Read Charles Rubin’s blogpost:  click here

The U.S. District Court for the Southern District of New York "found the DOMA provisions unconstitutional under the lower “rational basis” standard which requires only that a law have a rational basis for its classifications to withstand an equal protection clause challenge. The court determined that the purposed bases of protection of the institution of marriage, protection of childrearing and procreation, consistentcy and uniformity of federal benefits, and conserving the public fisc were not rationally served by the DOMA provisions. The court thus ordered that the refund be paid."

Windsor v. U.S., 109 AFTR 2d ¶ 2012-870 (DC N.Y. 6/6/2012)

Non-profit organizations that meet IRS guidelines are exempt from paying income tax. The tax policy behind the exemption is that these types of organizations benefit the community and therefore reduce the burden on government. A similar policy is behind giving individuals a charitable deduction on their income tax returns for making gifts to charity.

This sounds reasonable; but, as always, there are problems and issues when organization are testing the limits and trying to find exceptions. The degree to which an organization relieves government of its burdens is often open to dispute.

In addition to income tax exemption, most municipalities provide an exemption from property taxes. The higher the density of non-profits in a school district, the more the rest of the property owners must shoulder the load of education. Think of a map of an urban area, and think of property tax "holes" in the footprint of every property owned by a property tax-exempt organization. The more holes, the more the burden is shifted to the rest of the property owners.

Income tax exemption is a federal matter, while property tax is a state and local matter. Laws in some states have exempted all property owned by groups like the Boy Scouts, Girl Scouts, YMCA and YWCA, regardless of each property’s use. Those not in the exempted groups have to make their own case with the local municipality to persuade them that the property’s use is of such a benevolent nature that it should surely be exempt from property tax.

Take the case of the family park built by the Jewish Community Center (JCC) in Wisconsin. It contains an outdoor swimming pool, volleyball and basketball courts, a community room and snack bar. It was denied a property tax exemption.

Wisconsin starts with the presumption that all property is taxable and then proceeds to carve out exemptions, 45 to date. Some exemptions are to all property belonging to the Scouts and the Ys, while others are extremely specific, like a dormitory run by the Methodist Church near a Wisconsin college campus and a community theater in LaCrosse.

Alan Marcuvitz, an attorney for the JCC, argued "that what appears to be purely recreational activity ‘has religious and community-building purposes.’ At the park, members observe Shabbat, attend kosher barbecues and Jewish holiday events, and play Israeli games. All of the signs in the facility are in English and Hebrew." He argued that the park qualifies under an aggregate analysis of all the JCC activities at all its locations, which advance the JCC’s mission of promoting its religious, cultural, education and social values. It was also argued that as a "benevolent association" this family park shouldn’t be taxed; and if the exact same facility were owned and operated in the same way by the YMCA, property tax exemption would be granted by state law regardless of use.

John DeStefanis, attorney for the city, argued property tax exemption not granted by state law is granted (or not) by local government depending on use and regardless of what organization owns it.

County Circuit Judge Thomas Wolfgram sided with the county and denied property tax-exempt status.

A federal question arises. Why should a YMCA fitness center be exempt and not the JCC water park? Is the JCC being denied the equal protection of the law? That is the second part of the lawsuit that will be heard later this year in the Dane County Circuit Court. In the meantime, $30,000 per year is being paid in tax pending resolution of the constitutional matter.

Jack Norman, an opponent of current Wisconsin tax law and member of the Institute for Wisconsin’s Future, is of the opinion that it is indeed unfair, but his solution would be to grant fewer exemptions from property tax, not more. Furthermore, he feels the income tax break ought to be enough to compensate for the benevolent work of a non-profit and that property tax exemptions are for the most part just not a sound public policy.

In particular, he points out, many private and for-profit corporations do good things for the community but still pay property tax or make a contribution in lieu of taxes. Mr. Norman’s hope is that all the attention the issue is attracting might cause the state legislature to think about revamping the property tax law and its host of exemptions.

