Fraudsters Get Years in Prison for Filing Tax Returns Reflecting Fake Gambling Wins

A group of fraudsters reportedly filed tax returns claiming fake gambling wins, tricking the government into sending them about $36 million in unjustified refunds. Now, they’ve been handed prison sentences ranging from almost five years to more than seven years.

Timothy Smith of Winter Haven, Florida, was the most recent man charged in the scheme. Smith, a tax preparer, received a sentence of more than six years and must pay back almost $1.6 million that his clients stole from the IRS, plus another $274,000 he pocketed for his part in the fraud.

Smith claimed more than $17.6 million in refunds for his clients across almost 100 tax returns. The IRS paid back $1,637,829.64 of that. And Smith was actually the least prolific of the four men charged. The others stole as much as $15 million.

The U.S. Attorney’s Office, Middle District of Florida, announced Smith’s sentencing on Wednesday.

“These defendants orchestrated a deliberate scheme to steal from American taxpayers,” said Ron Loecker, Special Agent in Charge, IRS Criminal Investigation, Florida Field Office. “Their calculated, malicious conduct showed complete disregard for the rule of law. These sentences affirm a core principle: those who abuse our tax system for personal gain will be held accountable. IRS Special Agents continue to safeguard the integrity of the tax system and deliver justice for American taxpayers.”

IRS Restitution from Gambling Tax Fraud Totals More Than $35 Million

The perpetrators of the fraud centered their scheme around gambling wins. If an individual wins more than $2,000 — or $1,200 before 2026 — the casino issues the patron a W-2G form.

Then, individuals can often deduct gambling losses from those wins when filing. This is state-dependent, though, and the new federal gambling tax law limits these deductions to 90% starting this year.

The most important thing here is that the W-2G provides a paper record of the winnings. Both the IRS (via the property) and the patron have a copy of this form for each transaction that meets the threshold.

The fraudsters in this case fabricated gambling wins and losses to make it appear they were entitled to government refunds. And the IRS did pay out some portion of these refunds. However, a simple check of the W-2G forms likely laid bare the ruse. The venues and the IRS would have had copies of forms reflecting millions of dollars in gambling wins if the returns were legitimate.

Here’s a look at the sentencing and restitution that prosecutors have enforced:

Image credit: Antoine Taveneaux/Wikimedia Commons (license)