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My roommate told me that he met someone at an MGM casino who won $100,000. That person told my roommate that he does not have a social security number to turn his winnings into cash. He made a deal with my roommate to share the winnings 80-20. My roommate will get $20,000 of the winning money if they take the cash with my roommate's social security number. My roommate accepted the deal and got his money. He then used it to pay off his car loan.

Was that a good deal? I looked up online that tax on gambling winnings are 25% which is more than the money that my friend got. I am not sure how it works though, because I have never gambled before and never had to pay taxes on gambling winnings.

Is there a deduction that my friend can use? He is an Uber driver, and he is married with 2 kids.

Edit: I asked him again last night about the details and he told me that the casino held $30,000 of the $100,000 that they won.

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    Casino withheld $30K and reported it to IRS with his SSN. So if his other income is less than $57.5K, he's in the 24% tax bracket, and the $30K MIGHT keep him from having to pay extra or pay a penalty for under-withholding. – WGroleau Feb 14 '18 at 3:56
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    Which puts him in the tax bracket I mentioned, unless it's over $157.5K total, the threshold for the next bracket. – WGroleau Feb 14 '18 at 11:25
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    What does "mgm" mean? – Pyritie Feb 16 '18 at 14:34
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    @Pyritie, presumably the resort company that owns many casinos. – mikeazo Feb 16 '18 at 15:32
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    It would be a little clearer who's doing what in this question if it were edited to use PersonA and PersonB, or Alice and Bob, or any other pair of names. I'm getting lost in the pronouns. – shoover Feb 17 '18 at 21:37
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This was a really bad idea, on so many levels for so many reasons.

  1. Your friend accepted a tax liability that was more than the cash he got.

  2. Your friend involved himself in a fraud. When the IRS comes to his door, he should say "I have nothing to say until I consult with a lawyer". It may not be the IRS, it may be the FBI or the Department of Treasury. Your friend has laundered money. He should say the same thing to them.

  3. Like other places, Las Vegas is full of hustlers, only perhaps more so. If a stranger approaches you here in LV, you just don't even bother to listen to them. I decline to talk to them, I usually use a lot of profanity when declining the offer.

I am a casino employee and have had courses on title 31, which is the government's almost draconian-like measure to stop money laundering. I can tell you that you never want to get involved with trying help someone save a little taxes. You never want to cash chips or any other kind of instrument of betting (sports tickets, keno tickets, slot tickets, etc) out except for your own.

If the ticket was stolen, your friend may have found himself in handcuffs on the day. I don't know how they track most things, but I can tell you at one place I worked, if you found a ticket in a slot machine and tried to cash it out when it was associated via slot card to someone other than you, you were arrested and charged.

That your friend was hustled by this guy is obvious, for the simple reason that almost all countries participate in an international tax treaty. All you need is a passport to cash out, you do not need a social security number. Even if you're a US citizen, you can cash out without a social security number, but the casino is obligated to withhold thirty percent, that you can reclaim anytime you come up with a social security card. (Although that 30% thing may have changed).

What your friend really needs to do today is go talk to a lawyer. Considering the amount, it is likely this transaction is going to raise red flags somewhere along the lines of government bureaucracy. What is at stake for him is severe, he should prepare for the worst and hope for the best.

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    +1 for solid first-hand information! – Ogre Psalm33 Feb 12 '18 at 23:43
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    @jakson - no it means taxes were withheld from the winnings. When he files his taxes he'll report another $100k in income and get a credit for the $30k in tax that was withheld. Assuming he's not charged with tax fraud... – D Stanley Feb 13 '18 at 2:13
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    @jakson Your friend should and you should also realize that the guy whom he cashed out the ticket for was laundering money, felony stuff and your friend participated in it for his own gain. It may be nothing happens, however your friend needs advice way beyond the scope of us amateurs here to get any good ideal of what the potential for liability is here. He should take a little dough and consult a lawyer. – Jon Feb 13 '18 at 4:53
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    @jakson it means that the 30k is withheld as an estimate, and when you file your taxes you will know exactly if it was over or under and then settle the difference – user2813274 Feb 13 '18 at 5:04
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    The thing is, the original holder of the ticket was trying to get the ticket cashed without it being documented to him. That's laundering. The roommate was a party to that, that's a problem if this comes up on radar. – Jon Feb 13 '18 at 10:26
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To expand on RonJohn's answer (and make it more explicit):

Your friend met a complete stranger who asked for his SSN. The stranger promised him $20k. The best case scenario is that your friend loses a lot of money to taxes (see D Stanley's answer).