On May 7, 2012 the Pennsylvania Superior Court issued an opinion in the case of Healthcare Retirement Corporation of America v. Pittas. The court found a son liable for his mother’s $93,000 nursing home bill under Pennsylvania’s Filial Responsibility Law. This high-profile case raises concerns.

Currently 30 states have laws making adult children responsible for their parents if their parents can’t afford to pay for their own care. They have rarely been enforced. Since it has become more difficult to qualify for Medicaid and have long term care costs paid under that program, it looks like nursing homes are going to start enforcing the filial responsibility law to get paid.

Filial responsibility is the personal obligation or duty that adult children have for protecting, caring for, and supporting their aging parents. In England, the Elizabethan Act of 1601 for the Relief of the Poor, provided that "[T]he father and grandfather, and the mother and grandmother, and the children of every poor, old, blind, lame and incompetent person, or other poor person not able to work, being of a sufficient ability, shall, at their own charges, relieve and maintain every such poor person." These Elizabethan "poor laws" became the model for the United States’ legislation on the same subject.

In Pennsylvania, the first law imposing a duty of filial support is found in the Act of March 9, 1771, which required that children support their indigent parents if the children were of sufficient financial ability. The current Pennsylvania statute provides that certain relatives including a child have the "responsibility to care for and maintain or financially assist an indigent person." However, this responsibility does not apply if the "individual does not have sufficient financial ability to support the indigent person" or if a parent abandoned the child for 10 years during the child’s minority. Neither the terms "indigent" nor "sufficient financial ability" are clearly defined in the law.

An example of its enforcement is the 1994 Pennsylvania Superior Court case, Savoy v. Savoy which involved an elderly parent whose reasonable care and maintenance expenses exceeded her monthly Social Security income. The Superior Court found that she was indigent and affirmed the lower court’s order directing her son to pay $125 per month directly to her medical care providers.

In the case of Healthcare Retirement Corporation of America v. Pittas,

John Pittas’ mother was injured in a car accident and spent 6 months in Liberty Nursing Home, a subsidiary of Health Care & Retirement Corporation of America. She left the nursing home and left the country, moving to Greece, leaving a large portion of her nursing home bill unpaid. The nursing home applied for Medicaid for Mr. Pittas’ mother but the application is still pending.

The nursing home sued Mr. Pittas for $93,000 under Pennsylvania’s Filial Responsibility Law, which requires a child to provide support for an indigent parent. The Lehigh County trial court ruled in favor of the nursing home, and Mr. Pittas appealed. Mr. Pittas argued, in part, that the court should have considered alternate forms of payment, such as Medicaid or going after his mother’s husband and her two other adult children.

A three-judge panel of the Pennsylvania Superior Court agreed with the trial court that Mr. Pittas is liable for his mother’s nursing home debt. The court held that the law does not require it to consider other sources of income or to wait until Mrs. Pittas’ Medicaid claim is resolved. It also said that the nursing home had every right to choose which family members to pursue for the money owed. The case is now the subject of an en banc reconsideration petition filed with the Pennsylvania Superior Court.

According to elder law expert Professor Katherine Pearson, in the last 30 years there have only been 3 cases discussing the Filial Support Law. What makes this case unique in Pennsylvania, said Pearson, is that "it is the first time substantial dollars have been awarded against an adult son to support his mother who is in a nursing home – almost $93,000. It’s a game-changer in terms of the dollars and cents that we are talking about in terms of filial support."

If a parent enters a nursing home with insufficient funds to pay for his or her care, adult children should be vigilant about potential claims against their own assets to pay for that care. Remember, the statute goes both ways, it can also apply to a parent who has an adult child who is indigent. There have been numerous attempts in the Pennsylvania legislature to amend or repeal the Filial Support Law. Contact your representative and/or state senator if you are concerned about the Filial Support Law currently being enforced in Pennsylvania.



To be poor and independent is very nearly an impossibility.

