Detail, east Portland photo, courtesy Miles Hochstein / Portland Ground.

For old times' sake
The bojack bumper sticker -- only $1.50!

To order, click here.

Excellent tunes -- free! And on your browser right now. Just click on Radio Bojack!

E-mail us here.


This page contains a single entry from the blog posted on November 10, 2005 11:41 AM. The previous post in this blog was Saturday Market: Save it, move it, kill it?. The next post in this blog is I missed this one. Many more can be found on the main index page or by looking through the archives.



Law and Taxation
How Appealing
TaxProf Blog
Mauled Again
Tax Appellate Blog
A Taxing Matter
Josh Marquis
Native America, Discovered and Conquered
The Yin Blog
Ernie the Attorney
Above the Law
The Volokh Conspiracy
Going Concern
Bag and Baggage
Wealth Strategies Journal
Jim Hamilton's World of Securities Regulation
World of Work
The Faculty Lounge
Lowering the Bar
OrCon Law

Hap'nin' Guys
Tony Pierce
Parkway Rest Stop
Along the Gradyent
Dwight Jaynes
Bob Borden
Dingleberry Gazette
The Red Electric
Iced Borscht
Jeremy Blachman
Dean's Rhetorical Flourish
Straight White Guy
As Time Goes By
Dave Wagner
Jeff Selis
Alas, a Blog
Scott Hendison
The View Through the Windshield
Appliance Blog
The Bleat

Hap'nin' Gals
My Whim is Law
Lelo in Nopo
Attorney at Large
Linda Kruschke
The Non-Consumer Advocate
10 Steps to Finding Your Happy Place
A Pig of Success
Attorney at Large
Margaret and Helen
Kimberlee Jaynes
Cornelia Seigneur
And Sew It Goes
Mile 73
Rainy Day Thoughts
That Black Girl
Posie Gets Cozy
Cat Eyes
Rhi in Pink
Ragwaters, Bitters, and Blue Ruin
Rose City Journal
Type Like the Wind

Portland and Oregon
Isaac Laquedem
Rantings of a [Censored] Bus Driver
Jeff Mapes
Vintage Portland
The Portlander
South Waterfront
Amanda Fritz
O City Hall Reporters
Guilty Carnivore
Old Town by Larry Norton
The Alaunt
Bend Blogs
Lost Oregon
Cafe Unknown
Tin Zeroes
David's Oregon Picayune
Mark Nelsen's Weather Blog
Travel Oregon Blog
Portland Daily Photo
Portland Building Ads
Portland Food and
Dave Knows Portland
Idaho's Portugal
Alameda Old House History
MLK in Motion

Retired from Blogging
Various Observations...
The Daily E-Mail
Saving James
Portland Freelancer
Furious Nads (b!X)
Izzle Pfaff
The Grich
Kevin Allman
AboutItAll - Oregon
Lost in the Details
Worldwide Pablo
Tales from the Stump
Whitman Boys
Two Pennies
This Stony Planet
1221 SW 4th
I am a Fish
Here Today
What If...?
Superinky Fixations
The Rural Bus Route
Another Blogger
Mikeyman's Computer Treehouse
Portland Housing Blog

Wonderfully Wacky
Dave Barry
Borowitz Report
Stuff White People Like
Worst of the Web

Valuable Time-Wasters
My Gallery of Jacks
Litterbox, On the Prowl
Litterbox, Bag of Bones
Litterbox, Scratch
Ride That Donkey
Singin' Horses
Rally Monkey
Simon Swears
Strong Bad's E-mail

Oregon News
The Oregonian
Portland Tribune
Willamette Week
The Sentinel
Southeast Examiner
Northwest Examiner
Sellwood Bee
Mid-County Memo
Vancouver Voice
Eugene Register-Guard
OPB - Portland
Salem Statesman-Journal
Oregon Capitol News
Portland Business Journal
Daily Journal of Commerce
Oregon Business
Portland Info Net
McMinnville News Register
Lake Oswego Review
The Daily Astorian
Bend Bulletin
Corvallis Gazette-Times
Roseburg News-Review
Medford Mail-Tribune
Ashland Daily Tidings
Newport News-Times
Albany Democrat-Herald
The Eugene Weekly
Portland IndyMedia
The Columbian

The Beatles
Bruce Springsteen
Joni Mitchell
Ella Fitzgerald
Steve Earle
Joe Ely
Stevie Wonder
Lou Rawls

E-mail, Feeds, 'n' Stuff

Thursday, November 10, 2005

Little lotto tax problem

The folks who won the monster Powerball jackpot came out of the closet earlier this week. They held onto their winning ticket for 20 days before coming forward. According to press reports, that was so that they could talk to tax and financial advisers. And, according to the Oregonian story (lost in the black hole of Oregon Live at the moment), the prize claim was timed so that they wouldn't receive their winnings -- more than $100 million in cash after taxes -- until early 2006. That, it was suggested, would keep the winnings off their 2005 income tax returns, and allow them to wait until their 2006 returns to report it and try to shelter it.

