7 Figure Lottery Winnings

Technical topics regarding tax preparation.
#1
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I have a client that won a 7 figure California lottery in December of 2020 off a scratcher.
The California lottery took a while until they could finalize their payment and the money was issued to them in January of 2021. The forms from California all state the issue date is January of 2021. The check date from California says January of 2021.
Client says that the funds were not available to them until January, but the interview checklist was completed in December.

Which year would I include the gambling income? Would it be considered constructive receipt in 2020 or 2021?
 

#2
JR1  
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I don't understand why you're looking for trouble. Everything says 2021. What's the problem?

And by the way, it may be too late but a great tax atty who has had lottery winners is gold.
Go Blackhawks! Go Pack Go!
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#3
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There is no constructive receipt because the taxpayer could not have received the proceeds in 2020 due to no fault of their own.

If the taxpayer could have collected in 2020 but waited until 2021 then income in 2020.
 

#4
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Won’t they be issued a 1099.
 

#5
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What does the W-2G say?
 

#6
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Forms can be prepared wrong. The OP wants to be sure that they are correct.
 

#7
Frankly  
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Somehow I doubt a 7 fig winning will have a boo-boo on the 1099. It will surely match the options selected by the winner prior to being paid.

Rather than an attorney, a financial planner with the expertise to evaluate the various payment options offered would have been the person to talk to. If he already got the dough, it would seem a little late for tax planning.
 

#8
HowardS  
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Cmon guys, it's only 7 figures. :mrgreen:
Retired, no salvage value.
 

#9
Nilodop  
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Client says that the funds were not available to them until January, but the interview checklist was completed in December.. They knew in Dec that they had won. What date did they complete the interview form? If Dec 31, then they knew they hadn't received it by then.

If earlier, maybe they had called the lottery people and learned there'd be a delay.

I'd not sweat it.
 

#10
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HowardS wrote:Cmon guys, it's only 7 figures. :mrgreen:


Are all seven figures before period, or are two after? :shock:
 

#11
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This is a case of "a bird in hand is worth two in a bush". I'd say a 2021 issue. Besides, wouldn't they have the W-2G or 1099 by now? We don't have lotteries here so never had this situation.
 

#12
Frankly  
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Does the purchase of a (winning) ticket, and the act of scratching, in 2020 constitute accession to wealth in 2020?
 

#13
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Nilodop wrote:Client says that the funds were not available to them until January, but the interview checklist was completed in December.. They knew in Dec that they had won. What date did they complete the interview form? If Dec 31, then they knew they hadn't received it by then.

If earlier, maybe they had called the lottery people and learned there'd be a delay.

I'd not sweat it.


Interview checklist was completed mid December. My client stated that due to Covid things were delayed and the funds were not readily accessible to them until January. They were aware they won but the lottery commission had to verify the win was legitimate which didn't finish til this year.

Information from California all says 2021 as the issue date. No actual W2g that I'm used to (first lotto winning client).

Based on what everyone says, looks like I'll report the income on 2021. Don't want to deal with any mismatch of income by reporting on 2020 as well.
 

#14
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He's a cash basis taxpayer. Did he have an option to receive it in 2020? If not, there's no constructive receipt and it's 2021 income.

Better make sure he's paid into safe harbor for 2021...and saves a chunk of it for next April...or just have him pay the whole estimate if there's a chance all of the money will be gone by then.
 

#15
Nilodop  
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JR1 had it answered in the first line of post #2.
 

#16
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ManVsTax wrote:He's a cash basis taxpayer. Did he have an option to receive it in 2020? If not, there's no constructive receipt and it's 2021 income.

Better make sure he's paid into safe harbor for 2021...and saves a chunk of it for next April...or just have him pay the whole estimate if there's a chance all of the money will be gone by then.


Judging by their actions so far, it'll all be gone by next Tuesday.

Thanks for the help everyone.
 


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