Synagogue Lotto Pool

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Leesbro63
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Synagogue Lotto Pool

Post by Leesbro63 » Sun Dec 12, 2010 2:39 pm

A group of fellow synagogue members and myself are doing a MEGAMILLIONS lottery pool for 2011. The deal is that about 40 of us are each putting in 26 dollars...50 cents per week for every Tuesday MM drawing of 2011. I have sent an Email with rules to the group. The rules will be sent again and again each week as copies of the tickets are sent by Email to the participants. The crux of the deal is that if we win, half of the winnings go to the synagogue and the other half is split among the participants. One line in the rules clearly states that "Each participant agrees that one half of his/her interest in any and all Megamillions tickets shall, immediately upon purchase, be deemed to be donated to and owned by (NAME OF SYNAGOGUE AND ADDRESS).

We fully understand that the odds of winning big money are very very infinitesimal. This is more about having a little fun, building camaraderie, and buying "hope" of paying off the synagogue mortgage and sharing in a windfall. The synagogue is an independent 503(c) organization...not part of a larger organization like churches commonly are.

The question is this: If we win, will the IRS recognize our pre-published rule/agreement that the non-profit Synagogue owns half of the winnings (and won't be taxable)?

Anyone else ever deal with a lottery pool like this and can offer tips?

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Post by bogglehead » Sun Dec 12, 2010 2:54 pm

The problem I see is that it's difficult to enforce the part about giving half of the money to the synagogue in the first place. I don't understand what consideration the synagogue has put up in order to make it a party to the contract. If you really wanted to do it right, I imagine that you could set up an LLC and have the LLC articles indicate that half of the profit of the LLC goes to the synagogue and once you gift it, your tax thing may work.

But really, I have no idea.

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Post by Leesbro63 » Sun Dec 12, 2010 3:21 pm

There's nothing to enforce. It's done before there is any action that would require enforcement. The donation is made AT THE TIME OF PURCHASING THE TICKET. The synagogue accepts donations all the time.

The group doing this lotto is NOT any official part of the synagogue. But the group has created a well published rule that anyone participating agrees (long before winning) that a 50% ownership interest in any lottery tickets purchased will immediately be deemed to be donated to the synagogue.

This is DIFFERENT than (and it is NOT) an agreement that if we win each will donate half to the synagogue.

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Post by LadyGeek » Sun Dec 12, 2010 3:29 pm

This reminds of a pastor I met while on vacation, a number of years ago. He taught the parishioners how to gamble. Don't ask, but he did. So, what happened? He flew them all out to Las Vegas with the understanding that half of the winnings go to the church. I don't know the outcome, but I know he was popular.
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Post by bogglehead » Sun Dec 12, 2010 6:32 pm

Leesbro63 wrote:There's nothing to enforce. It's done before there is any action that would require enforcement. The donation is made AT THE TIME OF PURCHASING THE TICKET. The synagogue accepts donations all the time.

The group doing this lotto is NOT any official part of the synagogue. But the group has created a well published rule that anyone participating agrees (long before winning) that a 50% ownership interest in any lottery tickets purchased will immediately be deemed to be donated to the synagogue.

This is DIFFERENT than (and it is NOT) an agreement that if we win each will donate half to the synagogue.

Yeah, I get your point and it makes sense. Essentially you're creating an interest in the lottery tickets and each person holds 1/2 of the value of the tickets that they purchased and the synagogue holds the other part. I'm just a little bit curious as to the enforceability of lotto agreements in general --- and how iron clad they are.

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Post by Watty » Sun Dec 12, 2010 7:06 pm

Bad idea.


If it is not done right then in effect using the synagogues money to buy lottery tickets could cause the synagogue to lose its tax exempt status even if no one wins.

It would be best to have a lawyer review this.


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Re: Synagogue Lotto Pool

Post by Grt2bOutdoors » Sun Dec 12, 2010 7:23 pm

Leesbro63 wrote:A group of fellow synagogue members and myself are doing a MEGAMILLIONS lottery pool for 2011. The deal is that about 40 of us are each putting in 26 dollars...50 cents per week for every Tuesday MM drawing of 2011. I have sent an Email with rules to the group. The rules will be sent again and again each week as copies of the tickets are sent by Email to the participants. The crux of the deal is that if we win, half of the winnings go to the synagogue and the other half is split among the participants. One line in the rules clearly states that "Each participant agrees that one half of his/her interest in any and all Megamillions tickets shall, immediately upon purchase, be deemed to be donated to and owned by (NAME OF SYNAGOGUE AND ADDRESS).

We fully understand that the odds of winning big money are very very infinitesimal. This is more about having a little fun, building camaraderie, and buying "hope" of paying off the synagogue mortgage and sharing in a windfall. The synagogue is an independent 503(c) organization...not part of a larger organization like churches commonly are.

The question is this: If we win, will the IRS recognize our pre-published rule/agreement that the non-profit Synagogue owns half of the winnings (and won't be taxable)?

