# Lottery ticket bought by / donated to a charity tax Q **URL:** \ **Category:** Factual Questions\ **Created:** [July 27, 2011, 7:31pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530 "2011-07-27T19:31:04Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![kanicbird](https://avatars.discourse-cdn.com/v4/letter/k/5f8ce5/32.png) [@kanicbird](https://boards.straightdope.com/u/kanicbird)\ **Post date:** [July 27, 2011, 7:31pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/1 "2011-07-27T19:31:04Z")
If a charity or tax exempt ministry buys a lottery ticket, or a lottery ticket is donated before the drawing or after ( it is a winning ticket ), what are the tax implications to the organization and to the donating party under the differing circumstances. And from the above, the general question is there a way to get all the money tax free from lottery winnings? ---
**Author:** ![Keeve](https://avatars.discourse-cdn.com/v4/letter/k/f07891/32.png) [@Keeve](https://boards.straightdope.com/u/Keeve)\ **Post date:** [July 27, 2011, 7:58pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/2 "2011-07-27T19:58:00Z")
My guess is that a lottery ticket is a bearer instrument, so the gov’t has no way of identifying the purchaser, so if it is donated any time prior to redemption, then the purchaser is totally off the hook. On the other hand, if it looks like the tax-exempt organization spent their money gambling, would they lose their tax-exempt status? Now go ask someone who knows that the laws are. ---
**Author:** ![Keeve](https://avatars.discourse-cdn.com/v4/letter/k/f07891/32.png) [@Keeve](https://boards.straightdope.com/u/Keeve)\ **Post date:** [July 27, 2011, 8:01pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/3 "2011-07-27T20:01:13Z")
> [@kanicbird](#): > > And from the above, the general question is there a way to get all the money tax free from lottery winnings? Why not just have the purchaser claim his prize, and then donate all the winnings to charity? ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [July 27, 2011, 8:06pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/4 "2011-07-27T20:06:08Z")
> [@Keeve](#): > > Why not just have the purchaser claim his prize, and then donate all the winnings to charity? Because he would still owe tax on his winnings. There are limitations on the amount of charitable contributions one may make. Cash contributions deductions are limited to 50% of your adjusted gross income. So if you won $10 million (had no other income) and your tax rate is 35%, and you donate the entire $10 million to charity, you taxable income would still be $5 million and you would owe $1.75 million in taxes, even though you gave all of your winnings to charity. ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [July 27, 2011, 8:09pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/5 "2011-07-27T20:09:34Z")
> [@Keeve](#): > > On the other hand, if it looks like the tax-exempt organization spent their money gambling, would they lose their tax-exempt status? ^ This. The charity would have to pay tax on its “unrelated business income” [http://www.irs.gov/charities/article/0,,id=96104,00.html](http://www.irs.gov/charities/article/0,,id=96104,00.html) ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [July 27, 2011, 8:10pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/6 "2011-07-27T20:10:49Z")
> [@kanicbird](#): > > the general question is there a way to get all the money tax free from lottery winnings? No ---
**Author:** ![Keeve](https://avatars.discourse-cdn.com/v4/letter/k/f07891/32.png) [@Keeve](https://boards.straightdope.com/u/Keeve)\ **Post date:** [July 27, 2011, 8:43pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/7 "2011-07-27T20:43:14Z")
Thanks! ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [July 28, 2011, 1:16am UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/8 "2011-07-28T01:16:43Z")
> [@Omar\_Little](#): > > ^ This. The charity would have to pay tax on its “unrelated business income” [http://www.irs.gov/charities/article/0,,id=96104,00.html](http://www.irs.gov/charities/article/0,,id=96104,00.html) Lottery tickets are not UBI - for one thing, it’s not a trade or business, so it fails on the very first test you cite. It would also probably fail on the second test (that it be conducted regularly). My first inclination would be to treat it like an in-kind (i.e. non-cash) contribution of the ticket with FMV $1, and then a “sale” of that item for the winnings amount. This would provide tax-free winnings on the ticket. Charities do that all the time with items donated and sold at auction - again, it would have to be done as a trade or business and with regularity to be considered UBI. However, it might still screw with charities who need to meet public support requirements. ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [July 28, 2011, 6:01am UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/9 "2011-07-28T06:01:27Z")