                                                                    William Cobbett, Advice to Young Men, 1829

On May 21, 2012, the Supreme Court decided the case of Astrue v. Capato. This case may have consequences beyond the question the Court decided based on its deferral to state law.

Karen Capato, widow of Robert Capato, was artificially inseminated nine months after her husband’s death. She delivered twins and applied for Social Security survivors benefits for them.

The Social Security Administrator, Michael Astrue, declined to pay, citing Florida intestate law that 1) declares a marriage is over at the death of one of the spouses and 2) that posthumously conceived children are not intestate heirs.

Mrs. Capato pointed to 42 U.S.C.S. 402(d) which states that "[e]very child (as defined in section 416(e) of this title" of a deceased insured individual "shall be entitled to a child’s insurance benefit." Section 416(e), in turn, defines "child" to mean: "(1) the child or legally adopted child of an individual, (2) a stepchild . . . and (3) . . . the grandchild or stepgrandchild of an individual or his spouse . . ."

Mrs. Capato prevailed at the Third Circuit Court of Appeals, but the Commissioner appealed to the Supreme Court.

At that point, it looked like Mrs. Capato would prevail. But wait, there’s more. Section 416(h)(2)(A) further addresses the term "child." "In determining whether an applicant is the child or parent of [an] insured individual for purposes of this subchapter, the Commissioner of Social Security shall apply [the intestacy law of the insured individual’s domiciliary State]."

Thus, there are two definitions of "child" in the Code, one loosely defined and one that defers to state law. One might see another 5-4 decision brewing but the decision was for the Commissioner 9-0. Unanimous!

Reasoning was that even though state intestacy laws vary from state to state, it was better to let a few more people qualify for benefits and leave the decision out of the federal government’s hands than to restrict benefits but increase the workload of determining who is a child in every single case.

Also considered was Congress’s intention to "provide dependent members of a [wage earner’s] family with protection against the hardship occasioned by the loss of [the insured’s] earnings." Since posthumously conceived children never were dependent on those earnings, it stands to reason that their income should not be insured unless state law happens to include them.

In the end, the Court observed: "The SSA’s interpretation of the relevant provisions, adhered to without deviation for many decades, is at least reasonable; the agency’s reading is therefore entitled to this Court’s deference . . . "

The possible fallout is that if the Supreme Court decided to refer to state law in this case even through state intestacy laws vary, it might be obliged to defer to state laws that define a marriage.

What if the Defense of Marriage Act is repealed as the President has requested? Does Capato open the door for recognition of some same-sex marriages depending on individual state law? Remember, this was a 9-0 decision. Some, and maybe all, of the Justices had to be aware of that possibility.

We wrote about Brooke Astor’s Estate and the litigation involving her son and lawyer.  A perfect example of financial abuse of the elderly. 

Philip M. Bernstein of The New York Probate Litigation Blog reports on the final settlement here.  Read the New York Times report here.

 "Mrs. Astor’s storybook life took a nasty turn in her later years, when Philip Marshall accused his father of mistreating his grandmother in her dementia and sought to have a guardian appointed for her. The allegations that Mrs. Astor’s son had left her living in squalor in her multimillion-dollar Park Avenue apartment led to a trial that shocked a social stratosphere in which Mrs. Astor rubbed elbows with the likes of Henry A. Kissinger, David Rockefeller and Annette de la Renta. But a court evaluator found no validity to the abuse allegations.

Following months of testimony, Mr. Marshall and Mr. Morrissey were convicted of most of the counts they faced. The most serious conviction for Mr. Marshall was for first-degree grand larceny for giving himself a retroactive pay raise of $1 million for managing his mother’s finances. "  NYT


 "Power tends to corrupt, and absolute power corrupts absolutely."

                                                                                            – Baron Acton

 Financial abuse of the elderly is a crime. Michael Ostrowski, a 42-year-old from New York, was appointed as temporary guardian for his grandfather who has dementia. While serving as guardian, he misappropriated over $300,000 and lied to the probate court (we call that perjury) and insurance companies. He took $250,000 from his grandfather’s bank account and did not file a 2006 federal income tax return.

