Put lottery-Ticket agreements in writing

Tonda Dickerson was one lucky waitress - at least until she got to Tax Court.

One day in 1999, while Dickerson was working at a Waffle House restaurant, a regular customer gave her a lottery ticket. Unbeknownst to both the customer and Dickerson, the numbers on the ticket had been drawn in the Florida lottery the previous night. The ticket would yield $10 million over 30 years or $5 million as a lump-sum payout.

Before cashing the ticket, Dickerson transferred it to a newly formed S corporation. Dickerson and her husband owned 49 percent of the corporation's stock, and family members shared the other 51 percent.

The IRS apparently agreed that Dickerson received the lottery ticket as a tax-free gift, not as a taxable tip. However, the IRS sought to collect gift tax on the 51 percent of the ticket she transferred to other family members.

Dickerson argued that for years her family had an implicit agreement to share the bounty if any family member won a large amount of money in the lottery. The court concluded that the terms of any agreement among the members of Dickerson's family were too indefinite, uncertain and incomplete to be enforceable.

After finding that there was no pre-existing enforceable agreement to share the lottery winnings, the court concluded that Dickerson's transfer of the winning ticket to the corporation constituted a gift of 51 percent of the value of the ticket to the other family members.

Having lost on the gift issue, Dickerson was able to prevail to a certain extent on the question of the value of the gift.

Before this case came before the Tax Court, Dickerson's co-workers at the Waffle House had sued her. The co-workers argued that an agreement existed to share the lottery winnings if any of them received a winning lottery ticket from a customer. The co-workers initially won the case in a lower court, but Dickerson prevailed before the Alabama Supreme Court.

The Tax Court concluded that a risk of additional litigation existed at the time of the gift and allowed a substantial discount in the value of the gift to reflect that risk. In addition, the court allowed an additional 2 percent discount for the costs of defending any such litigation (Tonda L. Dickerson v. Commissioner, TC Memo 2012-60, March 6, 2012).

If you and your family plan to share the proceeds from a winning lottery ticket, you may want to consider putting your agreement in writing before buying any more tickets.

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