The worst case scenario: the stranger now has your friend's SSN. The stranger will probably also ask for your friend's full name, date of birth, etc. These are all the things the stranger needs to steal your roommate's identity, ruin his credit, steal his tax return, etc.

If your roommate is still thinking about this, run away. Don't call back to say "no", just ignore the situation entirely. If he already gave the stranger some information, I'm not sure what his best course of action is but I'm sure someone will add some more information here.

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    You're too optimistic - the even worse case scenario for this sort of thing isn't that it's a scam (although that's rather probable), it's that OP's roommate ended up laundering money for some criminal enterprise. Then he could be looking at federal charges and/or asset forfeiture. – richardb Feb 12 '18 at 20:29
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    There is a pretty liquid dark web market in social security numbers, and the going rate is not $20,000. – jwg Feb 14 '18 at 8:09
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    @jwg Just to be clear what you're implying here, are SSNs worth more or less than 20k? Does that mean it's more or less likely that he was scammed out of his information? – thanby Feb 14 '18 at 15:01
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    @thanby SSNs are worth much less than $20K, probably less than 20 dollars. This may have been simple tax fraud, or it might be a much more complicated scam (eg. 'long con'). But it wasn't done simply to acquire the victim's SSN. – jwg Feb 14 '18 at 15:22
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    The language in the question leaves much to be desired, but it does say this: "that he then used to pay off his car loan". From that I take that the roommate actually did get the money. – pipe Feb 15 '18 at 13:59
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Gambling winnings are taxed when you file just like normal income so your roommate will now have to pay federal tax on $100,000 income (between 24% and 40% federal, depending on when it is reported and other income he/she has), and potentially state income tax, while the "winner" got $80K tax-free instead of paying tax on $100K.

If this actually happens, your friend needs to prepare for a large tax bill. Hopefully tax was withheld at 25% (and credited to your roommate) when they cashed in the winnings - that will reduce the tax bill at the end of the year.

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    This assumes the whole thing was not a scam. Did your roommate actually collect the cash from the casino or was it transferred via some payment method that is at risk of subsequently being reversed? – Vicky Feb 12 '18 at 16:16
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    Don't forget that your friend has now "gifted" $80,000 to a random stranger (well over the yearly gift-limit of $14,000) and now owes gift taxes in addition to the income taxes (which should eat up ALL of the money he kept and then some)! – Derek_6424246 Feb 12 '18 at 16:46
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    @Derek_6424246 Gift tax isn't owed unless they've also exhausted the lifetime exclusion, but they will have to file Form 709 with their return. – Hart CO Feb 12 '18 at 17:19
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    @jakson Yes, rather than gifts being considered income to the recipient, there is a gift tax that the giver pays in some situations, mostly just to limit estate tax avoidance. Not relevant here unless they've given away millions of dollars already. – Hart CO Feb 12 '18 at 17:21
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    @Derek_6424246 This is not a gift. It is not subject to gift tax. A gift is something you give someone else because you're generous. If it is compensation or part of a larger transaction, it is not a gift. – David Schwartz Feb 13 '18 at 4:57
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The income tax on gambling is the same as the tax on anything else. It's the withholding that is 25%. Example source for 2018 tax brackets, as the IRS hasn't published theirs yet. Note that $100,000 almost puts him in the 24% tax bracket even without any other income.

If he and his spouse have significant income, e.g. $30,000, then he will likely pay more than $20,000 in tax. Everything over about $60,000 will be taxed at 22% or 24%.

Additional potential problems:

  1. If the ticket was stolen, then your roommate could go to jail for receiving stolen goods.

  2. If the ticket was not stolen, then your roommate was helping someone evade taxes. Because they owed at their tax rate, not your roommate's. That's illegal--just ask Al Capone.

  3. If the person was an illegal immigrant, I'm not sure whether this violates additional laws or not.

If he identifies the person who sold him the ticket for $80,000, he could potentially subtract the $80,000 from the $100,000. However, he would have to identify that person in a way that the IRS could collect from that person.

I'm also unclear on how your roommate already got the money. Normally the 25% would be withheld before the winnings were paid. So he would only have had $75,000 to pay the $80,000. No excess to pay off loans. Your roommate would have had to wait for the tax return to reclaim part of the money. This part screams scam to me.

If you are considering a deal like this, don't. There are too many things that go wrong and end up with you out $80,000, in jail, or both. Not to mention that this might lose you money even if you get away with this piece of tax evasion. But even if the money were increased to cover the actual taxes needed, it's still dangerous.