This is an Al Capone story. Remember the notorious gangster in the Prohibition-Era Chicago? He is perhaps most infamous for his alleged involvement in the St. Valentine’s Day Massacre in which 7 victims were murdered, not to mention scores of other crimes. What did he go to jail for? Income tax evasion.

The thieving grandson in our story was charged by the U.S. attorney with mail fraud, conspiracy, interstate transportation of stolen property, receipt, possession, concealment and disposition of stolen property having crossed a state boundary; engaging in a monetary transaction in property derived from specified unlawful activity; and failure to file an income tax return. He pleaded guilty to all these items.

Michael was sentenced to two years in prison followed by 3 years of supervised release. He was ordered to pay restitution in the amount of $100,459 to MassHealth and $85,751 to the IRS. The Judge also ordered forfeiture of $179,000 and the things he had purchased with his ill-gotten gains: a Sony Bravia flat-panel television, a 39mm semi-automatic assault rifle; and a $37,000 GMC Sierra pickup truck.

Since the grandfather was in Massachusetts, and Ostrowski took the stolen money back to New York where he lived, the diversity of jurisdictions made it eligible to be a federal matter. Not filing an income tax return is also a federal charge. So the fed’s involvement was necessary. But there is no mention of state involvement for the mismanagement, amounting to fraud, by means of the Power of Attorney.

Financial abuse of the elderly is a huge problem. The National Center on Elder Abuse (NCEA) published a report and recommendations entitled "Forgotten Victims of Elder Financial Crime and Abuse." They describe many challenges. "Many elderly victims fail to report crimes or abuse to the police or even to their own families out of shame or embarrassment."

Law enforcement personnel sometimes fail to recognize crimes when they see them. When abuse involves the misuse of legal documents, (e.g. the forging of wills or powers of attorney, or inducing mentally incapacitated persons to transfer titles of their homes), it is often viewed as a "civil matter." Investigators may be well into cases before it occurs to them to find out if victims are being over medicated or under-medicated (homicide cases involving victims who are poisoned or starved for financial gain are becoming increasingly common).

Unless these patterns are recognized, victims may be dead and cremated before the investigator makes the connection."

Financial crimes are often very difficult to prove. Important documents may have been destroyed.. Many victims do not make good witnesses owing to the same dementia that rendered them susceptible to abuse in the first place.

Investigating and prosecuting financial crimes is very time-consuming and labor intensive. These property crimes are often viewed as "less serious" than violent crime.

What is the answer? Some commentators suggest that there needs to be more up-front monitoring, instead of punishing people after the fact. The durable power of attorney is popular technique for incapacity planning. But it comes with grave danger of abuse. However, the use of a power of attorney allows complete control of the principal’s assets. Special care should be given to granting the agent the authority to make gifts.

Here are some steps that could help: 1) require registration of powers of attorney in the same jurisdiction in which a guardianship action would be brought so there is notice of who is acting for whom; 2) once the principal becomes incapacitated, require the agent to file an annual accounting; 3) require an agent to produce an accounting on the death of the principal. The flexibility of the durable power of attorney and its usefulness in avoiding guardianship are very important. But the power is so broad and sweeping that abuse is rampant. What other fiduciary is permitted to act without providing accountings?

True, any of these steps make the duties of the honest agent more burdensome. It is ever so. Good people do not need laws to tell them to act responsibly. The law needs to prevent the bad people from abusing the elderly.


With the November elections approaching, there is much political talk (I could call it something else, but I am writing for a family newspaper) about the income tax. Candidates and commentators throw around revenue projections, tax rates, and statistics like so much confetti. I am not sure they know what they are talking about, but I want to make sure you do. Here are definitions of some commonly used terms.

Average Tax Rate – The rate a taxpayer would be taxed at if taxing was done at a constant rate, instead of progressively. It is calculated by dividing the total tax paid by income.

