It certainly isn’t illegal to give lottery tickets as gifts. Many lotteries promote themselves as generous and thoughtful gifts especially now that Christmas is just around the corner. Also, many states have special procedures for dividing jackpots between informal lottery pools so there is nothing preventing two people from playing and dividing a prize. Even businesses can claim lotteries. For example, under Texas state lottery laws, a prize can be claimed by“an individual, a trust, a partnership, a corporation, or any other legal entity”
While playing the lottery as a part of a group is generally legal, there are ways that cooperation can create a legal problem. Issues typically arise when money trades hands, especially when the money is in millions. Sticking with the Texas lottery example, state law forbids paying someone a fee to buy lottery tickets for you. If the purchaser is part of a lottery pool and the tickets are bought on behalf of other participants, there is no problem. But if the purchaser extracts an additional fee, then the purchase is a legal offense. Even in states which may not be as specific as Texas, complications can arise when one transfers something of value (a ticket) to another person. This type of transaction can have federal gift-tax consequences which can become complicated in the event of a sizable transaction.
To receive a lottery prize with no adverse gift-tax consequences s part of a valid prize-sharing contract, each participant must receive the percentage that they contributed to the partnership. For instance, if participant A put 30% into the pool and participant B put in 70%, any lottery winnings they share must be based on those percentages. Otherwise, one of them has made the gift to one another and triggered gift-tax consequences. For example, if participant A put in 30% and participant B put in 70%, but they split the lottery prize 50-50, then participant B has made a gift to the participant A of 20%. The issue of gift-taxes is totally separate from the income-tax consequences of winning the lottery. Winners who expose themselves to gift-taxes suffer from double taxation because the winnings are first taxed as income, then taxed as a gift. Of course, there are annual gifts limits that don’t trigger taxation if you stay below them.
Another challenge with lottery “teamwork” is that sometimes the people posing as helpers are really swindlers. The Texas lottery commission conducted a series of investigations and discovered people who had claimed dozens of lottery wins, violated various state lottery laws, and was involved in a variety of criminal activities. For instance, lottery retailers would lie about the actual prize of lottery tickets to customers then claim the tickets as their own.
Additionally, there are professional ticket cashiers who redeem winnings for people who fear public scrutiny. People who avoid the publicity of a win can include welfare recipients, undocumented aliens, deadbeat dads, divorcing spouses, and fugitives. In 2002, a Texas jury ruled a lottery winner named Jose Luis Betancourt had to forfeit a $12 million prize because he was responsible for smuggling about 100 kg of cocaine and he used the drug money to purchase the lottery ticket.
Hence, before you team-up with a partner to play and win the lottery, make sure that your plan is legal within the rules of your state. Or visit The Lottery Lab
to acquaint yourself to the basic rules and regulations associated with playing the lottery.