SYRACUSE, N.Y. — Claiming a big lottery prize is a little more complicated than you might expect, especially if you are splitting the jackpot with a large group.
Step One: Hire an attorney. That was the advice Ray Wills got last month after he learned that he and 21 other Syracuse city workers with whom he regularly plays the lottery had won $1 million in the Dec. 13 Mega Millions drawing.
Wills, an engineering technician who has worked for the city for 10 years, is the group's ringleader. Once he convinced himself they had won — Wills said he rebooted his computer to make sure he was seeing the correct numbers — the first thing he did was call a former winner from Schenectady who also was part of a large group, to ask advice.
Wills also found tips in an online newspaper article, and he sought out representatives of the state lottery and the Internal Revenue Service. Here's how a big group claims its winnings, at least in this case:
1. Form an LLC. The state Gaming Commission, which operates the New York Lottery, will only issue a maximum of 10 checks to winners. Wills needed to split the prize into 22 pieces. So he and the group hired an attorney to create a limited liability company to accept the winnings from the lottery. The LLC, of which Wills is president, will then distribute the money to the 22 members. The company, formed Dec. 23, is called 12 Checks Short LLC.
2. Set up a bank account. Wills established a bank account for the LLC at the Syracuse Fire Department Federal Credit Union, to which the lottery will wire the $661,800 in net winnings a few days from now. The lottery withholds estimated state and federal income taxes from the $1 million prize.
3. Hire an accountant. It might seem simple to divide the winnings by 22, but distributing the money from an LLC is more complicated than that, Wills said. For one thing, the LLC must provide K-1 tax forms to each member of the company showing his or her earnings and how much was withheld for taxes. It's the equivalent of getting a W-2 from your employer.
4. Pay the professionals. Wills said he established an escrow account to pay the lawyer and accountant. He declined to say how much.
5. Disband the LLC. In about two weeks, the lawyer will formally shut down 12 Checks Short LLC, Wills said.
If that sounds like a lot of hoops to jump through, keep in mind they won $1 million, Wills said. "It's laughable to even insinuate that it's work," he said. "They're handing me a million dollars. I have to come up with some paperwork — how hard is that?"
Here are the members of the group:
Lisa Amidon
David Bean
Michael Burns
Alvin Chan
Gregory Coons
Diana Jaramillo-DeCarlo
Odean Dyer
Christopher Ettinger
Kelly Haggerty
Robert Hofmann
Russell Houck
Stacy Jennis
Timothy Jones
Joel Kayser
David Kearney
John Kivlehan
Glen Mihal
Bazlur Rahman
Mary Robison
Gordon Ruckdeschel
Dominic Vacca
Raymond Wills
Thanks to kapla for the tip.
Real food for thought. Pool participants and players beware.
I don't understand this limitation of only issuing 10 checks, or some lotteries only 1 check. Here in CA, they will issue up to 100 checks for group claims.
Just think of all the hundreds of checks the lottery issues on a daily basis, many only 3 or 4 figures. So really, how much more trouble is it to issue 12 more checks of $30,081 to cover this group?
Just think of all the waste in the system by the group needing to spend thousands of dollars for administrative overhead to the lawyer and accountant. That's money wasted that could have gone to stimulating the economy in more productive ways. That's part of what's wrong with this country.
Texas will issue 1 check to one individual, or one group. So if my group ever wins we would have to create an LLC, or some type of partnership.
If we win millions...I'm ok with that.
Good article. Agree the 10 check limit makes no sense.
Congratulation to all the winners
10 check limit come on NY
Well at least he was smart about it. Congrats to the winners.
I didn't know about the 10 check limit in NY. I have a group of 12 and when one or two players leave the group I will not be replacing them. Instead of the "Lucky 12" I am going to rename the group to be "The Lucky 10"
Good article and information, smart group, sound advice....Looks like common sense/good judgment prevailed !
Congrats on their win.
The reason for the States doing 10 or in my state Mass. 1 is both greed and lazy. the greed part is pay 1 check to group and he has to pay others so alot more in taxes for state ALOT MORE.The lazy is why do work when you don't have to...know any state worker that does anything extra to help regular people LOL there is an IRS form 5754 to which lottery winnings with groups is used,so its not like its something new or states have to do more than print more check the paper work is done for each person to pay his/her own taxes.If the IRS can figure this out funny how the states can't go alone with it unless states want to cheat you out of more of your money.
I play solo. It only takes 1 lottery ticket to win.
In Texas, here's a direct quote from the website on making a claim,"The Texas Lottery Commission will pay only one claimant per ticket. A “claimant” can be an individual, a trust, a partnership, a corporation, or any other legal entity.If you choose to claim the prize as a trust, partnership, or other legal entity, the legal documents that create the legal entity must be submitted for review to the Texas Lottery's Legal Services Division before claiming your prize. This is required to ensure the documents comply with the State Lottery Act and the Commission’s administrative rules. If you claim your prize as any entity other than an individual, a Federal Employer Identification Number (FEIN) is required."
No multi checks here.
I think this is great news that 22 co workers walk away with about $30,000 each.
I play alone. I think when I win, I will just go in the very next day so I can have that money hit my bank account in 2 weeks time. Then I would setup other accounts after that and transfer funds as need be. I don't care if people know my name since your name has to be disclosed even when claiming in trust or LLC in states that do not permit anonymous prize claim. If things get too unbearable, I would have more than enough money to change my name.
