Luck May Have Run Out for Massachusetts Family Accused of Using Lottery for Tax Fraud
Using the Massachusetts State Lottery in a fraud scheme is apparently big business—but it can catch up to you.
The state can garnish winnings for anyone who wins $600 or more and has unpaid state taxes or child support, creating a market for fraudsters to cash lottery tickets for a fee. The way the scheme works is anyone who wants to avoid the garnishment—or federal income taxes—sells a winning ticket to a person at a discount. That person then cashes the winning ticket and offsets winnings by reporting heavy gambling losses.
On Monday, Ali Jaafar and sons Mohamed and Yousef were charged with fraud, money laundering, and tax evasion for allegedly running a ticket cashing scheme. The Jaafars cashed more than 13,000 winning lottery tickets worth nearly $21 million over eight years.
A Massachusetts man and his two sons cashed in more than 13,000 winning lottery tickets, prosecutors said, allowing the actual winners to potentially avoid paying taxes or child support. https://t.co/3rjtgdprdR— The New York Times (@nytimes) August 24, 2021
In one of the earliest news reports on the Jaafars’ winning streak, on 3 August 2017 in The Boston Globe, the executive director of the state lottery commission discussed a new policy set to begin in October 2017 that would freeze payouts to customers who redeem six or more prices of $1,000 or more in any 12-month period. Lottery officials, without alleging any criminal activity in the article, labelled unlikely, high-volume winners “10 percenters,” as in they collect winning tickets from others and cash them for a 10 percent fee.
The policy was enforced against the Jaafars and two others in 2019, and per the policy, those suspended could appeal to the commission. In the appeal hearing, lottery officials argued that Ali Jaafar’s winning tickets were from many locations across the state (the early Globe report said over several years he cashed tickets from 1,200 stores located in 160 communities that spanned the state).
The case examined Jaafar’s winnings from 27 July 2018 through 27 January 2019, which totaled 651 prizes claimed for $1.02 million—559 from instant ticket games. A statistician testified that to win those prizes in that timeframe, the winner would have to purchase 2.2 million tickets, or almost nine tickets per minute every hour of every day for six months. The commission ruled against the Jaafars, a ruling upheld in a subsequent court case.
As part of the indictment unsealed Monday, the government accused the Jaafars of reporting gambling losses to offset the tax consequences of the lottery winnings. The indictment reveals that Ali Jaafar paid less than $24,500 in taxes on $15 million of lottery winnings. From 2011 to 2019, Jaafar received $886,261 in tax refunds on allegedly phony gambling losses.
The issue of people scheming to avoid tax and other garnishment resulting from Massachusetts lottery winnings is not new. Twenty-two years ago, in 1999, a State Auditor report noted:
MSLC did not have an adequate internal control system to properly verify names, Social Security numbers, and other pertinent data for prize winners cashing tickets at MSLC offices. Prize claimants gave false information to MSLC to potentially avoid state and federal tax liabilities and child support payment obligations, hide the fact that prize winners may be receiving public assistance, or for a number of other reasons. Because of a pervasive “who cares,” “it’s not my job or responsibility,” or “it’s a trivial amount or issue” attitude, there is little or no consistent effort to minimize the potential for tax evasion, nonpayment of child support, welfare fraud, or identity theft.
In 2019, in a case much smaller than the one brought against the Jaafars, a U.S. District Court sentenced Clarence Jones to two months in prison and two years of supervised release after pleading guilty to conspiring to commit tax fraud and filing false tax returns. Jones, along with a pair of co-conspirators, had purchased millions of dollars’ worth of winning tickets at a discount to help the ticketholders avoid taxes on the winnings.