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Old 12-30-2003, 10:37 AM
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MORTARDUDE MORTARDUDE is offline
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Default Polk Man Takes On IRS Over Lotto Loot

Polk Man Takes On IRS Over Lotto Loot

THE LEDGER ONLINE

December 29, 2003


By Margarita Martin-Hidalgo


WASHINGTON -- Sometimes winning the lottery is not enough.

Not willing to wait for a 20-year payout, some winners sell the rights to the balance of what they are owed.

This provides quick cash for a variety of uses and also potential problems with the Internal Revenue Service.

For instance, lottery winner Paul M. Jarrett of Lakeland could lose $258,000 because he sold the rights to the $1.39 million balance of his Lotto payoff.

When he won the Lotto in 1989, Jarrett did not have the option of picking a cash payment, which is normally about half the estimated jackpot. Florida Lotto did not offer that option until November 1998.

The Lakeland resident isn't the only lottery winner being swept up by the Internal Revenue Service's Aug. 21 enforcement action requiring that such sales be treated at higher personal income tax rates rather than as capital gains, which are paid on the sale of assets.

The deck could be stacked against Jarrett and other lottery winners across the nation who are challenging the IRS ruling in U.S. Tax Court here. The court in the past has upheld the IRS' determination that the sales are taxable at personal income tax rates. But Steven M. Kwartin, a Miami Beach tax lawyer who represents Jarrett and about 50 other lottery winners, is not fazed by the prior court rulings.

"Obviously, these other winners who were represented by other attorneys with respect to this issue who would have been better served with different counsel," Kwartin said Monday. "The issues were not adequately, fully briefed and researched, and presented to the court."

As a result, he said in a telephone interview, he is confident that he will be able to win once he presents the case for Jarrett and his other clients in tax court.

"We don't feel the issue has been fully and completely presented to the court in an adequate manner," Kwartin said. "We've upwards of 50 cases nationwide."

Reached at his home recently, Jarrett declined to comment and referred all questions to his lawyer.

Kwartin said Jarrett and the other lottery winners he represents want to remain private to avoid getting solicited for donations.

Jarrett, who was Florida's 25th lottery winner, won $4.76 million in January 1989, according to records from the Florida Lottery. He was one of two winners who split the $9 million pot, said Florida Lottery spokesman Alfred Bea.

In 2000, Jarrett sold the rights to the $1.39 million balance of his 30 annual payments, according to his Nov. 12 petition asking the court to reverse the IRS ruling.

The IRS has until mid-January to answer the petition.

If the IRS and Jarrett fail to negotiate a settlement, the case could go to trial before a tax court judge.

Besides the lower capital gains tax rate, his petition argued that he is also entitled to claim deductions for losses and tax credits.

The petition said Jarrett sold his remaining rights to a lottery asset purchase company more than a year after winning the lottery.

VARIETY OF REASONS TO SELL

Selling lottery payoffs is not uncommon -- and it's a pretty lucrative business for companies that buy them, said the president of a Davie-based company that buys Lotto winnings.

"There's enough people out there to make it a worthwhile business," said Martin Granoff, president of Granoff Enterprises. He has been buying Lotto payoffs for about 12 years.

Most clients have sold some of the installments not the entire pot, Granoff said. Some have sold their winnings to make investments, pay medical bills or donate the money to charity, he said.

Asked about his profit margin, Granoff said he makes a "very conservative return but it's pretty strong."

For example, on a sale of Lotto installments totaling $30 million, Granoff may pay the Lotto winner about half -- $15 million -- but the state pays Granoff the $29 million.

Profit calculations are based on interest rates, Granoff said.

The Lotto winners who chose the cash option also receive about half the announced jackpot, according to Florida Lotto. The total jackpot payout is based on the money from the prize pool plus the interest that money would earn when the state invests it over 30 years.

Using the $30 million example, a player who opts for the 30 annual payments would receive $1 million a year drawn from the prize pool money plus the interest that money earns.

A player who take the cash payment receives just the money in the cash pool.

Selling Lotto winnings is not a complicated process but a lengthy one because it involves several legal procedures to transfer the money, Granoff said.

After that, the sellers are on their own -- and many get into trouble with the IRS because they don't get the proper advice when filing their taxes.

Granoff said he wasn't surprised to hear of Jarrett's tax woes.

"He's not alone," he said. "There are loads of people with the same problem."

Other Floridians filing petitions over the IRS ruling are Fabiola Ramirez of Palm Beach Gardens, ordered to pay $539,549 on a $2.8 million sale; Anastasios and Maria Spiridakos of Clearwater, $425,678 on a $2.12 million sale; Theresa Murray of Parkland, $196,158 on a $1.02 million sale, and Marie Paillant, $77,934 on a $502,500 sale, all in 2000; and Anthony and Simone Bertucci of Boca Raton, $318,003 on a $1.75 million sale in 1999.

Granoff said he doesn't give his customers tax advice, but said that if he were selling Lotto winnings, he would declare the money as income.

Lakeland tax lawyer Dennis Beasley said he didn't know much about tax law relating to such sales, but that to the best of his knowledge, the proceeds of sales of Lotto winnings should be classified as income.

Bea, the Florida Lottery spokesman, said the Florida Lottery does not give winners tax-related advice.

COMPANIES BACKED WINNERS

Kwartin said, that at the time Jarrett sold, companies buying the remaining rights issued opinion letters saying the proceeds should qualify for capital gains tax treatment, which are taxed at a lower rate than income.

"Opinion letters were issued to these individuals (winners) that there was a very arguable position that the prize winners could claim capital gains treatment," he said. "At the time, I believe those opinion letters were correct."

Since the adverse court rulings, Kwartin said, companies buying the rights have stopped issuing the opinion letters to the sellers.

"The petitioner sold or exchanged his entire remaining transferable interest in the lottery right to the (lottery asset purchase company) in a sale or exchange that qualifies as a long-term capital gain," Jarrett's petition argued.

The petition also contends that Jarrett's lottery right qualifies as a property and thus the sale is entitled to be taxed at the lower capital gains rate.
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Old 12-30-2003, 10:50 AM
HARDCORE HARDCORE is offline
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DUDE et al -


Quote:
"The issues were not adequately, fully briefed and researched, and presented to the court."
Not being fully informed here (lotteries) is apparently a pressing civil matter! However, "Informed Consent" is (and was) not limited to this lottery issue alone!

Elements in power, including the VA and other vested governmental factions, have long dealt in half truths as one of their weapons of choice (opinion)! This is obvious on a far more lethal scale, as concerns the surreptitious use of non-volunteers in various mili-medi-government (ghastly) experiments!

Apparently, however, a little creative paper engineering, coupled with some soul selling, has always (thus far) carried the day for those without honor or truth! "And we still call some of these people brothers?"

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