A debtor puts down $1 and wins $500,000 in the multi-state lottery. It was too little to make the evening news and have his picture taken but more than enough to justify serious efforts to go after.
Lottery winnings are far from a lost cause. In any case of gambling (including lotteries), winnings are taxable. In this case, the IRS is your friend as you are doing an asset search. Plus, lottery tickets have the nice feature that you can usually determine exactly where (and often exactly when) they were purchased. That can help make a case for fraudulent concealment, tax evasion or other bumps in the road that will seem worse to the debtor than having to share his winnings.
If we subpoena tax records, we’ll see that the debtor’s winnings get added to his gross income. When you win at a gambling game, the lottery sends you a Form W2-G, and you then have to report the income on your tax return. If the IRS notices that you haven’t reported the income, you could be in tax court before long, and tax court is one of the first places we look in an asset search.
Think about it: a person can legally establish a general partnership in any of the more than 3,000 counties in the U.S., but there is only one federal government that oversees who pays tax on lottery winnings.
We once saw a case in which a debtor got his father to claim that the father had bought the winning ticket and simply made a gift of some of the winnings to the no-good son. The debtor son then bought a nice house with his “gift.” Problem: fathers can’t just hand over big gifts without incurring gift tax. Again, the IRS is your friend when it comes to chasing down lottery winners.
The dad’s story in this case was made even more doubtful because you can usually figure out where a lottery ticket was sold. That’s always possible with the electronically-generated ones, but in this case it was a scratch ticket. The state lottery couldn’t tell when the ticket was sold, but knew down to the store where it was purchased. As it happened, it was from a store right across the street from where the debtor son worked.