Paul L. Caron
Dean




Wednesday, March 7, 2012

Tax Court: Waffle House Waitress Liable for Tax on Gift of $10 Million Lottery Ticket Received From Customer

Waffle HouseThe Tax Court yesterday held that an Alabama Waffle House waitress who won a $10 million lottery jackpot on a ticket given to her by a customer was liable for gift tax when she transferred the ticket to a family S corporation formed for this purpose in which she owned 49%.  Dickerson v. Commissioner, T.C. Memo. 2012-60 (Mar. 6, 2012 -- 13 years to the day of the lottery jackpot):

We fail to see how a lottery ticket given to petitioner by a customer at the Waffle House where she worked could metamorphose into a lottery ticket owned by petitioner’s entire family. Petitioner and her family did not pool their money to jointly purchase lottery tickets. They did not keep lottery tickets individually purchased (or acquired) in a place where all family members had access to the tickets. There is no evidence that a family member knew if another member had acquired a lottery ticket. There was no agreement as to exactly how the proceeds of any winning ticket would be shared. ... In conclusion, there was no enforceable contract among the Reece family.

The Tax Court discounted the value of the gift to reflect potential claims by the other Waffle House employees for a share of the lottery winnings.

https://taxprof.typepad.com/taxprof_blog/2012/03/tax-court.html

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Comments

Another reason to move to Canada. Winnings are non-taxable. :)

Posted by: Erk | Mar 13, 2012 6:53:23 PM

The gift was from the waitress to her family, not from the diner to the waitress. I am sure she new it was a winner. I agree with the court.

Posted by: Dave | Mar 8, 2012 9:26:25 AM

Arononerik,

The waitress, Tonda Lynn, knew the value of the ticket before she gave her family members a piece of it. That part of the case was never in dispute.

She has lawyered up - many times. She was sued by her co-workers and by the customer who left her the ticket, long before the IRS came calling.

It's a really interesting case, worth the read!

Posted by: Kelly | Mar 8, 2012 4:21:10 AM

Arnonerik,

I think you misunderstood. Her family members are the ones who have to pay the gift tax. This has nothing to do with the original purchase value of the ticket. You can claim a gift of up to $20K for a couple filing a joint tax return. Any gift income beyond that is taxable.

This is a way for the government to double dip. She has to pay taxes on her winnings. Next if she gives more than the above amount to any family member, or anyone else for that matter, they have to pay taxes on that money as well.

It sounds like she tried to use S corporation tax laws to get around paying double taxes. After all, you don't deserve to give your money to whom you want. It's only fair for you to have to support Obama's voters. They aren't going to do it on their own.

Posted by: FBHO | Mar 7, 2012 5:23:58 PM

The gift was for the value of the ticket unless it was given after the original purchaser knew it was a winning ticket. I am sure it would not have been given if that was known. I would fight to pay "gift" tax on the purchase price of the ticket only. She needs to lawyer up!

Posted by: Arnonerik | Mar 7, 2012 4:26:00 PM