Stuart A. Bronstein wrote:
- quote -

I believe that the terms are a state by state (or
multi-state) lotto thing. Here, for example, is what the
Florida Lotto web site says:

"You can choose to receive your portion of the FLORIDA LOTTO
jackpot in a one-time Cash Option payment, or you can
receive it in 30 annual payments. You have 60 days after the
winning draw date to elect the Cash Option payment."

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Harlan Lunsford <hnslunsford[at]bellsouth.net> wrote:
- quote -

You forgot to go to law school - that's the only thing they
teach there.

Stu

Moderator:
I taught my students "It depends" to the point that one
student tried to use it as the answer to an essay question.

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Harlan Lunsford <hnslunsford[at]bellsouth.net> wrote:
- quote -

Someone cited section 451(h), which I wasn't aware of
before, that apparently gives people who win lotteries the
option. The drafting is certainly not a model of clarity,
but that could be what it means.

Stu

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Harlan Lunsford <hnslunsford[at]bellsouth.net> wrote:

- quote -

I'm sure the lawyer would have no problem with the concept
of your splitting your winnings among his family.

--ron

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wrote:

- quote -

New York (used to?) say that. Minnesota doesn't. I think
the IRS lets you decide late, but some states might not.

- quote -

See my previous message; it was split among his family
before the winning, but when the ticket was worth $1 nobody
cared.

Seth

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- quote -

I'm not a lawyer.

Nobody knows whether or not the (hypothetical) lottery
ticket in my pocket was intended, when I purchased it, as a
shared asset in that I gifted 25% of it to each of my
(hypothetical) children. Since its value at the time of
purchase was $1, nobody cared, either. Now that I've won
$umpteen million, it's time to see a lawyer to formalize the
arrangement properly.

Seth

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- quote -

If your investment rate assumption is interest (or short
term capital gains) at the now-prevailing rate (the same one
as the lottery buys from a bank), then you're better off
taking the annuity. If you can do better than that rate,
especially if it's in long term capital gains, you're better
off with a lump sum.

- quote -

No; that was discussed much earlier. It's income in respect
of the decedent, and subject to two levels of taxation
immediately.

Seth

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Stuart A. Bronstein wrote:
- quote -

You mean you can't wait and decide after you win? (How
would I know? I never play it.)

Now it dawns on me. That's why the Georgia lottery says you
have to choose before you buy the ticket.

But if that's the case, one can't really wait and go to a
lawyer afterwards and split it among his family now, can he?

Holiday ChEAr$,
Harlan Lunsford, EA n LA

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William Brenner wrote:
- quote -

(balance snipped and not responded to here)

Dick said the "general rule" is to take the money and run.
Most people do.

However the correct answer is "it depends." Yep.

I would do a present value analysis of lump sum versus pay
outs over the time horizon in order to compare the two sums.
Then I would modify it for the recipient's life expectancy,
and figure in any estate tax consequences. And I'd charge my
client about.... oh.... guess i'd have to figure that
out, too! (grin)

Holiday ChEAr$,
Harlan Lunsford, EA n LA

Moderator:
How could I forget to include "It depends"?

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William Brenner <wbrenner[at]nospamplease.net> wrote:
- quote -

The lump sum is supposed to be the present value of the
income stream - or perhaps the amount it would cost to
purchase an annuity. So the numbers are roughly equivalent
in terms of real value.

- quote -

The estate tax would be on the present value of the future
income stream.

- quote -

Under IRS regulations, as I recall, nothing happens until
the identity of the winner is made known (by his claiming
his winnings, I assume). But at that point income
recognition is retroactive to the date of the drawing.

Stu

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Harlan Lunsford <hnslunsford[at]bellsouth.net> wrote:
- quote -

Technically you're right. But if someone comes in and says
that six people contributed to the ticket or had an
enforceable agreement to share the winnings, the lottery
folks can't prove it one way or another, so I suppose they
don't even bother to try.

Stu

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- quote -

Hmmm, the so called "mailbox rule" applies only in the law
of contracts, best example being the acceptance of an
offer.

According to Wikipedia, "The mailbox rule applies only to
acceptance; other letters do not take effect until the
letter is delivered, as in Stevenson v McLean (1880) 5 QBD
346. "

which is pretty much how I thought it was.

Santa ChEAr$,
Harlan Lunsford, EA n LA

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Dick Adams wrote:

- quote -

speaking of which, I never could understand how someone who
bought a ticket from just his funds, and won the million,
could after the fact go to a lawyer and "arrange his
affairs" (a quote!) to even out taxes among family members.

I always thought that what's done is done.

Can any lawyer here explain that to me?