> [@dracoi](#): > > Lottery tickets are not UBI - for one thing, it’s not a trade or business, so it fails on the very first test you cite. It would also probably fail on the second test (that it be conducted regularly). > > My first inclination would be to treat it like an in-kind (i.e. non-cash) contribution of the ticket with FMV $1, and then a “sale” of that item for the winnings amount. This would provide tax-free winnings on the ticket. Charities do that all the time with items donated and sold at auction - again, it would have to be done as a trade or business and with regularity to be considered UBI. > > However, it might still screw with charities who need to meet public support requirements. A charity buying lottery tickets would be an unrelated business. No charity would qualify as a non-profit if their business was buying lottery tickets. Receiving a winning ticket as a contribution from an individual would be non taxed to the charity, but the donor would be taxed. ---
**Author:** ![Keeve](https://avatars.discourse-cdn.com/v4/letter/k/f07891/32.png) [@Keeve](https://boards.straightdope.com/u/Keeve)\ **Post date:** [July 28, 2011, 10:17am UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/10 "2011-07-28T10:17:22Z")
> [@Omar\_Little](#): > > Receiving a winning ticket as a contribution from an individual would be non taxed to the charity, but the donor would be taxed. Is the donor taxed on it even if he has not yet claimed his winnings? It’s just a piece of paper with some printing on it. He hasn’t really realized any income yet. If he drops it on the sidewalk and loses it, there’s absolutely no way he can claim the prize, and the guy who finds it will have no problem cashing it. (Unless surveillance cameras or something gets involved.) ---
**Author:** ![kanicbird](https://avatars.discourse-cdn.com/v4/letter/k/5f8ce5/32.png) [@kanicbird](https://boards.straightdope.com/u/kanicbird)\ **Post date:** [July 28, 2011, 10:37am UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/11 "2011-07-28T10:37:17Z")
> [@Omar\_Little](#): > > A charity buying lottery tickets would be an unrelated business. No charity would qualify as a non-profit if their business was buying lottery tickets. Not as their business, but as part of the OP I mentioned ministries specifically, who can do things ‘as lead (by God)’. Perhaps the ministry was ‘lead’ to buy a single ticket for some upcoming expansion program and that ticket was a winner. > [@](#): > > Receiving a winning ticket as a contribution from an individual would be non taxed to the charity, but the donor would be taxed. Even if the ticket is uncashed? What if the ticket was donated before it was a winner? ---
**Author:** ![What\_the](https://avatars.discourse-cdn.com/v4/letter/w/f4b2a3/32.png) [@What\_the](https://boards.straightdope.com/u/What_the)\ **Post date:** [July 28, 2011, 12:04pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/12 "2011-07-28T12:04:32Z")
If the donor was “anonymous” there is no way he cold be taxed. If the charity receives a contribution of a ticket worth big bucks it would be like any other contribution… not like the charity was playing the lottery. The trick would be for the “anonyous” person to get at the money…there are all kinds of rules that stop that. Just be thankfl that the tax isn’t 90% like some Dopes would like. ---
**Author:** ![Alley\_Dweller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alley_dweller/32/430_2.png) [@Alley\_Dweller](https://boards.straightdope.com/u/Alley_Dweller)\ **Post date:** [July 28, 2011, 12:59pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/13 "2011-07-28T12:59:48Z")
> [@kanicbird](#): > > What if the ticket was donated before it was a winner? That’s an easy question: > [@](#): > > Revenue Ruling 55-638, 1955-2 C.B. 35 > > The proceeds from a sweepstakes ticket acquired by gift before it became a winning ticket are includible in the gross income of the donee to the extent in excess of the value of the gift. The established selling price paid for the ticket by the donor constitutes the value of the gift which is excludable from gross income under section 102 of the Internal Revenue Code of 1954. See Max Silver v. Commissioner, 42 B.T.A. 461, acquiescence, 1940-2 C.B. 7. The donor is not liable for income tax on the portion transferred before it became a winner. See [Chelius v. Commissioner, 17 TCM (CCH) 121 - 1958](http://scholar.google.com/scholar_case?case=9763925759375129710&hl=en&as_sdt=2&as_vis=1&oi=scholarr): the taxpayer transferred a 50% interest in a lottery ticket to other members of her family before the drawing. The Court found she was not liable for income taxes on 50% of the winnings. ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [July 28, 2011, 1:19pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/14 "2011-07-28T13:19:25Z")
