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Record Jackpot Claimed, question!

Topic closed. 15 replies. Last post 11 years ago by Chewie.

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United States
Member #24439
October 22, 2005
638 Posts
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Posted: November 9, 2005, 9:36 pm - IP Logged

Hey guys the record PB jackpot has be claimed.

Quesition. I saw the way the divided up the huge prize amongst winners, family members and relations.

Does anyone know whether this is beneficial for tax purposes.

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    USA
    United States
    Member #1849
    July 15, 2003
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    Posted: November 9, 2005, 9:47 pm - IP Logged

    I don't know for sure but I believe it would be. After the time they spent speaking to professionals and waiting to collect; I would assume by their response that this solution keeps more money in all parties pockets. That too would be my primary concern.

      Bradly_60's avatar - disney37
      Atlantic Mine, Michigan
      United States
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      June 23, 2002
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      Posted: November 9, 2005, 9:56 pm - IP Logged

      No, the tax is still the same for the entire amount, they just get to split up the total amount between themselves.  There might be a very small tax benefit from spliting the amount but not a big one at all.

      Brad

        bellyache's avatar - 64x64a9wg

        United States
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        March 18, 2005
        2060 Posts
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        Posted: November 9, 2005, 9:56 pm - IP Logged

        Well I think they divided it up because the family all bought tickets together. I don't think it had anything to do with tax purposes. It was meant to be split among everyone who put some money in the jackpot. That is, if I am understanding you right.

        Dance like no one is watching.

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          USA
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          Posted: November 9, 2005, 10:02 pm - IP Logged

          What I mean to say is this, if they would have been able to keep more money by claiming it as one party don't you think they would have done so? I do. Cheers,

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            October 16, 2005
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            Posted: November 9, 2005, 10:14 pm - IP Logged

            As far as Income Tax is concerned the affect of splitting would be negiligible since the winnings are very large. But they avoided gift tax if they had split in 2 or 4 and then distributed some percentage to other 5 or 7. This gift tax would have been large and would have been in addition to income tax .

              Stars's avatar - basket
              Englewood, NJ
              United States
              Member #1994
              August 5, 2003
              31 Posts
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              Posted: November 9, 2005, 11:35 pm - IP Logged

              As far as Income Tax is concerned the affect of splitting would be negiligible since the winnings are very large. But they avoided gift tax if they had split in 2 or 4 and then distributed some percentage to other 5 or 7. This gift tax would have been large and would have been in addition to income tax .

              I Agree!

              That is why before you do anything you get good legal AND tax advisors.

              My understanding (every state COULD be different, I don't know) is if you want to split up the prize like they did, you must have a prearranged agreement before you buy the lottery tickets.  Which is not likely (my opinion.)

               

              I know that when I win a big prize, I plan to give my siblings and parents a chunck each (I say now around 5 percent each), again, I don't think it is 100 % legal unless you have prearanged it.

               

              Stars

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                Louisville, KY
                United States
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                May 20, 2005
                203 Posts
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                Posted: November 10, 2005, 12:16 am - IP Logged

                As far as Income Tax is concerned the affect of splitting would be negiligible since the winnings are very large. But they avoided gift tax if they had split in 2 or 4 and then distributed some percentage to other 5 or 7. This gift tax would have been large and would have been in addition to income tax .

                I Agree!

                That is why before you do anything you get good legal AND tax advisors.

                My understanding (every state COULD be different, I don't know) is if you want to split up the prize like they did, you must have a prearranged agreement before you buy the lottery tickets.  Which is not likely (my opinion.)

                 

                I know that when I win a big prize, I plan to give my siblings and parents a chunck each (I say now around 5 percent each), again, I don't think it is 100 % legal unless you have prearanged it.

                 

                Stars

                Federal Tax Law states that if a group of winners want to claim a prize, they must form a club and claim it in the club's name when they go to claim the prize (it does not need to be before you buy the tickets). This way, every member of the club gets an equal share and is responsible for an equal amount of taxes on that prize (notwithstanding any other income the members have, which will add to their individual liability). Otherwise, it is one person claiming it and that one person is responsible for all of the taxes. If the person who claims it splits it up without forming a club, the Gift Tax law comes into effect for EVERY PARTY INVOLVED.

                  RJOh's avatar - chipmunk
                  mid-Ohio
                  United States
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                  March 24, 2001
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                  Posted: November 10, 2005, 12:58 am - IP Logged

                  If one person claimed it all and gave parts of his winnings to other family members, it would be considered a gift and gifts of certain amounts are taxed again.  Also if that person died, all the money would be part of his estate and would be subject to taxes again before being transferred to other family members.  It just make sense if all the family contributed to purchasing the tickets, everyone gets a share from the get go same as any other lottery pool.

