotteries, raffles, sports betting, horse races and casinos are fully taxable and must be reported on a return. Thanks to a narrow provision in the tax code, IRS Topic 419, people can offset the taxes from their gambling winnings. But losses can only be deducted by filers who itemize and who kept a record of both winnings and losses, and the deduction is capped at whatever winnings were reported.
To back up that deduction, the IRS requires an accurate diary of winnings and losses, plus receipts, tickets, statements or other records. So in other words, those stacks of lottery tickets or scratch-offs on eBay may be benefitting a select group of people looking to bring their gambling wins home, tax free. Sometimes, however, Hoopes said people might actually just like to hold onto tickets.
"There are people who collect all sorts of random pieces of paper for whatever reason that don't necessarily have to do with fraudulent tax documentation. So I do not doubt that even if you couldn't deduct gambling losses for taxes, that somebody might be willing to buy these stacks." An eBay spokesperson confirmed as much in a statement to Fortune: "Expired lottery tickets with collectible value may be listed on eBay as long as the listing clearly states the item is expired and is permitted for sale under local law. Listings that promote potentially improper uses of these items are not allowed and will be removed." The company's lottery ticket policy says as much as well.
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