Lottery Sweepstakes

[Snaggletooth]

Desperate Dan bought a lottery ticket in Illinois, and won $700,000 on the Friday night drawing December 29, 2007 and presented the ticket for redemption in Quincy, IL on December 30th.

The Illinois Lottery commission paid Dan on January 2, 2008. Selecting the cash option, Dan's check was $502,226.38 after withholding. For convenience, Illinois arranged to EFT into Dan's bank account on that date.

1) In which year should Dan report the income?
2) Assuming Illinois reports this on a W2-G and not a 1099-G, in which year should the W2-G be issued?

[erchess]

Bump

Snags I will assume that in Illinois there is some game that has winners on Friday Nights. The game I play in NC (the Multitstate Lottery) has winners on Wednesday and Saturday nights but I am still quite sure that the night of the week on which one wins a lottery prize is irrelevant.

I would tend to assume that the income is taxable in the year actually received. Constructive receipt does not apply to lotteries because any option to receive payment earlier involves the receipt of a lesser amount. However if the lottery commission issued a document for the earlier tax year as long as the client had received the amount in question before the tax document was issued I would advise filing in accord with the tax document. In the grand scheme of things the amount of 700K is not worth arguing with the authorities over when it is taxable. If there were a case to be made that it was not taxable at all then you would want to make that case but lottery winnings are going to be taxed at some point in this country.

In case anyone cares, I am told that in Australia winnings from their lottery are tax free as far as their national state and local governments are concerned. An American winner would owe tax to the IRS, probably the resident State, and perhaps local government as well. Other Foreigners may also owe tax to their home governments and the Australian authorities stay out of all this even to the extent of depositing winnings in Swiss Bank Accounts upon request.

[Kram BergGold]

2008

Regardless of which year the W-2 G is for I would report the income in the year received, 2008. If the W-2 G is on a 2007 form I would report it and back it out and then report it in 2008. to me this should be moot as if it were on a 2007 Form your client would ahve received the W-2 G last Janaury.