For example, the first two tax brackets for single persons in 2011 are 10% for everything up to $8,500, then 15% for everything between $8,500 and $34,500. Adjusted Gross Income (AGI) is the number at the bottom of page one and top of page two of the 1040 form. Taxable income is AGI minus deductions and exemptions. If taxable income is $20,000, then the tax is $850 (10% of the first $8,500) plus $1,875 (15% of the next $12,500) for a total of $2,750. What is the average rate? The total tax of $2,750 is divided by total taxable income of $20,000 which gives an average tax rate of 13.75%.

While this example is clear, it is not at all clear what number should be used here as "income." Is it the AGI? Is it taxable income, which would drive the Average Tax Rate up? Is it adjusted gross income plus tax-exempt interest, non-taxable social security, and other non-taxable items which would drive the Average Tax Rate down? What is total tax? Intuition dictates it is the tax due on the 1040, but some analysts add all other taxes paid (see the Debbie Bosanek example below), driving the Average Tax Rate up. When commentators and politicians throw average tax rates around, it is impossible to know if they are comparing apples to oranges because the calculation of the average rate is not made consistently. Beware.

 Effective Tax Rate – This term is not used consistently. Some use it to mean exactly the same this as Average Tax Rate. Others use it to describe the amount of tax a taxpayer pays when all other government tax offsets or payments are applied, divided by total income. For example, the Congressional Budget Office refers to an effective federal tax rate on individuals which includes all benefits received including things like health care and food stamps, and all four of the major federal taxes – individual and corporate income taxes, payroll taxes (social security medicare, etc.) and excise taxes (like cigarette tax).

 Marginal Tax Rate — The amount of tax paid on an additional dollar of income. The marginal tax rate for an individual will increase as income rises and higher brackets are passed into. In the above example, lets assume taxpayer made $12,000. What is his marginal rate? He has passed through the $8,500 bracket and the next $3,500 of income is taxes at 15%. If he makes another $1 of income, it will be taxed at 15%. The taxpayer’s marginal rate is 15%.

Have you heard people saying they don’t want to be in a higher tax bracket because they will pay more tax? This statement is based on a misunderstanding.

Lets look back at our example taxpayer. If he makes $20,000, his marginal rate is 15% and he is in the 15% bracket. It is important to understand that just because he is in the 15% bracket, that does not mean that all of his income is taxed at 15%. It just means that the next dollar earned will be taxed at that rate. Going in to a higher tax bracket does not raise the tax on all of the income below that bracket. Moving into a higher tax bracket is usually not a "big deal" although many folks talk about it as if it is a tax disaster. It is a complete myth that going into a higher tax bracket costs you money. A progressive tax system only imposes the highest rates of tax on the incremental dollars over the top of the last bracket.

There has been much talk about the Buffett rule. Warren Buffet pointed out that his secretary, Debbie Bosanek, pays a higher rate than he does. ABC reported Bosanek’s tax rate as 35.8% in payroll and income taxes (higher than even the top income tax rate), while Buffet’s is 17.4%. They are talking about the average rate, that is, total tax divided by total income. We don’t know the details but we can surmise that most of Buffet’s income comes from capital gains and qualified dividends, both taxed at a maximum rate of 15% while the secretary’s income is taxed at ordinary income tax rate and his numbers include her payroll taxes, both employee and employer. There are lots of other factors, too, like charitable deductions, that we really can’t quantify without seeing the actual tax returns.

Last Monday, the Senate blocked a vote on the Fair Share tax – referred to as the Buffet rule. The Fair Share tax would have required people with income offer $2 million to pay at least 30% in income tax. It didn’t pass and spawned a whole raft of articles, talk shows, and blog posts – all throwing around average, effective, and marginal rate lingo – often incorrectly.

The Bush tax cuts expire at the end of this year. You can expect to hear a lot about brackets, rates, and income from the lame-duck Congress in the seven weeks between the November 6 election and the end of the year. What will be the state of the economy and who will win control of the House, Senate and White House? No predictions here. My crystal ball is broken.

