Taxing Lessons From Court Decisions

Winning the Lottery

Thanks for sharing!
1 minute read
Image source: openclipart.org

Perhaps you’ve thought about the steps you would take if you received a large sum of cash. Spend some, save some, do what you could about reducing the tax impact.

In T.C. Memo. 2012-60, the taxpayer did all those things. After receiving a $10 million payout from a winning lottery ticket, she established an S corporation, with family members as stockholders. The idea was that the family could share the wealth.

Problem: The IRS said that by transferring the ticket to the corporation, the taxpayer had made a gift and owed gift tax.
The taxpayer disagreed, saying the transfer was not a gift because a long-standing agreement existed among her family that mandated she share the winning proceeds with them.

At stake: $771,570 of gift taxes.

The court determined there was no family agreement because the “terms” of such agreement was based on offhand remarks and a sense of moral obligation. Those factors were too indefinite, uncertain, and incomplete for enforcement. In addition, even if there had been an agreement, state law prohibited gambling, which would make such an agreement illegal, rendering it void.

Taxing Lesson: Verbal promises are only worth the paper they are written on.

***

Other posts you might enjoy

Decisions — To be fair   Image source: Library of Congress Public domain, via Wikimedia Commons   All may be fair in love and war, but that's not necessarily true in taxes. In TC Memo 2018-117 (Grainger), the taxpayer made noncash charitable donations and claimed a deduction for what she believed wa...
Decisions — Who’s included?   Image source: openclipart.org   Back in 2012, the tax court decided a case typically referred to as WHO515. In that case, the question was whether certain partnership tax items were included when a taxpayer agreed to an extension of the statute of limitations for a personal fed...
Decisions — Sharing the credit Image source: Photo by Sharas Kveder on Unsplash   You may be amazed by what you can accomplish if you don't care who gets the credit, but that's probably not the best argument to make in tax court. In T.C. Memo. 2018-81 (Caselli), the taxpayer was one of three shareholders in a subch...
Decisions — If not A, than C Image source: wpclipart.com   No, the title doesn't refer to an obscure math problem that you'll need to solve. The question to be solved in T.C. Memo. 2018-75 (Fiedziuszko) is whether the taxpayer is a statutory employee who can deduct expenses on Schedule C, Profit or Loss from Busines...
Tagged