Wednesday, March 7, 2012
Edward Seward regularly went to Waffle House to eat and he would bring lottery tickets from Florida to share with family, friends, and employees at the Waffle House. Most of the tickets were not winners, but on March 7, 1999, one employee, Tonda Lynn Dickerson received a winning ticket worth $10 million over 30 years or $5 million as a lump sum.
The employees were excited about the winning ticket too because they thought they had agreed to split to proceeds if any one of them ever won. Tonda Lynn did not want to share though and that led to the first lawsuit surrounding Tonya’s winnings.
The employees sued, saying that there had always been an agreement to split the proceeds amongst all the employees. The court held that there was an oral contract to split the winnings, but Tonda still kept all her winnings because it was illegal in Alabama to create contracts related to gambling.
Mr. Seward brought another lawsuit against her because he was under the impression that he was going to get a truck if one of the employees won the lottery of off one of his tickets. He sued on fraudulent misrepresentation grounds. Seward appealed up to the Supreme Court of Alabama, but his case lost there as well.
While these two lawsuits were going on, Tonda created an S corporation to protect her lottery winnings. An attorney with the Estate Division of the IRS hit Tonda with a tax bill for unpaid federal gift tax of $771, 570. Tonda proceeded to challenge the IRS claiming that the transfer to her family members was not a gift, but an agreement with her family to share the lottery winnings with them if she won. She also tried to claim that the S corporation owned the ticket, and that if the transfer did qualify as a gift, the value was subject to a discount considering the time value of money.
The Tax Court determined that the transfer was a gift, but they also agreed that the value of the gift could be discounted.
See Deborah Jacobs, Waffle House Waitress Wins Big in the Lottery, Loses at Tax Court, Forbes, Mar. 6, 2012.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.