March Madness is here, and it's time for gamblers to start paying taxes on their winnings

March Madness has taken a firm grip on at least 10 percent of the American population, which has taken a stake in the outcome of 68 men’s college basketball teams’ quest for glory.

Warren Buffett has agreed to pay a cool $1 million per year for life to any Berkshire Hathaway employee who guesses the perfect bracket. But who can blame him for making such a generous offer? The chance of actually doing that is 1 in 9.2 quintillion. To give you some perspective, a quintillion is one billion, billions. Think 100 million people with Jeff Bezos’ net worth (or 200 million people after the divorce finalizes).

Now, that chance assumes that you, like me, know absolutely nothing about basketball and are just randomly guessing the perfect bracket. Different mathematicians have estimated the odds of picking the perfect bracket at 1 in 2.4 trillion, and even as low as 1 in 128 billion (it’s a pretty crazy arena when 1 in 128 billion is deemed “low”).

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But these estimates are based on brackets being chosen with some basic knowledge and assumptions about basketball. For example, the fact that a 16-seed has never beaten a one-seed, which would guarantee your bracket four wins. But, considering that just last March a No. 16 seed did beat a No. 1 seed, all bets are off, and I’m sticking with the 1 in 9.2 quintillion chance.

So while I can guarantee you the perfect bracket isn’t going to happen for you this year, Americans continue to bet on all aspects of this basketball phenomena, to the tune of $8.5 billion projected this year.

Last year, the American Gaming Association (AGA) estimated that 97 percent of the $10 billion wagered on March Madness was done so illegally. The other 3 percent was bet through sports books in Nevada – the only legal option at the time.

Unlike the state-run Mega Millions-type lotteries, sports betting encompasses a much larger demographic. While the lowest income households are four times more likely to buy a lotto ticket than the highest income households, almost 30 percent of sports bettors earn over $100,000 a year (almost double the proportion of the general population).

Last year, the American Gaming Association (AGA) estimated that 97 percent of the $10 billion wagered on March Madness was done so illegally. The other 3 percent was bet through sports books in Nevada – the only legal option at the time.

So why aren’t these richer people getting taxed for their gambling winnings?

In 1992, the federal Professional and Amateur Sports Protection Act came into effect, basically outlawing sports betting in almost every state. That means that since 1992, all of the March Madness betting has effectively been illegal. But this past May the Supreme Court overturned the law, and eight states have since made sports betting legal.

Over the past 10 years, we can easily say that, even given tax evasion by some gamblers, the government has thrown $20 billion in taxes out the window with these sports betting laws.

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In fact, the AGA estimates that the American public bets over $150 billion on sports illegally every year. At an average federal tax rate of 25 percent (not to mention state taxes), even assuming half of the winnings aren’t reported, that is a lot of dough.

It was high time that the Supreme Court overturned the law. Now, the government should start collecting, not just on March Madness, but on all sports betting.

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