Don't count on that last part.

In the tax world, individuals have income when they receive it, and not until then. But there are two kinds of receipt: actual receipt, and something called constructive receipt. When the law says "constructive," it's making believe. The event in question (here, getting paid) didn't actually happen yet, but we treat it as if it did. What this means is you can have income even though you have not actually received it, provided that you have "constructively" done so.

When does a taxpayer have "constructive receipt"? The IRS has regulations out on this that are as old as dirt. They state:

Income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given.
In other words, you can't turn your back on income. You can't postpone paying tax on income that's at your disposal by simply "letting it ride."

This may sound like some esoteric tax doctrine, but its application is extremely commonplace. Take that bank account of yours that earns interest every month. If you leave the interest in the account and never go get it, does that means you don't have to report it as income until later? No, you constructively receive it as soon as it's in your account. As soon as it's there for the taking. The same is true of uncashed paychecks, reinvested mutual fund dividends, and lots of other kinds of income.

In the case of the lottery winners, their lucky numbers came out on October 19. It takes 60 days to actually receive your winnings once you turn in your ticket. So they could have had their money on December 19 if they had claimed it promptly. The IRS may take the position that that constitutes constructive receipt in 2005.

Even if there was no constructive receipt of the $110 million cash in 2005, the IRS might also argue that the winners were in actual receipt of the "economic benefit" of winning as of Oct. 20. This doctrine is a bit murkier, but one of the cases typically used to illustrate it involves underage kids who won the Irish sweepstakes. Although they couldn't collect the prize until they were 21, they were taxed when they won, because of the "economic benefit" they actually received by winning. Application of this rule to lottery winnings is not a sure thing -- there's one case out of the Midwest that suggests it doesn't apply -- but you could expect the IRS to take a run at it, at least.

Now, maybe the IRS will look the other way with the Powerball folks. Maybe they'll be able to postpone until their 2006 tax returns reporting all that money as income (by my rough calculation, triggering federal income tax of around $59,000,000, much or all of which will have already been withheld). But if I were an enterprisng IRS agent or lawyer, I'd be pushing for them to show it on their 2005 return, triggering the tax at an earlier date.

Comments (20)

i had to pay several thousands of dollars to learn the above and all your readers get it for free? :)

that was pretty well spelled out... if i didn't know better, i'd say you show real potential as a tax law professor.

Ahhh...the little Pulsifer kids and their Irish Lottery winnings. See, I do remember cases from your Income Tax class!

Came out of the closet? Is that a pun? Probably not... The winners' son is a student at OSU and is actually well-known in the LGBTQIA community, but you were probably unaware. Caught my attention though.

So let me get this straight. These people are about to get $100 mil after taxes as a pure windfall and they are looking for tax dodges so they can keep even more of the money?

2:59 Stacy: gee, thanks for sharing. Really important we all know that bit of cultural trivia.

I did not mean that "closet."

As for tax dodges, there's a line between tax avoidance (legitimate) and tax evasion (criminal). If I was about to take a $110 million hit of income, I'd definitely be looking to do some tax avoidance (from my beach chair). You'd be crazy not to. One's patriotic duties do not include paying more than the law requires.


I agree, if I won the first thing I'd do would be find a good accountant, one used to dealing with large fortunes. (the second thing I would do is get out of the country for a while so every 3rd cousin twice removed can't track me down:-)) But at the same time when you have that much money worrying about every penny gets a little ridiculous. The tone of this news bit made it sound like they are going towards the extreme.

"Cutlural trivia" indeed. Is velledorchid just envious, or what?
The tax collector's share of this powerball payout must represent a nice piece of change for the state, and even the feds' portion should pay for a few minutes of fun and games in Iraq! Good advice would be a valuable thing -- and this winner doesn't seem to have stumbled onto it.

Comments aside, I find my trivia interesting, where I find the babble about taxes not so much. The Pride Center on campus is bound to have a donation soon! Can't wait!

Good advice would be a valuable thing -- and this winner doesn't seem to have stumbled onto it.

Actually, if I'm right about the constructive receipt, there's nothing they could have done to change the outcome. What they actually did may be worth a try, but if push comes to shove, it may very well not work.