Santa ChEAr$,
Harlan Lunsford, EA n LA

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First, as to constructive receipt of a 20-year payout on a
lottery - provided that the lottery permits the winner to
elect between lump sum and 20-year payout no later than 60
days after the date of the drawing, then the option to elect
the lump sum does not result in constructive receipt thereof
if the winner instead elects to take the 20-year payout.
See Code Section 451(h).

Thus, if you take the 20-year option, you will not have to
report the full amount of the winnings as income in the year
you won, but only report each payment as received.

Second, as to the hypothetical trust arrangement and credit
for withheld federal taxes. If the trust is a simple trust
(i.e., all fiduciary income must be distributed annually,
and no other amounts are distributed), then each beneficiary
must report his/her respective share of the trust's tax
income (in proportion to the amount of fiduciary income
distributed to that beneficiary). See Code Section 652.
The trust gets an offsetting deduction, Code Section 651,
with the result that, typically, the trust has no taxable
income. However, to the extent that the fiduciary income is
less than the taxable income of the trust the trust may have
some residual income tax liability.

The beneficiary is then permitted to claim a proportionate
share of the credit for the taxes withheld by the State of
Florida from out of the winnings. See Section 31. Section
3402(q) extends wage withholding to lottery winnings, so the
amount would be withheld under Chapter 24, and would
therefore be permitted as a credit to the "income recipient"
who, in this case, would be the beneficiary to whom such
income is taxable under Section 652.

In the case of a complex trust (i.e., a trust that has
discretion to distribute income and/or corpus) the Code
sections are more complicated, but they basically get you to
the same end result.

If the trust itself owes income tax for a particular year,
any credit that relates to the income taxed to the trust is
claimed by the trust, generally speaking.

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Dick Adams wrote:
- quote -

Respectfully disagree. The lump sum payment is about half
the total winning amount. For example, a $30 million win
would yield about a $!5 million lump sum -- about $10
million after taxes. Invested at 5%, this yields $500,000
taxable dollars per annum.

On the other hand, a 30 payment annuity yields $1 million
taxable dollars per annum. In addition -- I'll let the
experts opine -- would the annuity arrangement eliminate
estate tax liability for the uncollected portions of a
deceased beneficiary's payments, which are thence paid to
other trust beneficiaries?

- quote -

Perhaps I did not make this clear. The _state_ withholds
25% against federal taxes. The trust does not have said
funds. The question is: How does the individual trust
beneficiary -- whose identity is unknown to the state -- get
credit for his/her portion of the withheld taxes. portion of
said withheld taxes.

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sethb[at]panix.com (Seth Breidbart) wrote:
- quote -

There's a big difference in the treatment of capital assets
as opposed to cash equivalents.

As I have said elsewhere I don't know how the lottery people
treat this - they may well not treat it as constructively
received when the drawing is done. But they could and it
wouldn't be legally inconsistent.

- quote -

You're making a distinction that courts don't like to draw.
They prefer when possible (though don't always make) clear
rules that are easy to follow, as opposed to those that rely
on fine factual distinctions.

Stu

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Dick Adams <rdadams[at]smart.net) wrote:
- quote -

The regulations talk about this issue in 26 C.F.R. §
31.3402(q)-1, saying (in an example) that there is
constructive receipt when the drawing is done.

But they don't discuss the issue of constructive receipt in
more detail there.

This regulation also answers my other question about taking
a lump sum as opposed to the annuity. They want tax
withheld based on the actuarial value of the annuity right
away, as opposed to taxing each payment as it is made.

Stu

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sethb[at]panix.com (Seth Breidbart) wrote:

- quote -

Unfortunately the IRS has established rules about lottery
winnings (I do not have a cite). These rules state that
annuity lotteries are costructively received on the date of
the drawing. I seriously doubt the Tax Court will agree with
the IRS if someone challanged it.

I will look for the cite.

Dick

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Stuart A. Bronstein <spamtrap[at]lexregia.com> wrote:
- quote -

Ability to sell is irrelevant; I have a book that I paid $20
for which is now worth about $200. In theory I could find
someone to buy it at any time, but there's no tax due until
I actually sell it.

What about this year's last drawing on Saturday night,
December 30? The winner can't get paid until January 2nd.

(Or a special lottery drawn on December 31, with the same
issue, and the drawing at 11 PM.)

Seth

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Ernie Klein <ecklein[at]pacbell.net> wrote:

- quote -

I have not had occasion to research this point. But my guess
is that the choice to take a vacation and put your mail on
hold was yours. As a result you are treated as having
received money that would have been delivered if you'd been
home.

Stu

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