Because lottery winner Benjamin Y. Lelina sold the rights to the balance of his winnings, he could lose $45,000 to Uncle Sam.
The Jacksonville resident is not the only lottery winner to turn potential loser. He is just one of many caught up in an Internal Revenue Service enforcement action requiring such sales to be treated at higher personal income tax rates rather than as capital gains.
The deck could be stacked against Lelina and his wife, Teresita S., in U.S. Tax Court here because the court previously upheld the IRS determination that the sales are taxable at personal income tax rates.
But Steven M. Kwartin, a Miami Beach tax attorney who represents the couple and about 50 other lottery winners in cases pending in tax court, is not fazed by the prior court rulings.
"Obviously, these other winners who were represented by other attorneys with respect to this issue would have been better served with different counsel," Kwartin said. "The issues were not adequately, fully briefed and researched and presented to the court."
As a result, he said in a telephone interview, he is confident that he would be able to obtain a different outcome once he presents the couple's case and those of his other clients in tax court.
"We don't feel the issue has been fully and completely presented to the court in an adequate manner," Kwartin added. "We've upwards of 50 cases nationwide."
According to the Lelinas' petition seeking to reverse the IRS ruling, they sold the remaining rights to their remaining annual payments for $375,000 in 2000. Their petition argued that they are also entitled to claim deductions for losses and tax credits.
The petition said the Lelinas sold the remaining rights to a lottery asset purchase company more than a year after winning the lottery.
Since the adverse court rulings, Kwartin said, companies buying lottery rights have stopped issuing opinion letters to sellers, advising them that proceeds of the sale could be reported as a capital gain rather than at the higher regular income tax rates.
The petition contends that the sale or exchange that qualifies as a long-term capital gain and Lelinas' lottery qualifies as a property and thus the sale is entitled to be taxed at the lower capital gains rate.
At least six other Florida lottery winners have been caught up in the national IRS enforcement action over how the sale of lottery rights should be treated for tax purposes.
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