Wouldn't it be better if 340 people each won $1m? And to stay on topic, would that mean more tax revenues?


Twenty days' time value of holding $110 million, even at short-term US treasury rates, is pretty impressive: over $241,000 (pre-tax, of course). That's a clear-cut opportunity cost for a deferred recognition attempt. I guess what I'm missing is the ideas for mitigating the tax in a more significant way than just postponing recognition into the next tax year, even assuming that would work out.

Another tax-savvy move they made was having nine people claim joint ownership of the prize. Did they really have nine people go in on the winning ticket, or was that something they thought up in the 20 days after they had won?

Nine winners means nine different lower income tax brackets to soak up some of those winnings. Each of those nine folks has a 10% federal income bracket, a 15% bracket, a 25% bracket, etc., which is way less than the 35% bracket that most of the winnings would have sat in if the ticket was owned by one person or married couple.

And the amount of wealth that will be in each person's estate for estate tax purposes when each one dies will be eligible for a $1.5 million exclusion (which saves more than $600,000 in federal tax each). Nine winners multiplies that exemption by nine, compared to what it would be for a single winner. I think that's $4.8 million of a smart tax move right there.

The best maneuver would have been if they somehow could have avoided Oregon state income tax (9% of the whole $110 milion). But for that, they'd have to show that the winner was not an Oregon resident and that this was not Oregon-source income. I don't think these folks could prove either one.

I've thought for a long time that there is a market out there for a particular type of service: Transition-Period Legal, Tax and Financial advice for the newly wealthy. Some enterprising lawyer should go out there and offer her services as "the lawyer who will help you do the transition services, including hiring permanent tax advisors, lawyers, etc." She would need to be able to relate the basics, such as this fine article and the '9 winner' comments do. She could build credibility by having agreements for 60-day 0% bridge loans from banks ready on the shelf.

Good point about the estate taxes, Jack (unless, of course, they all die in 2010), but presumably they've already used up part of those lower brackets. Still, pretty good income spreading!

Looking back at the article behind the "out of the closet" link, I note that the prize is actually $164 million, so the $110 million is after taxes. This makes the income tax deferral (if it works) even more significant than Allan L's calculation.

On the back of my envelope, I had the federal income tax at about $59 million -- 35 percent of around $169 million. By pushing the tax out to 2006, they would (roughly speaking) postpone paying quarterly estimated tax of that amount by roughly a calendar quarter. At 5 percent annual interest, you would save 1.25 percent as the time value of money. On $59 million of tax, that's like an additional $737,500 in your pocket today. Definitely worth a try.

Gee, I wish I had these problems myself, don't you?

Totally wish I had that problem.

The largest advantage I see to having the income includible in 2006 is that the winner is receiving an extra 12 months to carefully plan ways to shelter the income. Charitable giving comes immediately to mind.

Actually, I was wondering about avoiding the Oregon tax. Since they are Oregonians, it is a moot point. But suppose they were visiting from out of state when they bought the ticket:

Oregon is one of several states that work together on putting up the PowerBall. So could you argue that it isn't entirely income derived from Oregon? After all, they could have bought a winning ticket in Wisconisn or one of several other states.

Can Oregon thus claim all the income from a PowerBall win by a non-Oregonian?

(A) If someone buys a (winning) ticket for an October drawing, tucks it into their wallet, forgets about it, discovers the ticket in January, claims the prize at that time...when did they constructively receive the income? If they realize in Jnauary they have a winning ticket and then lose it, did they constructively receive income?

(B) If someone does all of the above but does not discover the ticket until the following November - beyond the redemption period - did they constructively receive any income at all?


As a lawyer/blogger, I get
to be a member of:

