So there has been a huge disagreement a few months back on whether LMAO is punishable. I believe Marshmont stated that LMAO is a form of laughing, or lol, and I agree with that. To me, it doesn't matter that "A$$" is used in the abbreviation. One, it means donkey (although the word is used as a joke). Two, the word is basically masked by the act of the player having a good time. I really don't see a reason why it should be considered bad to say, but I guess it doesn't really matter in the end.
LMAO isn't punishable straight up. If you check the rules document, there is a 'Inappropriate' words list. '***' is located in the list that can only be punished for if used against someone or offensively. Due to lmao being a laughing acronym, it's really not something that'll ever be punished for unless people start finding a way to make it offensive.
I mean it's just when someone is laughing really hard/having fun. There is no need to punish, we're all here to have fun! This is not a place for handcuffs and cells.