By: A.J. Cook


The Winkler family of Armington, Ill., hit the big Lotto. And the IRS hit them with a double tax.

The Winklers, married for more than 50 years, lived on the family farm. They were high school graduates with no other formal education. The Winklers were a close family: Emerson and Elizabeth had five grown children who visited every week or two on Sundays.

Because of Emerson's poor health, he would frequently go to an out-of-town clinic. One of the children would help Mrs. Winkler drive him to his appointments. It got to be a family routine to purchase Illinois lottery tickets when they stopped for fuel. Sometimes the children would buy tickets for themselves, but most of the time anyone with a few dollars handy would pitch in to buy family tickets. When they got home, Mrs. Winkler would place the tickets in a glass bowl in a china cabinet where they stored important papers. Family members enjoyed talking about what they would do with their share of the winnings.

On one Saturday Mrs. Winkler and her daughter Charlotte bought flowers for a friend in the hospital. Charlotte reminded her mother they hadn't gotten the family Lotto tickets on the way home from the clinic the night before. She suggested they stop at a gas station.

While at the station, Mrs. Winkler bought three tickets with her own money and later put them in the family bowl. Charlotte got one ticket for herself and kept it in her purse.

As was their custom on Sundays, Emerson and Elizabeth listened closely for the lottery numbers on the radio. This time they were shocked; they thought they heard the number for one of their three tickets. Mrs. Winkler immediately called Charlotte to check the newspaper. The number was there; the Winklers were rich.

During the meeting with their lawyer the next day, the couple agreed they would each keep 25 percent of the winnings and the five children would split the remaining 50 percent. The lawyer wrote up a partnership agreement setting this out.

Then their luck ran out. Though the Internal Revenue Service was satisfied with the income tax paid, it told the couple to pay a gift tax on $1.5 million, the children's share. The taxman said prior to the time the ticket was bought there was no agreement to share the winnings.

The Winklers challenged this claiming there always was a partnership in fact, even though not in writing.

The judge agreed. The family members demonstrated their intent to have a partnership by pooling their money for tickets on a regular and consistent basis for more than a year.

The Moral:  When you gamble against the IRS, the house doesn't always win.


A.J. Cook is a lawyer and CPA. His tax column appears weekly in numerous newspapers. Why isn't it published in your hometown newspaper? Ask its Business Editor to subscribe.

Copyright © 1987-2001 A.J. Cook All Rights Reserved
This information is not intended for use without professional advise.
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Released 2-9-98