In Vino Veritas

Lange, Pinot Gris 2015
Kiona, Lemberger 2014
Willamette Valley, Pinot Gris 2015
Aix, Rosé de Provence 2016
Marchigüe, Cabernet 2013
Inazío Irruzola, Getariako Txakolina Rosé 2015
Maso Canali, Pinot Grigio 2015
Campo Viejo, Rioja Reserva 2011
Kirkland, Côtes de Provence Rosé 2016
Cantele, Salice Salentino Reserva 2013
Whispering Angel, Côtes de Provence Rosé 2013
Avissi, Prosecco
Cleto Charli, Lambrusco di Sorbara Secco, Vecchia Modena
Pique Poul, Rosé 2016
Edmunds St. John, Bone-Jolly Rosé 2016
Stoller, Pinot Noir Rosé 2016
Chehalem, Inox Chardonnay 2015
The Four Graces, Pinot Gris 2015
Gascón, Colosal Red 2013
Cardwell Hill, Pinot Gris 2015
L'Ecole No. 41, Merlot 2013
Della Terra, Anonymus
Willamette Valley, Dijon Clone Chardonnay 2013
Wraith, Cabernet, Eidolon Estate 2012
Januik, Red 2015
Tomassi, Valpolicella, Rafaél, 2014
Sharecropper's Pinot Noir 2013
Helix, Pomatia Red Blend 2013
La Espera, Cabernet 2011
Campo Viejo, Rioja Reserva 2011
Villa Antinori, Toscana 2013
Locations, Spanish Red Wine
Locations, Argentinian Red Wine
La Antigua Clásico, Rioja 2011
Shatter, Grenache, Maury 2012
Argyle, Vintage Brut 2011
Abacela, Vintner's Blend #16 Abacela, Fiesta Tempranillo 2014
Benton Hill, Pinot Gris 2015
Primarius, Pinot Gris 2015
Januik, Merlot 2013
Napa Cellars, Cabernet 2013
J. Bookwalter, Protagonist 2012
LAN, Rioja Edicion Limitada 2011
Beaulieu, Cabernet, Rutherford 2009
Denada Cellars, Cabernet, Maipo Valley 2014
Marchigüe, Cabernet, Colchagua Valley 2013
Oberon, Cabernet 2014
Hedges, Red Mountain 2012
Balboa, Rose of Grenache 2015
Ontañón, Rioja Reserva 2015
Three Horse Ranch, Pinot Gris 2014
Archery Summit, Vireton Pinot Gris 2014
Nelms Road, Merlot 2013
Chateau Ste. Michelle, Pinot Gris 2014
Conn Creek, Cabernet, Napa 2012
Conn Creek, Cabernet, Napa 2013
Villa Maria, Sauvignon Blanc 2015
G3, Cabernet 2013
Chateau Smith, Cabernet, Washington State 2014
Abacela, Vintner's Blend #16
Willamette Valley, Rose of Pinot Noir, Whole Clusters 2015
Albero, Bobal Rose 2015
Ca' del Baio Barbaresco Valgrande 2012
Goodfellow, Reserve Pinot Gris, Clover 2014
Lugana, San Benedetto 2014
Wente, Cabernet, Charles Wetmore 2011
La Espera, Cabernet 2011
King Estate, Pinot Gris 2015
Adelsheim, Pinot Gris 2015
Trader Joe's, Pinot Gris, Willamette Valley 2015
La Vite Lucente, Toscana Red 2013
St. Francis, Cabernet, Sonoma 2013
Kendall-Jackson, Pinot Noir, California 2013
Beaulieu, Cabernet, Napa Valley 2013
Erath, Pinot Noir, Estate Selection 2012
Abbot's Table, Columbia Valley 2014
Intrinsic, Cabernet 2014
Oyster Bay, Pinot Noir 2010
Occhipinti, SP68 Bianco 2014
Layer Cake, Shiraz 2013
Desert Wind, Ruah 2011
WillaKenzie, Pinot Gris 2014
Abacela, Fiesta Tempranillo 2013
Des Amis, Rose 2014
Dunham, Trautina 2012
RoxyAnn, Claret 2012
Del Ri, Claret 2012
Stoppa, Emilia, Red 2004
Primarius, Pinot Noir 2013
Domaines Bunan, Bandol Rose 2015
Albero, Bobal Rose 2015
Deer Creek, Pinot Gris 2015
Beaulieu, Rutherford Cabernet 2013
Archery Summit, Vireton Pinot Gris 2014
King Estate, Pinot Gris, Backbone 2014
Oberon, Napa Cabernet 2013
Apaltagua, Envero Carmenere Gran Reserva 2013
Chateau des Arnauds, Cuvee des Capucins 2012
Nine Hats, Red 2013
Benziger, Cabernet, Sonoma 2012
Roxy Ann, Claret 2012
Januik, Merlot 2012
Conundrum, White 2013
St. Francis, Sonoma Cabernet 2012

