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Can IRS make you pay taxes if you give lottery tickets as gifts?

Topic closed. 21 replies. Last post 10 years ago by stephi.

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stephi's avatar - winifrid
rural lowcountry, south carolina
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Posted: June 6, 2007, 3:12 pm - IP Logged

Just curious. Suppose I gave someone a lottery ticket and it hit the jackpot. Since they have to tell the office where they got the ticket from then they would have to say that I gave them the ticket, would i have to pay any gift taxes? or would the office just write the person down as the ticketholder and i wouldn't have to have anything to do with it? also was wondering if the ticket buyer has to go with the ticket holder to the office to claim? thank you.

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    Kentucky
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    Posted: June 6, 2007, 4:49 pm - IP Logged

    Just curious. Suppose I gave someone a lottery ticket and it hit the jackpot. Since they have to tell the office where they got the ticket from then they would have to say that I gave them the ticket, would i have to pay any gift taxes? or would the office just write the person down as the ticketholder and i wouldn't have to have anything to do with it? also was wondering if the ticket buyer has to go with the ticket holder to the office to claim? thank you.

    "Since they have to tell the office where they got the ticket from then they would have to say that I gave them the ticket,"

    The lottery would already know where the ticket came from so unless there was an ownership dispute, there would be no reason for them to ask where they got the ticket.

    "would i have to pay any gift taxes?"

    I'm not sure if you could claim the cost of the ticket as a gift and use it as a deduction but you pay taxes on your income not what you spend.

      LuckyLilly's avatar - savy chick.png

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      Posted: June 6, 2007, 5:32 pm - IP Logged

      Oh, that's a scary thought!  I bet since the ticket was only worth $1 or so at the time the gift was made, you wouldn't owe a gift tax.  It increased in value between the time you gave it and the time of the drawing so the increase in value would be the recipients responsibility to pay taxes on.

      However, what if you knew a ticket was a winner and gave it away AFTER the value had already increased.  Say you were playing different combos of the same powerball numbers, so you had 3 or 4 that matched 5 and 1 that hit the powerball.  Say you decide to give one of the match 5 to a family member or friend, and the multiplier was X5 making it a million dollar ticket.

      Is it possible the recipient could decide they didn't want to pay taxes on their measly million, and tell the IRS it was a gift making you as the giver responsible for the gift tax? 

      Or an even worse scenario, an older person wins on just one ticket and decides to give it to their son or daughter.  The offspring pulls the ole "it was a gift" routine and the older person has no money to pay the gift tax, so they're forced to sell their home and probably still get dunned and harrassed by the IRS for the remainder of the taxes owed till the day they die.  Whoa, that is scary if it could happen.

        Coin Toss's avatar - shape barbed.jpg
        Zeta Reticuli Star System
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        Posted: June 6, 2007, 5:52 pm - IP Logged

        Whoever cashes the ticket pays the tax if arrangements aren't made before hand (such as someone representing a multi=person trust). Before the lottery makes out the check, who do you think they are going to ask to produce ID?

        Somewhere there's a thread here about this and someone posted an example of it costing a jackpot winner $34,000 to give smeon a gift that was over the $12,000 allowed annually.  

        Those who run the lotteries love it when players look for consistency in something that's designed not to have any.

        Lep

        There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

          guesser's avatar - Lottery-017.jpg

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          Posted: June 6, 2007, 8:04 pm - IP Logged

          I would not think so.

           

          Reson being, I worked for a company a few years ago that used to give employees that met a certain (high-dollar) sales quota gifts such as golf clubs, or a putter, or an umbrella, pen/pencil sets, etc. but we also had to 1099 them for anything we gave them.

          A lot of the folks turned down the gifts and told us to just keep them, they didn't want the hassle of a $30 1099'enble item. 

            OldSchoolPa's avatar - Lottery-057.jpg
            Gurnee, Illinois
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            Posted: June 6, 2007, 8:06 pm - IP Logged

            Coin Toss is right on...all lottery tickets are bearers instruments; thus the particular name of the bearer printed and signed on that lottery ticket is responsible for all associated taxes regardless of who actually purchased the ticket.  As such, someone who opted to gift to others after claiming a prize themselves would be responsible for any gift taxes for amounts over the allowed gifting limit (FYI $10K or $12K is not the limit; if someone has the ability to do so, they possibly could gift up to $250,000 to a minor in a 529 College Savings Plan without incurring any gift tax implications; but as with any tax matters one should always consult their own personal tax accountant AND investment consultant before making any such financial decisions).

