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Mega Millions lottery jackpot rolls to $120 million

Topic closed. 35 replies. Last post 8 years ago by GamerMom.

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GamerMom's avatar - tails

United States
Member #60535
April 21, 2008
460 Posts
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Posted: February 25, 2009, 7:33 am - IP Logged

If you did this, the IRS would almost certainly rule that the entire amount you gave to others was a gift subject to gift taxes.  The amount you owed in gift taxes might be more than the amount of money you had left!

Any arrangement between individuals to share the winnings of a lottery ticket need to be made before the ticket wins, not after.  Otherwise it is a gift.  You would need to be able to verify the date of the arrangement, so the arrangement should be in writing and perhaps notarized.  This is particularly true between related individuals.  Before the drawing, a ticket is worth only the cost of the ticket.  If you give shares of it away then, there wouldn't be gift tax owed, as the cost is so low.  But after the drawing, the value is based upon what that ticket has won.

You can't give away shares in a ticket only if it wins the jackpot.  If you give away 50% in shares, for example, you'd be giving away half of a $1 or $150 or $10,000 win, as well as half of a jackpot win.

How is it giving it away if all parties both sign it and claim it together? I'm confused on how this is considered a gift. 

    Uff Da!'s avatar - InCelebration 001.jpg
    Washington State
    United States
    Member #33973
    February 26, 2006
    347 Posts
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    Posted: February 25, 2009, 11:29 am - IP Logged

    How is it giving it away if all parties both sign it and claim it together? I'm confused on how this is considered a gift. 

    As soon as the drawing takes place, the winning ticket is worth the amount of the winnings.  Anything you do with ownership after that moment is subject to the gift tax laws. 

    Only one person will have physically purchased a lottery ticket.  The IRS will expect that any ownership other than that of the one individual will need to be proven and that any transfer between people happened before, not after, the drawing to avoid gift taxes.  When millions of dollars in tax revenue are at stake, the IRS is not going to just believe a person's statement about when transfers took place.  You need documentation.  And when an agreement is between relatives, the documentation will almost certainly need to be witnessed by a non-relative to hold up in court.

    I'm basing my comments upon a court case I read about on the web a few years ago.  A couple said that they had an agreement with their adult children to pool their ticket purchases and any winnings.  The IRS took them to court for gift taxes.  The IRS won.  I tried to find the document on the web again now but since I don't recall what search words I used to find it originally, I was unable to do so.

    Will your state even issue checks to each member of a lottery pool if a group wins?  Washington State and some other states do not, so only one signature should be on the winning ticket in those cases.  Here one would have to form a LLC, partnership or a trust to claim a ticket for a group.  But again, even if the state issued the winnings to such a legal entity, the IRS could still win a case that gift taxes were owed.  For that matter, even if a state did issue separate checks to the pool members, the IRS could still win a case that gift taxes were owed.

    What I did was to type up an affidavit gifting 30% of any winnings to a large group of relatives with whom I'd want to share a jackpot win and had the document notarized at my bank.  I included a statement that it was only for MM tickets I purchased before ****.  (I gave a date first six months ahead, and the second time one year ahead to allow me to change my mind about the arrangement later.)  I came up with the 30% figure as a compromise between wanting to share more of a jackpot win and really wishing I didn't have to give any of a small win.  But one can't have it both ways.


      United States
      Member #58528
      February 18, 2008
      710 Posts
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      Posted: February 25, 2009, 12:29 pm - IP Logged

      As soon as the drawing takes place, the winning ticket is worth the amount of the winnings.  Anything you do with ownership after that moment is subject to the gift tax laws. 

      Only one person will have physically purchased a lottery ticket.  The IRS will expect that any ownership other than that of the one individual will need to be proven and that any transfer between people happened before, not after, the drawing to avoid gift taxes.  When millions of dollars in tax revenue are at stake, the IRS is not going to just believe a person's statement about when transfers took place.  You need documentation.  And when an agreement is between relatives, the documentation will almost certainly need to be witnessed by a non-relative to hold up in court.

      I'm basing my comments upon a court case I read about on the web a few years ago.  A couple said that they had an agreement with their adult children to pool their ticket purchases and any winnings.  The IRS took them to court for gift taxes.  The IRS won.  I tried to find the document on the web again now but since I don't recall what search words I used to find it originally, I was unable to do so.

      Will your state even issue checks to each member of a lottery pool if a group wins?  Washington State and some other states do not, so only one signature should be on the winning ticket in those cases.  Here one would have to form a LLC, partnership or a trust to claim a ticket for a group.  But again, even if the state issued the winnings to such a legal entity, the IRS could still win a case that gift taxes were owed.  For that matter, even if a state did issue separate checks to the pool members, the IRS could still win a case that gift taxes were owed.

      What I did was to type up an affidavit gifting 30% of any winnings to a large group of relatives with whom I'd want to share a jackpot win and had the document notarized at my bank.  I included a statement that it was only for MM tickets I purchased before ****.  (I gave a date first six months ahead, and the second time one year ahead to allow me to change my mind about the arrangement later.)  I came up with the 30% figure as a compromise between wanting to share more of a jackpot win and really wishing I didn't have to give any of a small win.  But one can't have it both ways.

      I realize that law and logic don't always go hand in hand,but why should the giver of a gift be taxed on that gift.It would,at least in my my mind ,make more sense for the recipiant of the gift to pay the taxes on it.

        GamerMom's avatar - tails

        United States
        Member #60535
        April 21, 2008
        460 Posts
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        Posted: February 25, 2009, 12:29 pm - IP Logged

        Thank you very much Uff!! I really appreciate you taking the time to type all of that out.  Boy the IRS will get you any way they can, right?

          Piaceri's avatar - sarsony1
          Republic of Texas
          United States
          Member #57557
          January 9, 2008
          1095 Posts
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          Posted: February 25, 2009, 1:27 pm - IP Logged

          Thank you very much Uff!! I really appreciate you taking the time to type all of that out.  Boy the IRS will get you any way they can, right?

          Death and taxes, right?   Dead

           

          Personally, I think there is too much double taxation. Taxes on monetary gifts where the money had most likely already been taxed on the giver, and inheritance taxes where taxes have already been paid on earnings being inherited. 

          Abolish the IRS and establish flat tax 10%, or a national consumption tax.

          face

          singlewinnersinglewinnersinglewinner   

            GamerMom's avatar - tails

            United States
            Member #60535
            April 21, 2008
            460 Posts
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            Posted: February 25, 2009, 1:38 pm - IP Logged

            Death and taxes, right?   Dead

             

            Personally, I think there is too much double taxation. Taxes on monetary gifts where the money had most likely already been taxed on the giver, and inheritance taxes where taxes have already been paid on earnings being inherited. 

            Abolish the IRS and establish flat tax 10%, or a national consumption tax.

            Or legalize marijuana and place a $50 tax on an ounce.  Problem solved LOL