© Ric Tapia/Icon Sportswire/Corbis

© Ric Tapia/Icon Sportswire/Corbis

Thousands of people are breaking the law this weekend. They are running office betting pools for the NCAA men’s basketball championship tournament that’s winding down.

The Professional and Amateur Sports Protection Act, a federal law enacted in 1992, prevents all but a handful of grandfathered states (Nevada, Delaware, Oregon and Montana) from legalizing sports gambling.

It also makes it illegal for any private person to operate a wagering scheme based on a competitive game in which professional or amateur athletes participate. There is no exception for office pools for really big sporting events like the Super Bowl or this weekend’s Final Four games.

Apparently, however, lots of us don’t know or care about this law.

A recent American Gaming Association study estimates that more than $2 billion will be bet through more than 70 million March Madness basketball brackets this year.

Unreported betting income

And come next April, even more people will be breaking the law. Then it will be tax law violations because the folks dropping their dollars into office betting pools now won’t report the money they pocketed when they won.

That’s a problem for the U.S. Treasury this and every tax year.

While the Internal Revenue Service gets forms from legal sports betting establishments such as those in Las Vegas, that money represents only a fraction of all sports betting nationwide. Literally billions of dollars in lost tax revenue flow through illegal betting channels.

Of course, Bankrate readers are all law-abiding folks, so I know you will report your winning basketball and other bets, regardless of size or whether a W-2G form was issued by the payer, on your annual tax return. In most cases, this extra cash simply goes on line 21 of Form 1040, which is designated for “other income.”

The IRS and I wish you, your favorite team and your bets the best of luck this weekend.

More tax info from Bankrate

Want the latest news on taxes, money-saving tax tips, tax scams and myriad other tax matters? Subscribe to Bankrate’s free Weekly Tax Tip newsletter.

You also can follow me on Twitter: @taxtweet.

Veteran contributing editor Kay Bell is the author of the book “The Truth About Paying Fewer Taxes” and co-author of the e-book “Future Millionaires’ Guidebook.”