Yet Another Lottery-Related Tax Question

Published Categorized as Federal Income Tax, Lottery & Gambling, Tax
Yet Another Lottery-related Tax Question
Yet Another Lottery-related Tax Question

Here is yet another lottery-related tax question: Does a state lottery have to withhold tax from lotto winnings if a single taxpayer wins more than one lottery prize from the same lotto ticket where the total winnings exceed $5,000, but the individual winnings do not exceed $5,000?

In PLR 132947-06-2007, the IRS recently held that the state would not have to withhold the tax as long as the lotto numbers were different. The IRS reasoned that a lotto ticket that had different winning numbers were not “identical wagers.” Identical wagers are treated as a single wager.

IRS Examples:

Placing two bets on the same horse in a horse race would be an “identical wager” and it would be treated as only one wager. But, there would be no “identical wager” where one bet was placed with the track and the other bet were placed with an off-track betting establishment. Similarly, there would be no “identical wager” if the bets were placed with the same establishment but one bet was for a trifecta and the other an exacta.

In this case, the IRS said that the lottery numbers would have to be identical for the bet to be an “identical wager.” The state lotto would only have to withhold tax if the winning lottery ticket had the same numbers, because the winnings were treated as different wagers and the individual winnings did not exceed the $5,000 withholding requirement limit.

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