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Sally works for tire dealership. She is in charge of purchasing lottery tickets for her office, which includes the sale representatives of the large dealership. Usually 10 to 15 sales representatives contribute each week to purchase community lottery tickets. Recently, the prize amount has steadily increased which has lead to more and more employees contributing. This week, the prize is nearly $1 billion. A total of 16 other employees have contributed $10 for a total of $170 worth of tickets. Sally decided while in line that she was going to purchase $200 worth of tickets, not just the $170 contributed by the other employees. In addition, she has told her three cousins that she purchased an additional $30 worth of lottery tickets and will share with them if she wins. It is also important to note that Sally didnt separate the tickets into groups of $170 and $30... she instead held all the originals together. Sally watches the TV that night and learns that she has a winning ticket.

Sally contacts you, her CPA and wants advice as what to do before announcing that she has a winning ticket.

Answer the following questions below, be sure to state IRC sections that are relevant to this case:

1) Will Sally be required to share the winnings with either her family or co-workers? Or can she simply keep it all for herself and move away to Europe? Under partnership rules, what is her liability to her family members and co-workers. Sally is very worried about the many promises that she has made and is now realizing that she may have a liability from the same winnings to many different unrelated parties.

2) Sally is considered to be a very lucky person; she has won the lottery five times. During past events, she has been more than willing to share her winnings with those in the pool without hesitation. Sally has plans to continue playing the lottery in pools with different groups of people and has a feeling that she will win another big jackpot eventually. Would you advise her to form an S Corporation and make the members of the pool system shareholders? If yes, what would be the tax and other considerations that will need to be discussed if she were to follow through with an S- Corp as a pass-through for her future lottery activities?

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