On March 26, 27 and 28, the nine Justices of the United States Supreme Court sat for six hours to hear arguments on the constitutionality of the Patient Protection and Affordable Care Act. The case is officially known as Florida v. Department of Health & Human Services. A total of 26 states (including Pennsylvania) are involved in the suit.

Set aside for the moment whether or not you believe the legislation is good or bad public policy. Set aside your political views and whether you love it or hate it. Let’s examine the arguments before the court.

 Day One

The issue for argument on Monday, March 26, was the applicability of the Anti-Injunction Act, a reconstruction era law that prohibits the Courts from striking down tax laws before they take effect. Both parties to the suit, the administration and opposing 26 states agreed that the act did not apply. The Supreme Court appointed a third party, Washington D.C. lawyer Robert Long, to argue the position that the Court has no jurisdiction to hear the case because of the Anti-Injunction Act.

The administration’s position presented by Solicitor General Donald B. Verrilli Jr. was that the "penalty" imposed on persons who do not purchase medical insurance in accordance with the mandate, although collected by the internal revenue service with the income tax and dependent on income levels, is not itself a tax, therefore the Anti-Injunction Act is inapplicable.

Justice Samuel Alito broke in to say: "General Verrilli, today you are arguing that the penalty is not a tax. Tomorrow you are going to be back and you will be arguing that the penalty is a tax. Has the court ever held that something that is a tax for purposes of the taxing power under the Constitution is not a tax under the Anti-Injunction Act?"


 Day Two

:The individual mandate portion of the law goes into effect on January 1, 2014. It requires virtually all Americans to obtain health insurance or pay a penalty. On Tuesday March 27, the Supreme Court heard two hours of oral argument on the mandate and whether it is constitutional under the Commerce Clause. The Commerce Clause is found in the United States Constitution Article I, Section 8, Clause 3, and states that Congress shall have power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes."

The administration’s argument is that the mandate to buy health insurance or else pay a penalty is a permitted regulation of interstate commerce. The states argue that not buying something (health insurance) is not engaging in commerce and, therefore, can’t be regulated by the federal government.

While the administration relied heavily on the Commerce Clause, they also provide an alternative argument: that the individual mandate to buy insurance or pay a penalty is a valid exercise of Congress’ taxation power as provided by the General Welfare Clause, Article I, Section 8, Clause 1, (even though they argued that the penalty for non-compliance was not a tax in order to avoid the Anti-Injunction Act). The General Welfare Clause reads: "The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States. . ."

The states argued that the individual mandate and penalties for noncompliance with the mandate do not fall under Congress’ taxation powers under the General Welfare clause because Congress and the administration have gone to great lengths to specify in the legislation, as well as the debate about that legislation, that the penalty for noncompliance was a penalty, not a tax.

Paul Clement, arguing for the 26 states who oppose the mandate argued that if the government can mandate that everyone has to purchase health insurance, then what can’t it mandate? Where, exactly, does the line get drawn if the Court upholds the individual mandate and what might a future Congress do with this new found power. The Justices asked about requiring people to buy cell phones, burial services, even broccoli – because it is good for you.


Day Three 

The issue for argument on Wednesday March 28 was severability, that is, whether the rest of the health care law can stand if the individual mandate provision is found unconstitutional.

The states contend that if the individual mandate to buy insurance or pay a penalty is found to be unconstitutional, the entire Patient Protection and Affordable Care Act should be struck down.

The administration says that if the mandate is considered unconstitutional, only two major provisions of the law would have to fall, but the rest of the law can stand. Deputy Solicitor General Edwin Kneedler, on behalf of the Obama administration, argued that only the ban on pre-existing conditions and cap on the cost of policies should be turned down if the mandate was gone.

Here is the relevant precedent from the 1987 case Alaska Airlines v. Brock: "Unless it is evident that the Legislature would not have enacted those provisions which are within its power, independently of that which is not, the invalid part may be dropped if what is left is fully operative as law."

