The current estimated jackpot for the lottery is $127 Million, with a cash value of $78.4 million.

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Question:

The current estimated jackpot for the lottery is $127 Million, with a cash value of $78.4 million. Assume that you won the lottery by purchasing a ticket here in Denton and that you are a Texas resident. Congratulations! Since you are now very interested in federal taxes, develop a tax research memo that examines the following.

Are lottery winnings taxable? What is the real issue? To identify the issue: assuming you do not do any tax planning, what is the marginal rate that you have to pay on your lottery winnings (Assume year = 2019)? What is the average effective tax rate that you paid on your winnings? Are you comfortable paying these marginal rates and/or effective tax rates?

How can you minimize your tax liability on your winnings? Explain your strategy and how it minimizes taxes. You can choose one of many strategies. Some of the examples include accepting annuity (instead of lump-sum), creating trusts, setting up an S-corporation, charitable contributions, leaving the country (if that is an option), giving gifts to family and friends, and others. Choose one tax planning strategy (you can also find one that is not listed here), cite the proper authority that allows you to choose this option. Are there any limitations to the strategy you selected?

Please organize your memo using the following five headings.

State the facts. (2-3 sentences)

Identify the issue. (2-3 sentences)

Authorities. (Cite primary authorities that are relevant to this case. For example, what authorities require that you have to pay taxes on lottery winnings, what authorities allow you to tax plan, etc?)

Analysis.

Conclusion. (2-3 sentences)