gold nugget

Waitress forced to pay gift tax on $10 Million lottery winnings

“No good deed goes unpunished.”  My husband loves to give me this warning all the time.  An unfortunate Waffle House waitress in Alabama and her customer found this out the hard way.  Tonda Lynn Dickerson won $10 Million when a frequent customer gave her the winning lottery ticket.  Ms. Dickerson chose to take a lump sum of $5 Million.

Upon winning, she turned her back on all her promises to her co-workers and her customer.  She had an agreement to share any winnings since the customer, Edward Seward, frequently gave out lottery tickets to everyone.  Tonda Lynn refused to share anything and was sued by her co-workers.  They lost simply because the oral agreement was considered to be illegal since it involved gambling due to the lottery (Dickerson v. Deno, 770 So.2d 63 (Ala.2000).

The customer, Mr. Seward, was upset when she didn’t share her winning with her co-workers because he had asked everyone to promise that.   In addition, he was even more upset because Tonda Lynn didn’t give him a pickup truck.  It was the only thing he asked for in case someone got lucky and won a jackpot.  Mr. Seward sued all the way up to the Supreme Court of Alabama and lost.

When she won, Ms. Dickerson decided to do some estate planning and created a corporation to hold her lottery winnings.  The plan copied techniques of wealthy individuals but Ms. Dickerson obviously didn’t choose the right advisers.  She decided to share her good fortune and gave her parents and siblings 51% of the stock in the company.   The IRS took a look at the company and immediately slapped her with a federal gift tax in the amount of $771,570.

Tonda Lynn decided to fight the IRS and get this, argued that she had an oral agreement with her family that if she ever won the lottery, she would share it with them.  She claimed it was not a gift but rather a contract between family members.  She also claimed that her new corporation, 9 Mill, owned the ticket because the ticket was signed by 9 Mill and not by Ms. Dickerson personally.  As a result, her family, as shareholders, incidentally own part of the lottery winnings.

Well, 13 years later, the Tax Court gave her an answer, Dickerson v. Commissioner, T.C. Memo. 2012-60 (Mar. 6, 2012).  She does owe gift taxes but they were kind enough to discount the amount that she owed taxes on from $2,412,388 to $1,119,347.90 because of all the lawsuits by her co-workers at the time of the IRS claim.   It did save her more than 50% on the taxes.

The Tax Court said:

We fail to see how a lottery ticket given to petitioner by a customer at the Waffle House where she worked could metamorphose into a lottery ticket owned by petitioner’s entire family. Petitioner and her family did not pool their money to jointly purchase lottery tickets. They did not keep lottery tickets individually purchased (or acquired) in a place where all family members had access to the tickets. There is no evidence that a family member knew if another member had acquired a lottery ticket. There was no agreement as to exactly how the proceeds of any winning ticket would be shared. … In conclusion, there was no enforceable contract among the Reece family.

The moral of this story is not to be cheap when you look for an advisor, especially on something as important as money.   Ms. Dickerson should have done careful research and made sure that the advice she received was correct.  On the other hand, she could have just read something on the internet and did a DIY estate planning without realizing the consequences.

© 2010 all rights reserved

photo credit: Martin Deutsch


  1. She deserves Karma for being such a greedy, selfish individual. Not even a truck for the delivery man shame on her she is so ugly she can’t go anywhere in life.

  2. It’s a classic case of what goes around comes around! It was a nice effort trying to form a corporation to protect the money, but you need the help of people who actually know what they’re doing. Good story!

  3. You really can’t feel sorry for her. How did the $770k become $2.4m then $1.1m? Did she have to pay interest on the tax as well?

    1. The jackpot was $10M. She chose a lump sum prize of $5,000,000.

      She had to pay income tax on the $5,000,000 which was a separate issue which I didn’t cover in the post.

      She gave 51% of the company she created to her family so the IRS deemed that the portion of that gift is = $2.4M. Gift Tax on that $2.4M is $771K (32% – Actual gift tax is 35% – seemed to be some discount). She had to pay the IRS right away but fought in court for 10 years. The tax court decided that she did owe gift taxes. At the time of the filing with the tax court, she had multiple lawsuits with claims on the winnings. The tax court gave her credit on these lawsuits even though they were dismissed so they deducted all the claims in the lawsuits against the $5M that she collected.

      This reduced the amount of the “gift” that she shared with her family so the gift tax was recalculated on $1.1M instead of $2.4M. So, she got a partial refund back on the $771K that she paid.

      I didn’t finish reading through the entire court case (you had to pay extra for all the supporting docs). I didn’t notice mention of any filing for the lifetime gift exclusion either. That would have been $1M at the time. There were so many mistakes made in this situation that you can throw darts blind and not missed.

      1. I always thought that if you took the money as a lump sum, that includes the income tax that you have to pay on your winnings. Oh well, all the more reason not to play the lottery. I’d say she got what she deserved, but she really didn’t deserve to get anything after being such a backstabbing bitch in the beginning.

  4. That is just crazy. If I were to win the lottery as she did (someone would have to give me a ticket because I don’t like throwing money down the drain) I would take 20% of my money (after taxes) and give it away, then take 60% of it and put it into savings/retirement. The rest would go into rental properties and finish paying off my house.

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