Taxes: A Horse of a Different Color

After spending twenty-six years in the FBI, many of those years in various undercover roles, I’m not a big fan of reality shows. I guess I have had my fill of “reality.” But I’m hooked on “Jockeys,” a new show on the Animal Planet. The show takes an inside look at the world of thoroughbred horse racing. A decade or so ago I spent six months undercover at Santa Anita and Hollywood Park targeting a group of men we believed to be fixing races. The case wasn’t nearly as successful as we initially hoped, but eventually we convicted five men of various federal violations, including two for race fixing. 

The world of the track is interesting to say the least. It is perfect for a one-hour drama or a half-hour sitcom. If the USA Network is still seeking characters, they need look no further than the track. I doubt many CEOs when making investment decisions seek the advice of those earning a minimum wage. But I watched millionaires beg for information from grooms and hot-walkers in the hope these backside employees might have the inside scoop on a particular horse. I saw attendance climb around the first of the month as people admitted to me they were hoping to double their welfare checks. Gamblers who hadn’t won in years still bragged about a big bet they won decades earlier. Hope sprang eternal. 

Nicknames were commonplace. Among the many I dealt with were Fingers, the Mouth, the Greek, the Broom, and the Printer. It’s a long story and I detail it in my book “The Last Undercover,” but the short version is I managed to the worm my way into the group. One gambler questioned if I was a cop. Thus my name around the track became “Bob the Cop.” If you wrote it in a screenplay no one would believe it, but that was my sobriquet. It didn’t necessarily prevent our targets from dealing with me, but it was rather sobering to walk into the group and immediately be identified as “The Cop.” 

I learned a lot during this assignment. Heck, I hit the Pick-Six twice and hit a Triple that paid $3,700. In fact, the FBI made money on the investigation when all was said and done. (No, I didn’t pocket any of the profits.) I must admit though, some of my winnings were based upon inside information. The targets sometimes knew which horses were being “held,” “doped,” or were injured. It made wagering a little easier. 

The investigation did uncover a pretty sophisticated tax scheme. Under federal tax law, any winning wager where the odds are 300-1 or greater require the winner to fill out tax forms prior to cashing the ticket. In track parlance it’s known as a “sign-up.” The track automatically takes out 28% of the winnings before paying off the bet. Thus a winning bet of $10,000 pays only $7,200. Now winnings can be off-set by losses, but that entails keeping losing ticket stubs and preparing tax returns at the end of the year. Most gamblers don’t want the hassle, and many don’t want their spouses to know they spent the afternoon at the track. Thus the “signer” comes into play. For a fee he’ll sign for your ticket, filling out the IRS forms in his name.

Without the help of Turbo Tax, the Mouth took this to a whole level, and I grudgingly admired his ingenuity. Mouth would sign that $10,000 ticket and give you back the $7,200, if not more. He would then gather up losing tickets, often for bets he never placed or losing tickets he shared with other gamblers. Since these losing tickets equaled the dollar amount of the winning tickets, he had off-set all of his so-called winnings. By the next tax season he was collecting hundreds of thousands of dollars in tax refunds…all because those winning sign-ups he claimed to be his were off-set by the losing tickets he claimed to be his. It was a perfect scheme. The track didn’t really care because he was providing a service to those patrons who were winning. The patrons weren’t going to complain because they too were violating the law. The violation was rather difficult and time-consuming to prove so the IRS wasn’t interested in investing the manpower to guarantee a successful prosecution. I got lucky and caught the Mouth. He did my sign-ups. He went to trial, was convicted, and served time in federal prison. 

As I was thinking about our current economic situation, I thought maybe we need the Mouth to work with our government officials to offer his innovative insights on taxes and economics. But “after further review,” it seems as though a lot of politicians and political appointees have already mastered tax avoidance.  Like the Mouth, they won’t admit it until caught and it becomes public…maybe our elected officials don’t need anymore help, just integrity.