In August 2020 Scott purchased a 1972 Datsun 240 for $10,000 from an individual seller. Shortly after
Question:
In August 2020 Scott purchased a 1972 Datsun 240 for $10,000 from an individual seller. Shortly after buying the car Scott is cleaning the interior and discovers a lottery ticket under the passenger seat. The ticket is for the Mucho Million drawing at the end of the month. Scott put the ticket in the glove box and forgot about it. 6 months later, he “rediscovers” the ticket in the glove box. However, before he checks the numbers on the ticket, he gives the ticket to his daughter. His daughter later checks the ticket numbers and discovers it is the winning ticket with a payout of $5,000,000 and promptly cashes in the ticket.
Scott’s 2020 tax return was audited by the IRS, who by chance discover the events described above, and adjusted Scott’s 2020 tax return to include the $5,000,000 in his income. Scott files a tax court petition asserting that the winnings are income to his daughter and not him, as the ticket was not his property or in the alternative that he was unaware the ticket was the winning ticket when he gave it to his daughter, and it had no taxable value to him in 2020.
Identify the tax issues in this scenario and does scott win or loss and why?