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Oregon winners and gift tax.

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colo2004

I read this on the official powerball site...

Robert and Frances each received a prize of $34,102,514, and Steve and Carolyn each received a prize of $39,352,514, before state and federal taxes were withheld. Other family members receiving prizes were Robert and Frances' son, Steven Chaney, $3.5 million; and daughters Brenda Green, $3.5 million; Robin Whitzel, $3.5 million; Sue Krammer, $3.5 million; and Steve West's brother, Gary, $3.5 million. All prize amounts were before state and federal taxes were withheld.

My impression is that the IRS is pretty tough on winners who share out like that, wanting to see evidence such as written agreements drawn up before the ticket was purchased. How will the family prove that they all had an agreement to share their winnings as above. I think the IRS will be trying to collect a ton of gift tax.

Or am I overlooking something obvious?

I am not standing up for gift tax. Just  a little confused as to how they managed to do this.

Raven62's avatar - binary
Raven62

Don't Ask - Don't Tell

 

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Chewie

What they have done is no different that what hundreds of thousand, if not millions, of players do - formed a pool and had the ability to show prior existence of the agreement.  Being related has nothing to do with the split.  All you have to do is "convince" the right people of a prior condition; agreement to split between the winners. 

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colo2004

Thanks for your response Chewie.

Unless you have information that I have not seen, your assumption that they 'formed a pool and had the ability to show prior existence of the agreement' is probably wrong.

This was not an organised work pool. By their own accounts this was the first time they had played the Powerball for a while. In some reports it was the first time they had ever played. At the time they said that the two couples had a verbal agreement.

Not sure how strong a verbal agreement is viewed by the IRS. There was also no indication that the prize would be shared amongst other family members. The split is also interesting, did they collect 85c from each of the 3.5m winners?

I think you gave them too much credit. All their dealings with the press from first contact to the winning interview provide a lot of info that the IRS will find interesting.

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Chewie

Sometimes, reading between the lines is more imporant then concentrating on the words in each line. Obvious their position held up.  I don't see any rejection, by the IRS, in the papers.  You overlooked the basic fact, money is money.  As long as the IRS gets their share, they are not going to make a mountain out of a molehill. 

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colo2004

Chewie, I think you're confused about the role of the IRS in this. There are countless cases where they have denied splits just like this one where people have tried to bypass gift tax (Google it). They do not get involved until the returns are filed. All they are interested right now is that the correct amount of federal withholding has been applied.

As for "As long as the IRS gets their share, they are not going to make a mountain out of a molehill"  Gift tax is a HUGE deal, about 50% on the amounts involved here and that's after the Federal tax has been paid.

Is there anyone out there that has more knowledge of how verbal agreements stand up. I can't find much to back them up. 

 

 

Bradly_60's avatar - disney37
Bradly_60

Yeah they are definely getting their income taxes from each person.  The Gift Tax is there so that money will be taxed one way or another.

Brad

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Chewie

Chewie, I think you're confused about the role of the IRS in this. There are countless cases where they have denied splits just like this one where people have tried to bypass gift tax (Google it). They do not get involved until the returns are filed. All they are interested right now is that the correct amount of federal withholding has been applied.

As for "As long as the IRS gets their share, they are not going to make a mountain out of a molehill"  Gift tax is a HUGE deal, about 50% on the amounts involved here and that's after the Federal tax has been paid.

Is there anyone out there that has more knowledge of how verbal agreements stand up. I can't find much to back them up. 

 

 

Since you appear to be the most knowledgeable, why don't you eliminate the confusion and tell us what you know?  Better then playing the dummy, then trying to trump every one.

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colo2004

Having a bad day Chewie? Relax dude.

My original question still stands. I posted looking for help on this topic. Still looking for it. But thanks for your replies anyway.

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Chewie
Pretty much what I stated earlier: 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

Some times even idiots are smart at something.  The West's and Chaney's had weeks to make up and sign anything they wanted, and pre-date it. Cousin Fred could have told them to do it.  That's all they would need.

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colo2004

Thanks Chewie. That was informative.

 

I think they are going to have a heck of a job proving they had a pool in place before the win.

They have NO agreement. They have NO pattern of regular play between all the winners.

 

You're right that they may have back dated something. I just think the IRS will have a field day here with it being so high profile.  It was their financial planner who told them to stop talking to the media before collecting the prize. Too late by then. They had said enough.

 

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Chewie

I'd back date like crazy.  They have to prove I did.  Ever change the date on you computer?  Easy to do. Write your life history dated years ago, and redate the computer.  Save a phony filename, delete the filename.  Create a new file with the same filename. Delete that filename. Repeat.  All traceability disappears.  Me and Norton Wipedisk would have a busy week-end.

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