  • Gambling losses can be used to offset winnings, so it is not really the same as anything else. – StrongBad Feb 12 '18 at 21:35
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    @StrongBad Why do you assume OP's roommate is enough of a high roller to have $100k in gambling losses? The stranger is the one who earned the payout. Even then, the requirement of a SS# hints that it is some kind of jackpot, which would mean OP's roommate's friend probably isn't a high roller, either. – stannius Feb 13 '18 at 0:33
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A couple of things don't add up about this story:

...that person told my roommate that he does not have a social security to turn his winning money into cash.

  1. In the US you don't need a SSN to cashout winnings. If you choose not to show a SSN or TIN (taxpayer identification number) then the casino will automatically withhold 28%. The actual winner could have simply done that. If you do have a TIN (or SSN) and you show it, then you only have to pay 25% instead of 28%. If the actual winner truly didn't have a SSN because he was a foreigner, then he most likely would have had to pay 30% (though certain countries have exceptions).
  2. The casino should do the withholding described in point #1. What normally would have happened here is that your friend would provide his SSN, the casino would keep $25K for tax and furnish a W2G and $75K to your friend. If the agreement was an 80/20% split on the remaining $75K, your friend would have walked away with $15K but you said he got $20K? I don't believe the casino would have given your friend a W2G and the full $100K. But, if the casino for some reason really did give him the full $100K, and your friend handed $80K back to the stranger, then come tax time he's going to realized he got scammed out of approximately $2-4K depending on his tax bracket.
  • Maybe the jackpot was actually $133,333.33 and then the casino withheld 25%? – stannius Feb 13 '18 at 0:37
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    @stannius could be, but that's not what the question says... – TTT Feb 13 '18 at 0:56
  • Your point 1 isn't something that doesn't add up -- it's the basis of the scam. If the victim tries to explain that you don't need an SSN, the scammer can explain that they'd rather pay 20% to the victim than pay 28% to the casino. – David Richerby Feb 13 '18 at 9:28
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    i ask him again last night and he told me that he get 20k and the other person get 50k and the casino hold 30k. my question was simple will his taxes be more than what he earned? or did he actually lose money. since he told me that he already used the 20k to pay off his car loan. – jakson Feb 13 '18 at 16:34
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    @Jakson did the roommate get a 1099 or W-2 from the casino? Does the casino have his correct and current address? I'm sorry, mailing address. He might want to contact the casino about that 1099 or W-2. Seriously. He should definitely NOT discuss it with his "friend". – Harper Feb 14 '18 at 2:57
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In addition to whatever he/you adopts from the other answers, he should also go immediately to the casino and tell them when and where he got scammed before they erase the security videos of the perpetrator.

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As explained in Indictment of ‘Vegas Dave’ illustrates how casinos use Social Security numbers:

If you offer a fake Social Security number or use someone else’s, you’re committing two crimes — misuse of a Social Security number, and causing a domestic financial institution (in this case the casino) to file a false report.

As a result, Oancea faces 19 counts for bets he placed totaling more than $1.3 million between Feb. 6, 2015, and Feb. 2, 2016. Nine are for Social Security misuse, and the other 10 are for causing false reports.

Each count carries a potential five-year prison term, according to the U.S. Attorney’s Office in Las Vegas.

A casino is a "financial institution" for the purposes of 31 U.S. Code Subchapter II - RECORDS AND REPORTS ON MONETARY INSTRUMENTS TRANSACTIONS and per § 5324(a)(1):

no person shall ... cause or attempt to cause a domestic financial institution to file a report ... that contains a material omission or misstatement of fact

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    For completeness, could you also add how this would affect the OPs roomate (i.e. in what ways he would then be liable for helping commit a crime). – Bilkokuya Feb 15 '18 at 12:19
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Even if it is legitimate the tax bill would be more than 20% so your friend would be losing money.

As pointed out in other answers is probably against tax code. It probably violates gambling commission code.

At some point I suspect the winner will ask for some cash up front as assurance money.

Say these chips really are worth $100,000 your friend could just walk. No one is likely to do this with a stranger.

Not that it would be legal but I suspect there are services that do this but they would charge more like 40%. If this guy really won $100,000 and had no SSN he would know these kind of people.

Say the guy bought $20,000 in chips to win the $100,000. Since he is not filing the he cannot claim that as a gambling cost.

Not the same but some big sports betters will have runners place bets to not move the line (as much). But I think the runner cashes the bet.

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