Good fortune often breeds tax problems. Take the case of a lottery winner who literally had her winning ticket handed to her by someone else. The lucky recipient now owes an exorbitant gift tax on transfers designed to benefit family members.
Facts of the new case: A regular patron at a Waffle House in Alabama often gave away lottery tickets. He gave one ticket to a waitress that turned out to be the winner in the Florida Lotto jackpot. The waitress said she immediately intended to split the winnings, valued at $10 million if spread over 30 years, with her family. She did not offer to share the jackpot with her co-workers.
The waitress set up an S corporation to receive the $10 million and retained a 49% interest. The remaining 51% was divided among other family members. On audit, the IRS argued that there was no explicit agreement to divide lottery winnings, so it classified the transfers to the family members as taxable gifts. Meanwhile, the co-workers sued the waitress for a portion of the money.
Luck runs out: Now the Tax Court has agreed with the IRS. Nevertheless, it is willing to discount the value of the gift based on the claims of the co-workers, resulting in a taxable gift valued at approximately $1.2 million. (Dickerson, TC Memo 2012-60)
- Small Business Tax Deduction Strategies No matches