I’ve repeatedly said that gamblers aren’t treated well under the Tax Code. One Michigan resident allegedly had a way around this problem: just ignore the gambling. This may turn out to be a much bigger problem, as he now faces a 22-count indictment.
Christopher Aaron, of Ortonville, Michigan, faces up to five years at ClubFed plus fines for allegedly filing false tax returns, and giving false social security numbers so currency transaction reports on his wins of over $10,000 wouldn’t be traced to him. Unfortunately for Mr. Aaron, the government got wind of his scheme. And when the unreported gambling income totals $3 million, the government pays attention.
His attorney notes that Mr. Aaron was an overall loser, so he doesn’t really owe any tax. Well, as someone who has prepared more than a few tax returns for gamblers, I can almost guarantee that his tax return would change if it had the gambling accurately stated. This is especially true if Mr. Aaron is an amateur (unable to net his wins and losses) because Michigan does not allow gambling losses on its state income tax. So while Mr. Aaron’s federal tax return numbers might not change, his state income tax return would likely change. You can read more about this case here.
There is a moral to this story (besides the bad treatment of gamblers under the Tax Code). It’s much better (and cheaper, considering the attorney fees that Mr. Aaron will likely incur) to prepare your tax returns correctly than to attempt to cheat the system.