A client claimed lottery winnings for another person in her name and she gave the money to the person who the ticket belonged to. How do I report that in Lacerte?

[IRonMaN]

Let's start with - why did they do that?

[George4Tacks]

1099G reported the winnings? Screen 13.2 There is an input for state lottery winnings to make it not state taxable. 

[Just-Lisa-Now-]

Lottery income to the dummy that claimed it and gave a gift to the other person (no deduction)....not a sound financial move. 

Did the other person have debts that would have seized the money so they didnt claim in their own name?

[hireanea]

Ours is not question why.

Ours is but to properly report it.

[IRonMaN]

"Ours is not question why.

Ours is but to properly report it."

But I kinda like to know if someone is trying to commit some kind of fraud so I kinda like to question why.  I don't really like preparing tax returns for folks that I can't trust.

[TaxGuyBill]

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@hireanea wrote:

Ours is not question why.

Ours is but to properly report it.

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With some items, the "why" determines how to properly report something.  So you should always ask "why".

As Lisa said above, without more information, it seems like your client has taxable income, and gave a gift (which is not a tax deduction).  If the amount is large, your client may need to file a Gift Tax return.

[BobKamman]

If A helps B help C commit tax fraud, which is more guilty?  I wouldn't want to be A The Accomplice, if I were in the tax return preparation business and knew what "Preparer Project" means. 

Substance over form.  The income goes on C's return.  If it is not B's income, why help them cheat?  IRS does have a Form 5754, which should have been given to the lottery when the prize was collected.  But that's only for people who aren't trying to break the law.  

But I suppose every town needs a red-light district for tax practitioners who are easy with their favors.  

[taxes96786]

I would not report it on the client's return unless

1. they received a 1099 in their name and SSN

2. they provide a win/loss statement from the casino/s in their name/SSN

gift from friend of this sort is not reportable as a deduction from income.

[itonewbie]

@taxes96786 But neither 1099 nor win/loss statement determines whether an income should be reported.

1099 is only an information return that obliges the payer/withholding agent to report and withhold on an income.  Although the payee could reference the info on it for tax reporting, whether or not the payee receives a 1099 is not determinative of whether the payee must report an income or what amount should be report on the recipient's return.

Similarly, the win/loss statement is merely a document that helps determine the extent to which a loss may be deductible.

§61(a) states, in part, that "[e]xcept as otherwise provided in this subtitle, gross income means all income from whatever source derived".  As the others explained, the why is important because it determines the character of an income, whether it falls under one of the exceptions defined within the Code, or whether it should be treated as a gift governed by Subtitle B of Title 26.

[sjrcpa]

Stella hasn't been back. STELLA!

[BobKamman]

As I often say, with most people ignoring me, our beautiful country has a tax on income, not on pieces of paper.  In this case, I would add that the piece of paper is not a 1099, but a W-2G.  I wonder why they used the W-2 terminology, which goes back to the days of the W-1 being an employment tax return.  Maybe to comfort the professional gamblers, who see it as their job?

https://procedurallytaxing.com/some-tax-history-whatever-happened-to-the-w-1/

[George4Tacks]

@BobKamman I generally try not to totally ignore you. In this case Curious George was definitely rewarded with the tale of the W-1. Thank you. 

[IRonMaN]

Anybody that knows anything about form W-1 has to be at least a couple of days older than dirt 😜

[George4Tacks]

I resemble that remark!

[taxes96786]

 Sorry, my bad....of course W-2G

[taxes96786]

 Ours is to ask all questions necessary in order to determine whether it is deductible. In this case, without the W-2g and/or Win/Loss statement with client name and SSN....even "why" would not convince me to use the deduction on the return of a taxpayer who did not incur the loss.

[taxes96786]

Agreed but it does document to whom the income or deduction belongs to if reportable.

[taxes96786]

If there is criminal intent they are both equally guilty by law. What proof, in writing, is there to substantiate the claim being made? 

[taxes96786]

Additionally, if there is tax fraud, there is also a conspiracy to commit which all, including the preparer, would be guilty of as well.

[BobKamman]

Thanks for not totally ignoring me. Since I posted that, I have a new lens in my right eye.  It's amazing how white this monitor looks now.  

[sjrcpa]

Usually. There can be errors.

[BobKamman]

@sjrcpa Usually. There can be errors.

Like when my client, who received $7547 of rental income, received an IRS notice accusing her of failing to report $754,700 income.  The company filing the 1099 had left out a legible decimal point.

I think this is the first year that (so far) I don't have a client asked to pay self-employment tax, because the 1099-MISC showed the correct amount but in the wrong box.  The new 1099-NEC might reduce those errors in future years.