Anyone else ever deal with a lottery pool like this and can offer tips?

Sounds like a SCAM! Even if it were not, you will notice that states tax lottery ticket winnings, makes no difference who owns the ticket - it's Taxable. I second the above - one more reason to revoke tax-exempt staus, when you are gambling you are seeking to profit - there is nothing that says "non-profit" in that action.

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Post by Leesbro63 » Sun Dec 12, 2010 8:00 pm

Synagogues and churches around here do lottery stuff all the time. There is no profit motive. If the house of worship "hits", it gets the proceeds to continue non-profit work. In this case we're one step removed from even THAT common and legal thing in that our group has it clearly stated in the rules that we have NOTHING TO DO with the synagogue other than donating a 50% interest in any tickets purchased.

We're talking about 40 people...$20 per week. I am not going to turn this into a whole legal rigamarole, but was hoping that someone had some experience with this. If not then so be it and whatever happens happens. No one is going to revoke a house-of-worship's non-profit status because some members pooled $20 per week to buy lottery tickets. Jeez.

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Post by Grt2bOutdoors » Sun Dec 12, 2010 9:47 pm

Leesbro63 wrote:Synagogues and churches around here do lottery stuff all the time. There is no profit motive. If the house of worship "hits", it gets the proceeds to continue non-profit work. In this case we're one step removed from even THAT common and legal thing in that our group has it clearly stated in the rules that we have NOTHING TO DO with the synagogue other than donating a 50% interest in any tickets purchased.

We're talking about 40 people...$20 per week. I am not going to turn this into a whole legal rigamarole, but was hoping that someone had some experience with this. If not then so be it and whatever happens happens. No one is going to revoke a house-of-worship's non-profit status because some members pooled $20 per week to buy lottery tickets. Jeez.
It's noble to want to donate to a worthy and chariitable organization, however, what you are proposing is to set it up so that if the ticket hits you can escape taxation on the 50% you donate. That is what the IRS and other taxing authorities will be thinking as I'm sure many of our fellow forum members may be thinking themselves. Why not just donate after you claim any winnings? Not sure of any charitable organization that would accept a donation of questionable value (zero or a sum greater than a $1) - the lottery ticket where the outcome is still unknown at the time of the donation. Have you run this idea past the rabbi?

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Post by Leesbro63 » Sun Dec 12, 2010 10:10 pm

The Rabbi points out that "gambling" is frowned upon in Judaism, but that small time gaming (like the game of Dreidel now at Chanukkah) for fun is OK. And that by limiting our individual "gaming" contributions to merely 50cents per week per participant, we fall under that safe harbor.

The synagogue has no problem accepting under $1000 per year in lotto tickets.

And yes the intent is to make sure the synagogue gets it's "donation" without having to twist the arms of each of 40 participants to donate after the fact. And to avoid each of us having to go thru the tax-then-deduct hassle.

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Post by tetractys » Sun Dec 12, 2010 10:47 pm

Where the contortion lies is that half of each lottery ticket is being donated to the synagogue, and the other half is being divided up between all the members. I don't think it would be legitimate to donate the entire bond (lottery ticket) to the synagogue, and then expect to lawfully have the synagogue distribute half the winnings back to the donors, either before or after taxes. I believe the donations would have to be made after the fact of the donors paying the full tax, and that just seems like a can of worms.

You better seek some preliminary information about group ownership of lottery tickets from the lottery office.

I ran a 501(c)(3) Not-for-profit several years ago. From what I remember, donations were tax deductible, and there were very tight restrictions on how the property was used, and staff were not allowed any kind of pay, except for reimbursement of certain expenses, or free rent for a groundskeeper. -- Tet
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Post by letsgobobby » Mon Dec 13, 2010 1:54 am

So you know what's going to happen if someone wins... they're not going to want to give the other 39 members any of the winnings, nor the synagogue, thank you very much. Of course you'll be able to enforce the 1/40th part. It's going to be hard to force someone to give the synagogue his portion of the winnings, when the synagogue paid no part of the tickets. And once he (or she) doesn't give up his half of the 1/40th, neither are the other 39. I think the whole setup is a bad idea. One of the most fundamental principles of gambling is that only those who have taken risk are entitled to reward. The synagogue has taken no risk, and is not entitled to any reward.

Just split it up 40 ways, and hope people do the right thing with the winnings.

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Post by celia » Mon Dec 13, 2010 3:50 am

With $20 of weekly tickets currently??? being purchased, you must have had a small winner by now. How did that go? Were all affected parties agreeable? (This tests the psychological/agreeability aspect of winning).

What you're asking about now regards a winning that is large enough that the SSNs and names and addresses will be given to the lottery commission. (This will test the legal/ tax issues of winning.)