            Get MONEY!!! Winning a JACKPOT lottery is all the HOPE and CHANGE I desire!!!  NOW give me MONEY!US Flag

            The guy who won the presidency in 2008 really won the lottery...he is now millions richer, travels in first class style, and even has a staff that would be the envy of the richest Powerball winner (she has a staff of 2). Every night he goes to sleep, he probably plays the close of Dave Chappelle's Show: I'm rich beyatch!

              justxploring's avatar - villiarna
              Wandering Aimlessly
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              Posted: June 6, 2007, 8:29 pm - IP Logged

              I Agree!

               

              As long as no money changes hands, you would not be responsible to pay any tax.   The ticket had no monetary value (except for $1) when you bought it or gave it away. 

              I've been seeing that $12,000 figure we toss around on this board a lot.  It IS NOT the maximum you can give. (this is reminding me of the latest debate about the $600 reported by the lottery!)  You just have to report any gift exceeding this amount to the IRS.  You can give away up to $1 million in your lifetime without paying a gift tax.  As you give, you are credited that dollar amount off of the $1 million.  To quote the IRS  "Although a return may be required, no actual gift tax will become payable until the cumulative lifetime taxable gifts exceed the applicable exclusion amount. "

              As OldSchool points out, anyone with that kind of money should always consult a tax or investment specialist or attorney specializing in large estates to look at alternative methods of wealth distribution.

              Lucky Lilly writes: Is it possible the recipient could decide they didn't want to pay taxes on their measly million, and tell the IRS it was a gift making you as the giver responsible for the gift tax? 

              What an interesting question! 

                justxploring's avatar - villiarna
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                Posted: June 6, 2007, 8:40 pm - IP Logged

                I would not think so.

                 

                Reson being, I worked for a company a few years ago that used to give employees that met a certain (high-dollar) sales quota gifts such as golf clubs, or a putter, or an umbrella, pen/pencil sets, etc. but we also had to 1099 them for anything we gave them.

                A lot of the folks turned down the gifts and told us to just keep them, they didn't want the hassle of a $30 1099'enble item. 

                I know what you mean.  I went through that when I'd win sales contests.  I'd always say "Show me the money!!" Who wants an ice bucket or a tee shirt with a company name?  Once I won a desk with a retail price of $1,200.  I had no place to put it anyway, but I also didn't want to be stuck with the tax so I asked for money instead.  I didn't get close to $1,200 and, yes, I did pay tax on the money, but when you win gifts as bonuses instead of cash, they're often not worth the estimated value, which is often higher than you'd pay in the first place! 

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                  Posted: June 6, 2007, 8:55 pm - IP Logged

                  It has nothing to do with the ticket being a bearer bond, or anything like that. If you buy a lottery ticket for $1 or $50 and give it as a gift before it becomes worth more than what you paid, then you are giving a gift that is worth what you paid for it. If for some reason you did give away a ticket after finding out that it was a winner, then you'd be giving a gift that had the value of the prize and you could potentialy owe gift tax. Of course as apractical matter, only an idiot would give somebody a ticket that was already worth a lot of money and then report to the IRS that it was known to be awinner when the gift was given. If the recipient claimed it was already winner and that the giver should pay a gift tax, well, they're obviously a liar as well as an ungrateful SOB.

                    RJOh's avatar - chipmunk
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                    Posted: June 6, 2007, 8:55 pm - IP Logged

                    Gift taxes kick in at $12K so if you bought over $12K worth of lottery tickets for someone as a gift then you might owe some gift taxes however if you gave someone a $1 or $5 lottery ticket that turned out to be worth $12K+, it was only worth that after they cashed it in.  When you gave it to them it was only worth what you paid for it and value was only added when they cashed it in.

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

                      RJOh's avatar - chipmunk
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                      Posted: June 6, 2007, 9:04 pm - IP Logged

                      I know what you mean.  I went through that when I'd win sales contests.  I'd always say "Show me the money!!" Who wants an ice bucket or a tee shirt with a company name?  Once I won a desk with a retail price of $1,200.  I had no place to put it anyway, but I also didn't want to be stuck with the tax so I asked for money instead.  I didn't get close to $1,200 and, yes, I did pay tax on the money, but when you win gifts as bonuses instead of cash, they're often not worth the estimated value, which is often higher than you'd pay in the first place! 

                      When Oprah gave away all those cars on her show last some of her guess have to take out a loan to pay the taxes on their free car.

