Don't Mess With Taxes

March Madness is living up to its name.

Brackets burst Thursday just two hours into the annual college basketball tournament when Dayton upset Ohio State.

World's. Worst. NCAA. Bracket. That's the assessment of the folks at Deadspin, who tracked down this mess. Click image for a larger view.

Yahoo reports that 83.7 percent of the participants in its Tourney Pick 'Em game had selected the Buckeyes. I suspect a similar percentage also had their hopes on Ohio in the Warren Buffett backed Quicken Loans billion challenge.

For them, March Madness is now March Sadness.

Still, hope springs eternal, both for fans of the teams remaining in the men's college basketball national championship tournament and those betting on them.

And a few -- including Slate's editorial director John Swansburg, who sent Buffett an hilarious letter about his perfect bracket -- remain in the hunt for big bucks. Before today's tip-offs, out of a total of 11 million brackets filled out at ESPN.com, 18,741 people had perfect picks. That's 0.17 percent of entrants.

Gambling trumps athletics: In fact, the annual winnowing to a Final Four and ultimate hoops champion has become in many ways more of a gambling event than a sporting event. Consider, for example, these numbers:

• The Super Bowl remains the largest single sporting event in Las Vegas, but more money is wagered during the two-and-a-half weeks of March Madness games. Nevada's gaming commission says $324 million was wagered last March on pro and college basketball at the state's sports books; some estimate around 70 percent of those bets, or almost $270 million, were on college games.
• Around $12 billion was bet worldwide on last year's tournament games, according to Pregame.com.
• States with licensed sports books -- Nevada, along with some options in Delaware, Montana and Oregon -- take in around $90 million to $100 million in bets.
• The FBI estimates that $2.5 billion is illegally wagered on the NCAA tournament games.

Note that last bullet point. Billions illegally wagered. And yes, that includes most office pools.

And there are a lot of them. Challenger, Gray & Christmas says that 50 million Americans are expected to participate in office pools.

That vested financial interest in the games means, says the global outplacement firm, that companies stand to lose at least $1.2 billion for every unproductive work hour during the first week of the tournament.

Those businesses full of distracted employees have company in Uncle Sam.

Illegal but taxable gambling income: The Internal Revenue Service also is a big loser during March Madness.

Folks placing bets and winning from illegal bookies are not going to report that money to the tax collector. Neither are the millions who drop a few bucks in their office pools and take home jackpots on April 6.

But as I noted over at Bankrate Taxes Blog, all gambling winnings, legal and illegal, are taxable income.

This is not news to regular readers of my work at Bankrate or here on the ol' blog. I mention it every Super Bowl, as well as when the Triple Crown horse races roll around and when the national lottery drawings get really big.

So I won't dwell on it here. 

Prop bets for basketball, too: Instead, I thought I'd share another way you might win a few dollars off the remaining basketball games. You can make proposition, or prop, bets.

These bets get lots of attention during the Super Bowl. They are wagers on just about anything that could happen in a game, football or roundball.

Some of the more popular NCAA tournament prop bets are:

• Will all No. 1 seeds make the Final Four?
• Which #1 ranked seed will be the first to be eliminated?
• Will a #16 seed advance past the round of 64?
• What seed will the 2014 champion be?
• Which conference will the champion come from?
• What will be the most points scored by one team during the tournament?
• What will be the highest margin of victory during round of 64 games?

ForTheWin and Hair Balls have even more prop bet options. Have fun and the IRS and I wish you good luck!

More tax talk: In addition to examining the tax implications of betting last week (well, actually this week) at my other tax blog, I also looked at the price some people pay when they gamble with not paying their state tax bills.

New York last fall instituted a program to crack down on tax delinquents by suspending their driver's licenses. This week, the state announced the first round of that effort.

Nearly 9,000 New Yorkers have temporarily lost their licenses because they owe the Empire State more than $10,000 in taxes.

This program has paid off big for New York. Threatened license suspension has brought in nearly $56.4 million to state and local coffers.

You can usually find my additional tax thoughts at Bankrate on each Tuesday and Thursday. If you don't make it over there, you can find a round-up here the following weekend ... or early (like today!) on those rare days that I get my act together sooner rather than later!

You also might find these items of interest

• Don't get into lottery tax trouble
• Paying taxes on Super Bowl (and other gambling) winnings
• Horse owner, racing groups ask IRS to change how taxes are withheld from winning bets