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Post by Leesbro63 » Mon Dec 13, 2010 6:00 am

letsgobobby wrote:So you know what's going to happen if someone wins... they're not going to want to give the other 39 members any of the winnings, nor the synagogue, thank you very
No. I buy and hold the tickets. The partnership owns ALL of the tickets. There are no specific tickets assigned tp specific participants. Every partner gets an email before each drawling with a copy of the tickets...to keep ME honest (really to build excitement and keep the whole thing transparent).

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Post by Leesbro63 » Mon Dec 13, 2010 6:02 am

celia wrote:With $20 of weekly tickets currently??? being purchased, you must have had a small winner by now. How did that go? Were all affected parties agreeable? (This tests the psychological/agreeability aspect of winning).

What you're asking about now regards a winning that is large enough that the SSNs and names and addresses will be given to the lottery commission. (This will test the legal/ tax issues of winning.)
I am currently collecting the money and we'll start with the first drawing of 2011. Small winnings of under $500 will be reinvested. $500 and over will be distributed to the partners, with the synagogue being a 50% partner/beneficiary.

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Post by nisiprius » Mon Dec 13, 2010 6:48 am

How do taxes figure into this? I think I'd be sure I work that out in advance. I am spitballing here because I've never played the lottery or paid taxes on lottery winnings. I might be totally out to lunch on this but the organizer dare not be.

Isn't it true that

a) taxes are withheld, and
b) the announced jackpot amount assumes annuitization?

Is the winner going to be forced to take a lump sum even when that is likely not in their best interest?

Yikes! What about the gift tax? Doesn't that come into play when it comes time to distribute shares? If not, why not?

Someone could win a jackpot of $X and their actual lump-sum payout after withholding could be much less than that. Could it even be less than 50%? If so, how do they make their 50% donation?

Does everyone in the group really understand that if the group wins a jackpot of $80,000,000, that does not mean they are each going to get a million dollars?

The numbers here are total guesswork. The point is that someone needs to fill them in with nonguesswork before you start explaining the deal to people.

If the person who buys the ticket wins "$80,000,000," which really turns out to be (say) a $60,000,000 lump sum, from which 25% is withheld, leaving $45,000,000. If everything goes smoothly, when the dust has settled they give $40,000,000 to the synagogue. At this point they have $5 million in cash.

The person takes a $40,000,000 itemized deduction, leaving $20,000,000 on which they are liable for tax. $20,000,000 is surely going to put them in the 30% tax bracket, so they owe $6,000,000 in taxes. Since $15,000,000 was withheld, they presumably get a refund of $9,000,000, plus the $5 million they already head, so they have $14,000,000 to distribute among forty people.

That's $350,000 each, but since that's well over $13,000, before they distribute it, they need to pay the gift tax. Five minutes of Googling convinces me that the gift tax is complicated--90% of what's there tells you how to stay under the limit. I had to go to the Form 709 instructions to find out what the tax percentages actually are. It looks as if in a rough general way, if you're distributing a total of $14 million, you're going to be paying something in the ballpark of 40% gift tax before distributing it.

So each participant is going to have to wait until the lottery ticket holder gets their income tax refund, and then is going to get about $200,000 instead of the million they might have been expecting.

I can't imagine getting every single one of 39 people to believe that receiving $200,000 from 1/40th of half of an $80,000,000 jackpot is on the up-and-up. The winner might as well stiff the participants because they're going to think they were stiffed anyway.

I think you'd better have something prepared in advance, an accurate example calculation showing "If we win $X, you will get $Y."
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Post by Oneanddone » Mon Dec 13, 2010 9:00 am

In terms of the mechanics of how this works, it is important to keep in mind that half of the winnings are not being given to the synagogue.

Rather, half of every ticket is being given to the synagogue. The only gifting that is being done is $.025 every week/ per participant.

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Post by Leesbro63 » Mon Dec 13, 2010 11:51 am

Onneanddone: THANK YOU. That's what I've been trying to say.

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Post by Alex Frakt » Mon Dec 13, 2010 1:50 pm

Since no one here seems to know the answer (and the answer depends in part on the particulars of your state's lottery laws anyway), I can see only a few ways to proceed.

1) Have a lawyer who understands the issues review this. Perhaps someone in your congregation is qualified and could donate their time?

2) Do the work yourself, contact the IRS and your state lottery officials and ask them if your plan is the proper way to structure this.

3) Try to find another forum where someone can answer your question.

4) Don't do anything and hope it all works out as planned.

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Post by PaulW » Mon Dec 13, 2010 2:19 pm

Is this any different than donating appreciated property to a charity? Several years ago we donated a 50% interest in a piece of land to a charity. When it was sold 50% of the proceeds were received by us and that was what was reported on our tax return. In addition, we received a tax deduction for the value of the property donated.

Would a winning lottery ticket be any different?

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Post by Leesbro63 » Mon Dec 13, 2010 3:50 pm

Yes it's different. Because we are donating the interest in the ticket upon purchase...BEFORE it appreciates.

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