Question

Lisa has had luck over the years, this is her 5th time winning the lottery. In the past

she has had pools of community tickets and always shared winnings with those in the

pool without question. Lisa plans to keep playing the lottery, using pools with

different groups of friends and insists she will hit another big jackpot in her life. Her

question for you.... should she form an S Corporation and make members of the pool

shareholders? What are the tax and logistical considerations that would need to be

discussed if she were to use an S-Corporation as a passthrough for future lottery

activities?

QUESTION: What sections of the I.R.C. are applicable to the situation.

Answer 1

In Estate of Gribauskas v. Commissioner, the Tax Court held that a decedent's right to receive lottery payment installments constituted a private annuity, which should be valued through the use of the actuarial tables mandated by section 7520. The lottery payment were includable in the decedent's gross estate under section 2033 even though the right to these payments were unmarketable, illiquid, and nontransferable. the characterization of the lottery payments did not warrant the departure from the actuarial tables and use of a general market willing-buyer, willing-seller valuation. The result in Gribauskas is of particular interest because the Tax Court's decision is contrary to the result reached by the United States District Court for the Eastern district of California and, subsequently by the United States Court of Appeals for the Ninth Circuit, in Estate of Shackleford v. United States. An appeal of Gribauskas is now pending.