The Occasional Book

Marc Maron - Waiting for the Punch
Phil Stanford - Rose City Vice
Kenneth R. Feinberg - What is Life Worth?
Kent Haruf - Our Souls at Night
Peter Carey - True History of the Kelly Gang
Suzanne Collins - The Hunger Games
Amy Stewart - Girl Waits With Gun
Philip Roth - The Plot Against America
Norm Macdonald - Based on a True Story
Christopher Buckley - Boomsday
Ryan Holiday - The Obstacle is the Way
Ruth Sepetys - Between Shades of Gray
Richard Adams - Watership Down
Claire Vaye Watkins - Gold Fame Citrus
Markus Zusak - I am the Messenger
Anthony Doerr - All the Light We Cannot See
James Joyce - Dubliners
Cheryl Strayed - Torch
William Golding - Lord of the Flies
Saul Bellow - Mister Sammler's Planet
Phil Stanford - White House Call Girl
John Kaplan & Jon R. Waltz - The Trial of Jack Ruby
Kent Haruf - Eventide
David Halberstam - Summer of '49
Norman Mailer - The Naked and the Dead
Maria Dermoȗt - The Ten Thousand Things
William Faulkner - As I Lay Dying
Markus Zusak - The Book Thief
Christopher Buckley - Thank You for Smoking
William Shakespeare - Othello
Joseph Conrad - Heart of Darkness
Bill Bryson - A Short History of Nearly Everything
Cheryl Strayed - Tiny Beautiful Things
Sara Varon - Bake Sale
Stephen King - 11/22/63
Paul Goldstein - Errors and Omissions
Mark Twain - A Connecticut Yankee in King Arthur's Court
Steve Martin - Born Standing Up: A Comic's Life
Beverly Cleary - A Girl from Yamhill, a Memoir
Kent Haruf - Plainsong
Hope Larson - A Wrinkle in Time, the Graphic Novel
Rudyard Kipling - Kim
Peter Ames Carlin - Bruce
Fran Cannon Slayton - When the Whistle Blows
Neil Young - Waging Heavy Peace
Mark Bego - Aretha Franklin, the Queen of Soul (2012 ed.)
Jenny Lawson - Let's Pretend This Never Happened
J.D. Salinger - Franny and Zooey
Charles Dickens - A Christmas Carol
Timothy Egan - The Big Burn
Deborah Eisenberg - Transactions in a Foreign Currency
Kurt Vonnegut Jr. - Slaughterhouse Five
Kathryn Lance - Pandora's Genes
Cheryl Strayed - Wild
Fyodor Dostoyevsky - The Brothers Karamazov
Jack London - The House of Pride, and Other Tales of Hawaii
Jack Walker - The Extraordinary Rendition of Vincent Dellamaria
Colum McCann - Let the Great World Spin
Niccolò Machiavelli - The Prince
Harper Lee - To Kill a Mockingbird
Emma McLaughlin & Nicola Kraus - The Nanny Diaries
Brian Selznick - The Invention of Hugo Cabret
Sharon Creech - Walk Two Moons
Keith Richards - Life
F. Sionil Jose - Dusk
Natalie Babbitt - Tuck Everlasting
Justin Halpern - S#*t My Dad Says
Mark Herrmann - The Curmudgeon's Guide to Practicing Law
Barry Glassner - The Gospel of Food
Phil Stanford - The Peyton-Allan Files
Jesse Katz - The Opposite Field
Evelyn Waugh - Brideshead Revisited
J.K. Rowling - Harry Potter and the Sorcerer's Stone
David Sedaris - Holidays on Ice
Donald Miller - A Million Miles in a Thousand Years
Mitch Albom - Have a Little Faith
C.S. Lewis - The Magician's Nephew
F. Scott Fitzgerald - The Great Gatsby
William Shakespeare - A Midsummer Night's Dream
Ivan Doig - Bucking the Sun
Penda Diakité - I Lost My Tooth in Africa
Grace Lin - The Year of the Rat
Oscar Hijuelos - Mr. Ives' Christmas
Madeline L'Engle - A Wrinkle in Time
Steven Hart - The Last Three Miles
David Sedaris - Me Talk Pretty One Day
Karen Armstrong - The Spiral Staircase
Charles Larson - The Portland Murders
Adrian Wojnarowski - The Miracle of St. Anthony
William H. Colby - Long Goodbye
Steven D. Stark - Meet the Beatles
Phil Stanford - Portland Confidential
Rick Moody - Garden State
Jonathan Schwartz - All in Good Time
David Sedaris - Dress Your Family in Corduroy and Denim
Anthony Holden - Big Deal
Robert J. Spitzer - The Spirit of Leadership
James McManus - Positively Fifth Street
Jeff Noon - Vurt

Road Work

Miles run year to date: 5
At this date last year: 3
Total run in 2017: 113
In 2016: 155
In 2015: 271
In 2014: 401
In 2013: 257
In 2012: 129
In 2011: 113
In 2010: 125
In 2009: 67
In 2008: 28
In 2007: 113
In 2006: 100
In 2005: 149
In 2004: 204
In 2003: 269

Clicky Web Analytics