Could Someone Have Tax Problems Big Enough to Walk Away From $14 million?

Posted on by Joe Kristan

That’s one explanation for a weird story where a New York lawyer acting on behalf of holder of a winning lottery ticket purchased at a Des Moines convenience store let the ticket expire rather than revealing the identity of the ticket owner.  

The ticket was turned in hours before its expiration by a Des Moines law firm hired by a New York attorney employed by a Belize trust claiming to be the ticket owner.  The lottery wouldn’t approve the prize without knowing who was behind the trust, and the trust wasn’t telling.  Apparently $14 million wasn’t enough money to get the human(s) behind the trust to come out of the cold.
 
It’s hard to imagine what would cause somebody to walk away from a $14 million prize.  Every speculative theory has a probable weakness:
 
The ticket was purchased by a fugitive who would go away for a long time if he came forward. The flaw with that is people who turn to a life of crime tend not to think ahead that carefully, or to defer gratification.  Our Des Moines criminals don’t tend to be that smart, at least not in this century.
 
Could unpaid taxes be the problem?  Belize is noted as a tax haven,  Could the winner be a Des Moines millionaire-next-door who has been stashing money illegally in Belize, didn’t want to draw attention, and was willing to claim the prize only anonymously?  If so, it seems like a play gone wrong.  Winning the lottery would seem to be a godsend for a tax evader.  Suddenly nobody would think twice about your new sports car and big house in Florida.  
 
Also arguing against the rich guy theory is that the ticket was bought at a Quick-Trip in an industrial neighborhood in Northeast Des Moines — not exactly where the local swells hang out.
 
One theory makes as much sense as any (that is to say, not a whole lot).  The convenience store where the ticket was purchased is at an Interstate 80 exit.  Recently Iowa’s interstates have been clogged with strange people from out of town.  Perhaps a wealthy stranger bought the ticket while his people were fueling up.  Maybe a stranger with offshore investments, who seems shy about his wealth, and who knows a thing or two about investing in tax havens.  Somebody who could walk away from $14 million and still have plenty left over.  Know anybody like that?

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The IRS got wise to some of this but still managed to send out a few checks to addresses controlled by the two men. Mr. Amin pleaded guilty today and faces up to five years in prison where hopefully he can get some help improving his criminal instincts.

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From Traditional IRA to Roth IRA: New Rollover Rules

For years prior to 2010, only taxpayers with modified AGI of $100,000 or less generally were permitted to convert a traditional IRA into a Roth IRA. For years beginning in 2010 and after, the AGI limitation has been eliminated. Thus, regardless of AGI, all otherwise eligible taxpayers will be allowed to convert an IRA to a Roth IRA. The amount converted is includible in income as if a withdrawal had been made, but no early withdrawal penalties are assessed.


Two-year income spread if conversion done in 2010 – For conversions occurring in 2010, unless a taxpayer elects otherwise, none of the amount is includible in gross income in 2010, with half of the income resulting from the conversion includible in gross income in 2011 and h, income inclusion is accelerated if converted amounts are distributed before 2012. In that case, the amount included in income in the year of the distribution is increased by the amount distributed, and the amount included in income in 2012 (or 2011 and 2012 in the case of a distribution in 2010) is the lesser of: (1) half of the amount includible in income as a result of the conversion; and (2) the remaining portion of such amount not already included in income. The following example illustrates the application of the accelerated inclusion rule.

Example – Betty has a traditional IRA with a value of $100,000 consisting of deductible contributions and earnings. Betty does not have a Roth IRA. She converts the traditional IRA to a Roth IRA in 2010, and as a result of the conversion, $100,000 is includible in gross income. Unless Betty elects otherwise, $50,000 of the income resulting from the conversion is included in income in 2011 and $50,000 in 2012.

Later in 2010, Betty takes a $20,000 distribution, which is not a qualified distribution and all of which, under the ordering rules, is attributable to amounts includible in gross income as a result of the conversion. Under the accelerated inclusion rule, $20,000 is included in income in 2010.

The amount included in income in 2011 is the lesser of (1) $50,000 (half of the income resulting from the conversion); or (2) $80,000 (the remaining income from the conversion). The amount included in income in 2012 is the lesser of (1) $50,000 (half of the income resulting from the conversion), or (2) $30,000 (the remaining income from the conversion, i.e., $100,000 – $70,000 ($20,000 included in income in 2010 and $50,000 included in income in 2011)).

Preparer note – While you cannot elect out of the two year spread on only a portion of the conversion income in 2010 (it’s an all or nothing election), husband and wife may each make separate elections for their individual IRA accounts. For example, a wife could elect to report her conversion income in 2010 and her husband could report his 2010 conversion income in 2011 and 2012. This may result a better spread of the income. The same taxpayer is allowed to make separate elections for separate IRA accounts.

If you need guidance on answering the question, “should my client convert to a Roth?” check out CPE Link’s Federal Tax Update: Part 2 webcast scheduled November-January.. You’ll get a myriad of planning ideas and even access to a simple, but sophisticated, calculator. (Note: The above information was excerpted from Vern Hoven’s manual used in the webcast.) In addition to coverage of the IRA & Individual Retirement area, you’ll get an update on Real Estate & Investment, and Estates, Trusts & Beneficiaries.