If the ticket was transferred by an individual to a charity before it became a winner, and then the lottery ticket won, I would expect that the charity would still have to pay tax on unrelated business income. Call the IRS or a tax professional for a clearer opinion. ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [July 28, 2011, 1:21pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/15 "2011-07-28T13:21:06Z")
> [@kanicbird](#): > > Not as their business, but as part of the OP I mentioned ministries specifically, who can do things ‘as lead (by God)’. Perhaps the ministry was ‘lead’ to buy a single ticket for some upcoming expansion program and that ticket was a winner. > Even if the ticket is uncashed? What if the ticket was donated before it was a winner? Ministries, ‘lead by God’, are still subject to the local laws. _Render unto Ceasar what is Ceasar’s._ ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [July 28, 2011, 1:27pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/16 "2011-07-28T13:27:38Z")
Why bother? I think it was John Lennon who said that he had hordes of accountants just to tell them that the more money the Beatles made before taxes, the more they took home after taxes. That’s usually how taxes work. It makes sense - if a ticket is gifted before the draw, it’s worth is the retail price. If it is gifted after the draw, it’s value is the prize it has earned. If you tried to sell it to some schlub on the street, that’s how they would value it. I guess one question is, can you move house to a state with lower taxes before cashing in, or is it the day of the draw that determines your state of taxation? Or else “honest, I sold my mother in the low-tax state 50% of the ticket before the draw…” (What is the relative tax rate per state? Here in Canada, gambling winnings are exempt from tax. You win $10,000,000 you take home $10,000,000. Otherwise, tax accountants suggest, then you should be able to deduct the money invested to earn that - i.e. your gambling losses.) ---
**Author:** ![Keeve](https://avatars.discourse-cdn.com/v4/letter/k/f07891/32.png) [@Keeve](https://boards.straightdope.com/u/Keeve)\ **Post date:** [July 28, 2011, 1:28pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/17 "2011-07-28T13:28:58Z")
> [@Omar\_Little](#): > > If the ticket was transferred by an individual to a charity before it became a winner, and then the lottery ticket won, I would expect that the charity would still have to pay tax on unrelated business income. Call the IRS or a tax professional for a clearer opinion. Yeah, but what about where the drawing was held, the ticket became a winner, and THEN it was donated to the charity, prior to being redeemed? ---
**Author:** ![Tastes\_of\_Chocolate](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tastes_of_chocolate/32/3232_2.png) [@Tastes\_of\_Chocolate](https://boards.straightdope.com/u/Tastes_of_Chocolate)\ **Post date:** [July 28, 2011, 4:33pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/18 "2011-07-28T16:33:21Z")
Why would a lottery ticket be treated differently than stocks? If I donate stock to the local public radio, I can claim the current value of the stock as a charitable donation, and I don’t have to pay capital gains taxes, and the radio station gets to sell the stock, keep the value and not pay taxes on it. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [July 28, 2011, 4:33pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/19 "2011-07-28T16:33:19Z")
> [@Omar\_Little](#): > > A charity buying lottery tickets would be an unrelated business. No charity would qualify as a non-profit if their business was buying lottery tickets. > > Receiving a winning ticket as a contribution from an individual would be non taxed to the charity, but the donor would be taxed. Why are you introducing facts that don’t exist in the OP? The OP says “a” lottery ticket. There’s no plural. ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [July 28, 2011, 5:08pm UTC](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530/20 "2011-07-28T17:08:33Z")
> [@Keeve](#): > > Yeah, but what about where the drawing was held, the ticket became a winner, and THEN it was donated to the charity, prior to being redeemed? Generally, the rule is “fair market value”. What would some schmuck on the street pay for it? Before the draw, $1. Aft the draw, $0 or $10,000,000. Whether it’s been cashed or not is irrelevant. If you argue that "it’s only worth $5M not $10M because there’s $5M in taxes to be paid - well, then you have to pay taxes first, plus sell the ticket… Not sure the bizzarre legal ramifications of selling a winning lottery ticket, but I assume whoever walks up to the window and cashes it pays taxes; so unless you sell it to a Canadian, who then cashes it out and walks away with all $10M, someone pays the tax. (Thanks to cross-border tax treaty, Canadians pay no US taxes on US winnings. ) [Next page](https://boards.straightdope.com/t/lottery-ticket-bought-by-donated-to-a-charity-tax-q/590530.md?page=2)