OS, I might agree with you in most cases until I read this article from an Atty that made a claim for a couple who won $35 million on the MM back in May 2011. His firm is out of Ft.Worth
Fort Worth, TX (PRWEB) July 21, 2011 -- In May, the lives of two Texans were changed forever when they won the thirty-five million dollar jackpot in the Mega Millions lottery. Who are these lucky people? Well, unless you are part of their family or circle of closest friends, you are not likely to know. In order to maintain their anonymity and claim their prize, the winners hired attorney Jim Ross to set up a trust and to act as trustee on behalf of that trust.
Privacy is very important when you have received a sudden windfall of cash or property, because it takes some time to fully accept and adjust to your new circumstances. As Jim Ross told the Texas Lottery Commission when he claimed the Mega Millions prize for the MAIM Revocable Trust: "The recipients are very excited about this win, and obviously, it's been quite a lifestyle change for them. It's been a fun process dealing with that adjustment."
Changing your name seems very extreme to me. I would only do that as a last resort. Maybe you should just get an unlisted phone number and move into a guard-gated community. That would probably get you some privacy and make winning the lottery more enjoyable.
Congratulations to all the winners
The taxes are essentially the same regardless of how many checks the lottery does or doesn't write, because they're paid by each individual based on their total taxable income.
The only difference would be based on how much is spent by the LLC on lawyers or accountants. That money will be a tax deductible expense for the LLC, but will result in taxable income for the lawyers and accountants, whose marginal tax rates may differ from the members of the LLC. That difference in marginal rates will change the taxes owed only on the amount spent on those deductible fees, and may increase or decrease the total taxes resulting from the prize. Whatever rules the lottery has on how many checks they'll write for each claim has nothing to do with the taxes.
As for IRS form 5754, that makes it fairly easy for a group to accept and disburse the winnings without hiring professionals, but the expense of those professionals is relatively minor. Even if it cost $4400 (which is very generous), that's only a $200 (pre-tax) expense to the individual who would be doing the work themselves. After taxes it might have cost him about $150 to have somebody else deal with the hassles and make sure everything is done right.
I'll also note that by simply taking a single check there's no need to give the lottery more than one name. That means that at least 21 of these people could have remained anonymous, as there's no reason this story should have had all 22 names. OTOH, the one person whose name will be public information may find it useful to publicize the fact that they've won 50k instead of $1 million.
Is it essentially the same 1 person the one getting the check pays 25% tax on the 1 million in TX no state tax, then he has to give the other 21 their share as a gift,in mass you are allowed to give family members up to 11,000. per year but giving to any others it gets taxed different depending on the amount and then those people have to claim it and pay taxes on that money. I believe that is the way it works any accountants out there might have a better understanding of this.So he paid the tax in first place then he and them pay taxes again.where the IRS form for group claimings each person is responsible for each amount.
Love the operative word "essentially". Ohh I so want you to do my taxes this year and essentially be off a few thousand, I'm sure my state and Federal will adore you for that :)
Since the topic is about the winners and tip claims, the only gain I gathered is to stay away from Pool lotteries. Win on your own, lose on your own, just do it on your own.
I used the word "essentially" because the taxes won't be exactly the same, but they will be very close. That should be clear from the remainder of my post, but I could explain it again if you found it too confusing.
It doesn't matter who gets a check(s). All that matters is who gets taxable income. If you get a check for $1 million and disburse $50,000 each to 19 other winners your taxable income is only $50,000 and each of the other 19 also has $50,000 in taxable income.
Of course the withholdings are another good reason to have formed an LLC and spent a modest amount to do so. If one individual claims the prize and then disburses the money the withholdings will be credited to their tax obligation, and they will be getting a very fat tax refund because their actual obligation will be far less than the withholdings. In this case, since that one individual was only entitled to about 5% of the prize they would not have had the funds to pay the other winners until receiving the refund. With the LLC the income passes through to all of the winners and the withholdings are distributed and credited to each winner's tax obligations.
Re: name changing post, I wouldn't mind changing my name to claim the prize and avoid media and the crazies' attention. Don't know anything about that or how long it takes but I'd try to do it. I'll always be Johnny C. to me and my family and that's all that matters. And if I can recoup the name later on, the sweeter.
Edit: Most states require name changes be published on your city's newspaper. The weasel media know this of course. Scratch that.
that's why I prefer to play alone
CDanaT: Coincidentaly I just received today an answer from TX Lottery to my question, "is it possible for us, Texans, to make suggestions designed to benefit the Texas Lottery?" And their answer was: "You can make general suggestions to our customer service email address: customer.service@lottery.state.tx.us"
So, I guess, it's up to us to change the one-check policy ..
I agree, GameGrl.
"Uh, your open heart surgery was essentially successful, ma'am."
Oh, you didn't agree with that?
Well, obviously you're confused.
Hey look over there! A squirrel!
LOL...
If jellyman was a lawyer, he'd be known as a shyster.
The ten member limit for private groups in ny make no sense, because you can have up to 25 group members if you join thier mail in or online subscription for mega and lotto..........
"They are handing me a million dollars"
No, no they aren't. it's only 34,000 after taxes splitting it 22 ways. Do you know how mad I would be?? I guess I am shelfish but I could never, ever join a pool.