                   * you don't need to buy more tickets, just buy a winning ticket * 
                     
                               Evil Looking       

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                    Sparta, NJ
                    United States
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                    July 9, 2005
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                    Posted: November 10, 2005, 9:17 am - IP Logged

                    Lottery Pools are an accepted way of gambling; otherwise they would not be popular. How long do you think it would take for a denial of a Lottery Pool to make the papers and television?  Ever heard of a denial? N-O-P-E ! Lottery Pools are like a blood tranfusion to the lottery.

                    There is no laws against pre-planning, only on post-planning.  If there is a standing agreement, that can be sworn to, or documented some way (emails are good), you will have little or no trouble.  There are several cases documented on a google search.  Copies of the tickets held by each player, etc.  I do one with some one in another state.  I mark their name and my name on the ticket(s) in ink.  Since I'm not out to stick it to the tax-man, should be valid recording.

                    Cheers

                    |||::> *'`*:-.,_,.-:*''*:--->>> Chewie  <<<---.*''*:-.,_,.-:*''* <:::|||

                    I only trust myself - and that's a questionable choice

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                      Sparta, NJ
                      United States
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                      July 9, 2005
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                      Posted: November 10, 2005, 9:22 am - IP Logged

                      If one person claimed it all and gave parts of his winnings to other family members, it would be considered a gift and gifts of certain amounts are taxed again.  Also if that person died, all the money would be part of his estate and would be subject to taxes again before being transferred to other family members.  It just make sense if all the family contributed to purchasing the tickets, everyone gets a share from the get go same as any other lottery pool.

                      Actually, there are severe limitattions of actual money tranfer within a family.  Spouses are generally aceptable. Children are not and parents are not.  Its that death tax thing.  Its why Trust Funds were created, otherwise the rich could just pass checks around all day.  Also, there is that pesky little phrase, intent to commit fraud.  Some one transfers everything to the child, or spouse, the day before they die of cancer, bet your booty there is going to be a long, long, court case.

                      Cheers

                      |||::> *'`*:-.,_,.-:*''*:--->>> Chewie  <<<---.*''*:-.,_,.-:*''* <:::|||

                      I only trust myself - and that's a questionable choice

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                        Alabama
                        United States
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                        June 27, 2005
                        309 Posts
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                        Posted: November 10, 2005, 9:34 am - IP Logged






                        As far as Income Tax is concerned the affect of splitting would be negiligible since the winnings are very large. But they avoided gift tax if they had split in 2 or 4 and then distributed some percentage to other 5 or 7. This gift tax would have been large and would have been in addition to income tax .




                        I Agree!

                        That is why before you do anything you get good legal AND tax advisors.

                        My understanding (every state COULD be different, I don't know) is if you want to split up the prize like they did, you must have a prearranged agreement before you buy the lottery tickets.  Which is not likely (my opinion.)

                        I know that when I win a big prize, I plan to give my siblings and parents a chunck each (I say now around 5 percent each), again, I don't think it is 100 % legal unless you have prearanged it.

                        Stars




                        Federal Tax Law states that if a group of winners want to claim a prize, they must form a club and claim it in the club's name when they go to claim the prize (it does not need to be before you buy the tickets). This way, every member of the club gets an equal share and is responsible for an equal amount of taxes on that prize (notwithstanding any other income the members have, which will add to their individual liability). Otherwise, it is one person claiming it and that one person is responsible for all of the taxes. If the person who claims it splits it up without forming a club, the Gift Tax law comes into effect for EVERY PARTY INVOLVED.






                        That's correct, however it's important to note that in addition to "forming the club," the club must obtain a Federal Employer Identification Number (FEIN) from the IRS. I think you implied that in your post, but just to make sure there is no confusion, the club must apply to the IRS for a FEIN.

                        I spoke to a person in the Tax Law division of the IRS a couple of months ago, and they told me that if the club is actually a lottery pool that is playing long-term, then "forming the club" involved creating a partnership. There is a specific IRS publication about creating partnerships that they recommended reading. I wrote down the IRS publication number they gave me, but I don't have my notes with me at the moment. I'll post the info later.

                         

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                          Sparta, NJ
                          United States
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                          July 9, 2005
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                          Posted: November 10, 2005, 9:41 am - IP Logged

                          That would be valuable information to have.

