Re: How are STRIPS for lottery jackpots taxed?


<nomail1983@xxxxxxxxxxx> wrote
Of course, you know that. But my point is: I believe that the
taxable income attributable to lottery winnings in any one year is
based, not on the annual payment (except for the first year), but on
the issue price of the STRIPS that matures that year __plus__ the OID
that accrues, but may not be received, on __all__ of the remaining
STRIPS. (See the OID explanation below.) That is the distinction I
tried to make in the question above.

The reason that I say "issue price of the STRIPS", not its redemption
price (the annual lottery payment), is because I believe the taxpayer
has already paid tax on the OID for that STRIPS, since the OID was
taxed as accrued interest in previous years. (Again, see the OID
explanation below.) So, the only part of STRIPS for which tax has not
yet been paid is the issue price.



Which reminds me why I don't play the CA lotto.

I doubt they can change the nature of the lottery winnings by claiming that
it's paid out as muni bond incomes.

Based on all the cases involving lottery winners, I favor the IRS on it
being regular taxable income.

You should talk to the lottery commission and get it all in writing. If the
dollars are big enough, seek face time with a CPA and/or an attorney who are
going to be there to defend the position taken on the returns.


--
Paul Thomas, CPA
paulthomascpapc@xxxxxxxxxxxxx


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