The Supreme Court has to figure out, based on documentation of Congress’ deliberations, whether or not Congress would have intended to pass the law without an individual mandate, and also if the law is workable, as a matter of policy, without the mandate.



"A verbal contract isn’t worth the paper it’s printed on."

                                                                                                            Samuel Goldwyn 

Kelly Phillips Erb a/k/a Tax Girl drolly described this recent Tax Court case on her blog for Forbes. Mr. Seward was a regular customer at the Waffle House in Grand Bay, Alabama. From time to time he would buy lottery tickets in Florida that he would share with friends and give as tips to employees at the Waffle House. (Lotteries are illegal in Alabama.) Waffle House waitress Tonda Lynn Dickerson received a lottery ticket from Mr. Seward as a tip. Tonda Lynn’s ticket from Mr. Seward won $10 million (paid over 30 years or $5 million as a lump sum) in the Florida lottery.

The other Waffle House employees claimed there was a standing verbal agreement to share any lottery winnings among them; and further, it was agreed that the winner would buy Mr. Seward a new pickup truck.

That’s not the way Tonda remembered it. She didn’t share her winnings with her co-workers. Her co-workers and Mr. Seward sued her for breach of contract and fraud. The good news for the co-workers was that the court held that there was an oral agreement to share winnings. The bad news was that, under Alabama law, contracts related to gambling (illegal in Alabama and including playing in lotteries) are unenforceable. Ouch. Your typical Pyrrhic victory – winning the battle and losing the war.

Meanwhile, back at the ranch, Tonda Lynn was doing some tax planning for her winnings. She formed an S corporation called 9 Mill, Inc. along with some members of her family. When claiming the winnings, Tonda signed the ticket in the corporation’s name. Tonda Lynn retained 49% of the stock in 9 Mill, Inc. and her parents and siblings split the remaining 51% of stock.

Enter Toya Sue Washington, an attorney with the Estate and Gift Tax Division of the IRS. Toya Sue looked at the transactions involving the corporation and transfer of ownership to family members and determined in 2007, quite rightly in my opinion, that Tonda Lynn had made taxable gifts. Toya Sue assessed Tonda Lynn $771,570 in gift tax.

Tonda Lynn challenged the IRS assessment. Her theory? She said that she and her family had an agreement that if any one of them ever won the lottery, they would share it. Sound familiar? The result? The Tax Court held that even if the family did have an agreement, just like the agreement with co-workers at the Waffle House, it would be unenforceable under the same state law that found that similar agreement to be a contract related to gambling and, thus, unenforceable. One has to wonder why she thought there would be a different result this time around.

It wasn’t a complete loss at Tax Court though. Even though Tonda Lynn was found to have made a gift, the value of the gift was discounted because at the time of the transfer, her claim was publicly embroiled in litigation with the Waffle House co-workers and Mr. Seward. Therefore, the value of 80% of the prize (the part subject to suit) was discounted 67% because of the cost, hazard and time delay of litigation. The result from the Tax Court (T.C.) is that the value of the gift was discounted 53.6%. The tax court decision came down 13 years to the day from the date of the winning ticket.

The opinion in T.C. Memo 2012-60 written by Judge Wherry is worth reading. Here are the section headings in the Findings of Fact: I. She’s Got a Ticket To Ride; II. Family Values; III. "Inc."-ing the Deal; IV. Eye on the Booty; V. House of Waffling; and VI. Looking a Gift Horse in the Mouth.

That’s not all. Before her big win, Tonda Lynn Dickerson had been married to a man named Stacy Martin, but she and Martin divorced before she won the $10 million. After she won the lawsuits brought by the co-workers and Mr. Seward, Tonda’s ex forced his way into Tonda’s pickup truck and drove her from Grand Bay across the state line to Jackson, Mississippi. Once there, Tonda pulled out a .22 caliber pistol from her purse, shot and wounded her abductor. Tonda was not charged, and Martin was expected to be charged with kidnaping.