                          Cheers

                          |||::> *'`*:-.,_,.-:*''*:--->>> Chewie  <<<---.*''*:-.,_,.-:*''* <:::|||

                          I only trust myself - and that's a questionable choice

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                            Sparta, NJ
                            United States
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                            July 9, 2005
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                            Posted: November 10, 2005, 9:53 am - IP Logged

                            Some info on assignment:

                            http://www.williamsmullen.com/news/articles_detail/019.htm

                            Assignment of Lottery Proceeds
                            An individual who wins a major lottery prize often is presented with more wealth and income than he or she has theretofore experienced. The lottery winner may be eager to share the wealth (and the income tax burden) with other family members or friends. Consequently, the winner may consider assigning some or all of the proceeds to one or more such persons. Whether an assignment of all or part of a lottery ticket is effective to transfer the income tax liability on any winnings depends on when the transfer is made. If the lottery ticket is assigned, in whole or in part, before it becomes a winning ticket, any subsequent winnings are taxed to the assignee or donee.20 If the winning lottery ticket is assigned after it becomes a winning ticket, the proceeds are taxed to the assignor and not the assignee or donee.

                            Example: Bernard purchases a lottery ticket and then assigns a one-half interest in the ticket to his girlfriend, Marlene, by executing an assignment agreement. The next day, the ticket is selected as the winning ticket in the lottery. Bernard recognizes one-half of the income from the lottery, while Marlene recognizes the other half.21

                            The cases involving an assignment of a lottery ticket prior to winning largely turn on the facts surrounding the assignment, and the taxpayer's ability to prove that there was an intent to share the winnings at the time the ticket was purchased.22 It is difficult, if not impossible, to overstate the high burden on taxpayers to prove a pre-existing agreement to share lottery winnings. The absence of a written agreement, while not fatal, adds considerably to that burden. In the absence of a written agreement, proof of a sharing agreement may be less difficult where there is a regular pattern of buying tickets or an "office pool" arrangement.

                            If a group of taxpayers enter into an agreement to purchase lottery tickets and to share the winnings, they are required to include only their share of the prize in income—even if the agreement is unenforceable under state law.23 If, however, the person who collects the prize fails to honor the unenforceable agreement, the amount retained is included in that person's income.24

                            Example: Sam, Simon, and Seymour live in North Carolina and regularly travel to Virginia to purchase lottery tickets. They agree that they will split the lottery prize equally. Seymour travels to Virginia and purchases a ticket that turns out to be a winner. Despite their agreement, Seymour decides not to share the lump-sum lottery prize with Sam and Simon. Sam and Simon sue Seymour, but the North Carolina court declares that because lotteries are illegal in that state their agreement is unenforceable. Seymour is required to include all of the lump-sum prize in income in the year of winning the lottery.25

                            As discussed above, if the lottery ticket is assigned, in whole or in part, after it is a winning ticket, the assignment will not be effective for the purpose of shifting any of the income tax liability. The purported assignor will be responsible for the entire income tax liability associated with the winnings.

                            Example: Wade wins the lottery; his prize is payable in 20 annual installments. Wade had no preexisting agreement to assign, transfer, or share any part of his lottery prize with any other person. After winning the lottery, Wade decides to share his good fortune with his three friends, Jane, Mary, and Beth. Wade plans to make gifts, evidenced by an "irrevocable declaration of gift," of $5,000 per year to Jane, Mary, and Beth for the next 19 years. The "irrevocable declaration of gift," an unequivocal, unconditional written instrument, binding under local law, which evidences the transfer of a portion of the lottery proceeds to Jane, Mary, and Beth, is not effective to transfer the income tax liability to Jane, Mary, and Beth. Wade must include each lottery prize installment as income, including any portion distributable to Jane, Mary, and Beth, for the tax year in which each installment is actually or constructively received.26

                            Cheers

                            |||::> *'`*:-.,_,.-:*''*:--->>> Chewie  <<<---.*''*:-.,_,.-:*''* <:::|||

                            I only trust myself - and that's a questionable choice

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                              United States
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                              October 22, 2005
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                              Posted: November 10, 2005, 11:07 am - IP Logged

                               

                              I guess this is the main point from your post chewie.

                              "As discussed above, if the lottery ticket is assigned, in whole or in part, after it is a winning ticket, the assignment will not be effective for the purpose of shifting any of the income tax liability. The purported assignor will be responsible for the entire income tax liability associated with the winnings."

                               

                              They winners will pay all the taxes as their income tax.