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Paul O’Connor: Indulge a lottery fantasy — avoiding taxes

Writer

Paul T. O’Connor

RALEIGH — While the legislature debated the state lottery years ago, a veteran lobbyist dismissed my argument that it would amount to state-sponsored gambling.

“Any fool knows that the odds of winning the lottery are so bad that you can’t call it gambling. It’s just fun.”

More than a decade later, I see he was right. I’m never going to win, but it’s fun to dream.

My dream of what I would do with the money is ruined by the thought that had I won that $447 million prize in the June 10 Powerball, I’d have had to immediately pay the federal government 25 percent, and state government 5.49 percent, of the winnings.

Congress wouldn’t even notice the windfall, but legislative leaders would crow that their brilliant lawmaking had created a $20 million surplus and that we should cut Art Pope’s taxes some more so more North Carolinians would win the lottery next year.

So, my new fantasy is about winning the lottery and avoiding its taxes by giving the money to charity before the taxman grabs it.

(This approach has the added bonus of padding my resume for heaven.)

My plan: Put the winning ticket in a safe deposit box. Form a charitable foundation. As president of the foundation, cash in the ticket, tax free. Do good works. Go to heaven.

“That’s not going to work,” Richard Norden, my lawyer who is also an accountant, tells me. Turns out you must have established the foundation prior to buying the ticket.

But could I give it to a charity and then claim a really big tax refund next year?

Kinda, Norden said. I can only deduct 50 percent and blah, blah. Sounded too complicated.

What if I sold the $447 million winning ticket to a charity for maybe a million for me to keep?

“That is called a bargain sale to charity,” Norden said.

Uh-oh. Anytime there’s a legal term, that’s bad news.

“And there’s some funky rule…” he added. The funky rule might mean I’d sell away $447 million in winnings to a charity, get a few bucks in return, but still owe all the taxes anyhow.

So, what if I took my $447 million in an annuity, getting payments every year for 29 years?

(“Take the annuity. Let them worry about investing it,” my financial planner, Frances Bobbie of Raleigh, says.)

Van Denton at the lottery office tells me that my payments (had I won on June 10) would have started at $6.7 million this year and grown to $27.74 million the final year.

With the annuity, I’d only pay taxes as the money came in and, I figure, I could move to a state with no income tax, like Washington. I’d live on the Columbia River and buy stuff in Oregon where there is no sales tax.

The latter half of that plan wouldn’t work. My son, who lives in Portland, didn’t move all the way across the country just for me to move next door even if I bring millions with me.

This is all getting too complicated. Denton, a long-time friend, tells me I should be happy to pay taxes, support the public schools, the university and good roads.

I answer: The state gets all the ticket sales money, and the schools have received $5 billion so far from the lottery.

I’m about to give up when I realize that I didn’t buy my ticket that week in North Carolina. I was in Connecticut where the income tax is even higher. They’d get the money.

Come to think of it, maybe it’s a good thing that I have almost no chance to win. Giving Phil Berger, Tim Moore and that crowd all that money would drive me nuts.

Paul T. O’Connor has covered state government for 39 years.

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