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

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                        Posted: June 6, 2007, 9:05 pm - IP Logged

                        "Since they have to tell the office where they got the ticket from then they would have to say that I gave them the ticket,"

                        The lottery would already know where the ticket came from so unless there was an ownership dispute, there would be no reason for them to ask where they got the ticket.

                        "would i have to pay any gift taxes?"

                        I'm not sure if you could claim the cost of the ticket as a gift and use it as a deduction but you pay taxes on your income not what you spend.

                        Asking where the bearer got the ticket is a standard part of the validation process for tickets winning substantial prizes. Of course the lottery knows where the ticket was sold, but the righful owner should also know, or they should say they don't know because they got the ticket as a gift, or whatever other reason would prevent them from knowing. Not knowing when or where the ticket was bought is exactly what is expected if the ticket was stolen or reported as lost. If you remember the case about the trucker who turned in a forged PB ticket a year or so back, he was charged with making a false statement, not forgery.

                        Besides paying taxes on income, the giver is responsible for the taxes on qualifying gifts (essentially the giver pay the recipients income tax on the gift). The cost of the ticket would only be deductible if it was given as a business transaction or soemthing similar. 

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                          NY
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                          Posted: June 6, 2007, 9:09 pm - IP Logged

                          When Oprah gave away all those cars on her show last some of her guess have to take out a loan to pay the taxes on their free car.

                          Apparently the IRS decided they were prizes and not gifts. They stopped doing it years ago, but Wheel of Fortune used to give away $30,000 watches and similar prizes in the bonus round. I'm sure every contestant who was making 25 or 30 grand a year was thrilled to win 6 grand in cash, and then end up owing another 3 or 4 grand so they could have a watch they couldn't afford.

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                            Kentucky
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                            Posted: June 6, 2007, 11:38 pm - IP Logged

                            Asking where the bearer got the ticket is a standard part of the validation process for tickets winning substantial prizes. Of course the lottery knows where the ticket was sold, but the righful owner should also know, or they should say they don't know because they got the ticket as a gift, or whatever other reason would prevent them from knowing. Not knowing when or where the ticket was bought is exactly what is expected if the ticket was stolen or reported as lost. If you remember the case about the trucker who turned in a forged PB ticket a year or so back, he was charged with making a false statement, not forgery.

                            Besides paying taxes on income, the giver is responsible for the taxes on qualifying gifts (essentially the giver pay the recipients income tax on the gift). The cost of the ticket would only be deductible if it was given as a business transaction or soemthing similar. 

                            "Asking where the bearer got the ticket is a standard part of the validation process for tickets winning substantial prizes."

                            Are you sure about that because I can't find asking that anywhere in the Ohio Administrated Code Lottery procedures under Claiming Winning Prizes?

                            "Not knowing when or where the ticket was bought is exactly what is expected if the ticket was stolen or reported as lost."

                            And that's why I said "unless there is a dispute".

                            A couple ecstatically walks into the lottery office after getting a huge hit and the first thing the clerk asks them "Did you mug an old lady and take this ticket out of her purse".

                            "Besides paying taxes on income, the giver is responsible for the taxes on qualifying gifts (essentially the giver pay the recipients income tax on the gift)."

                            But is a $1 lottery ticket before it becomes a huge winner a qualifying gift?

                            Please give us chapter and verse from the IRS code where it says if a person gives a $1 lottery ticket as a gift, they are responsible for maybe millions of dollars in taxes. 

                              guesser's avatar - Lottery-017.jpg

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                              Posted: June 6, 2007, 11:47 pm - IP Logged

                              I know what you mean.  I went through that when I'd win sales contests.  I'd always say "Show me the money!!" Who wants an ice bucket or a tee shirt with a company name?  Once I won a desk with a retail price of $1,200.  I had no place to put it anyway, but I also didn't want to be stuck with the tax so I asked for money instead.  I didn't get close to $1,200 and, yes, I did pay tax on the money, but when you win gifts as bonuses instead of cash, they're often not worth the estimated value, which is often higher than you'd pay in the first place! 

                              I had a friend that won something like $25,000 in tools and lawn/gardening equipment from a radio station.

                              If he went out and bought it all, it MIGHT have cost him $10,000, but they 1099'd him for $25,000.

                              He ended up somehow negotiating it down to about 10K, but what's funny was, about 3 months after that, me and the wife were at a nice restaurant having a dinner, and sitting at the table next to us were execs from the radio station, and all they did was talk about my friend that won all the stuff, they just ripped him up.....