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IRS ruling on Lotto fought

New York LotteryNew York Lottery: IRS ruling on Lotto fought

Greece woman wants sale of rights to be taxed as capital gain.

New York Lottery winner Shirley B. Prebola of Greece could end up a $1.3 million loser if the Internal Revenue Service has its way.

Prebola, also known as Shirley D. Begy, filed a petition asking the U.S. Tax Court here to overturn the IRS ruling that her 2000 sale of the remaining rights to her annual lottery payments was taxable as ordinary income instead of a long-term capital gain.

Prebola won $17.5 million playing Lotto on May 31, 1997, and opted for cash payments over 26 years. Investment companies often contact lottery winners and ask to purchase the rights to their future payments, giving the winner more cash upfront. If the winners sign away their rights, they receive a negotiated lump sum from the company, and the company receives the annual payments from the state.

Despite tax court findings in similar cases upholding IRS findings that such sales were taxable as income, Gerald W. Dibble, her Rochester tax attorney, held onto a glimmer of hope that the U.S. Court of Appeals for the Second Circuit would see it differently.

I personally feel they should be treated as capital gains, not ordinary income, Dibble said. What were doing is keeping her rights alive so if there is a ruling that it is capital gains, her rights are protected.

He said there is a possibility that the U.S. Supreme Court may dventually take the case, especially if two different appellate court circuits issue conflicting opinions, raising the possibility such tax cases would be treated differently in two different regions of the country.

The issue is a significant issue, he added. If theres a split in the circuits, the Supreme Court may take it. We filed the paperwork to keep it alive. At the time we filed, there was not a Second Circuit case.

Dibble said Prebola was advised by a New York law firm, which he declined to name, that the sale of her remaining rights to the lottery payments would qualify to be taxed at the lower long-term capital gains rate.

While her petition did not disclose the amount she received from the sale of her lottery rights, the IRS notice of deficiency noted that she reported a $7.1 million capital gain for 2000 on which a $1.46 million tax payment was made. The IRS ruled $2.77 million in ordinary income taxes were due, leaving a $1.3 million balance.

They (lottery winners who sell) are getting hit unnecessarily hard, Dibble said. If they spent the money, as some do, they could be in rougher shape than before they won. They might well be in a situation where they dont have the money.

Law bars the IRS from commenting on pending tax cases, a spokesman said.

The IRS notice was issued Dec. 4, and the agency has 60 days to file an answer to Prebolas March 8 petition. If the IRS and Prebola fail to negotiate a settlement, the case could go to trial before a tax court judge.

Gannett News Service

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4 comments. Last comment 13 years ago by hypersoniq.
Page 1 of 1
New Member
Glendale Hts, Il.
United States
Member #2270
September 8, 2003
1 Posts
Posted: April 17, 2004, 12:54 am - IP Logged

  Why bother with winning if the IRS plans on getting most of the winnings. Instead of a lottery why don't we just call it the Donations to the Goverment and forget it.  Best to steal it like the big guys do and then you get away not paying anything.  Winning the lottery isn't enough money to go to jail for . Own a big company and then steal your employees pension fund and you will get a metal. but try and keep your money from working or winning  a little money and the IRS will take it all and put you in jail.

    jeffrey's avatar - moon
    Hamilton, OH
    United States
    Member #4162
    March 27, 2004
    277 Posts
    Posted: April 17, 2004, 4:57 am - IP Logged

    Actually Butterfly, you have a point. Just ask anybody who has an ESOP.  They should call ESOP a capital gain for the company owners who can sell their lion share back to the company and then sell the company itself. The new owners then devalue the employee shares and then buy them up at a bankruptcy prices. This has happened at 2 companies I have worked for. Many other people are at risk. I've heard nothing but bad things about these funds due to distribution of shares. CEO's tend to be awarded theirs but employees purchase theirs. Be careful about companies whose pension plans call for investments in ESOPs, you may wake up to loose everything. :0

      United States
      Member #379
      June 5, 2002
      11296 Posts
      Posted: April 17, 2004, 9:37 am - IP Logged

      She "opted for cash payments over 26 years"                                                                                            No, she did NOT choose cash.

        hypersoniq's avatar - 8ball
        United States
        Member #1340
        April 6, 2003
        2450 Posts
        Posted: April 18, 2004, 10:22 am - IP Logged

        I always figure the tax rat

        Playing more than one ticket per game is betting against yourself.