solved Discussion Topic: Taxable Gifts Angela Richards was employed as a

Discussion Topic: Taxable Gifts Angela Richards was employed as a line cook at the Lobster Shack in Mobile, Alabama. While working the morning shift on March 7, 2012, one of Angela’s customers left her a Florida lottery ticket as a tip. When Angela discovered that the ticket had won part of the Florida Lotto jackpot, the following steps were taken. Upon advice of her father and legal counsel, the Richards Corporation was formed and immediately made an S election.Angela received 49% of the stock in Richards, and the 51% balance was distributed to family members.Angela had the Florida gaming authorities designate the Richards Corporation as the recipient of the prize money — approximately $10,000,000 payable over 30 years.Angela’s coworkers at the Lobster Shack filed suit against Angela based on an agreement they had to share any lottery winnings equally. The Alabama courts eventually decided that such an agreement did exist but that it was not enforce­ able. (Alabama law does not permit enforcement of contracts involving illegal activities — gambling is illegal in Alabama.) In 2020, the IRS determined that Angela had made taxable gifts in 2012 when she shifted some of the lottery winnings to family members. She made the gifts by having 51% of the Richards Corporation stock issued to them. (Because Richards is an S corporation, gross income from the lottery passes through to the shareholders.) Angela disputed the gift tax assessment by contending that her actions were required by the Richards family agreement. Under this agreement, it was understood that each member would take care of the others in the event he or she came into a “substantial amount” of money. Because Angela was bound by the Richards family agreement, she was compelled to relinquish any right to 51% of the Richards stock. Thus, the satisfaction of an obligation is not a gift. Since no gift occurred, the imposition of the gift tax is not appropriate. Who should prevail – Angela or the IRS? Why? Explain your conclusions, and support with references from the text, the partial list of research aids below, and/or other related tax code, regulations, etc. Remember to review at least two of your classmates’ responses and provide your feedback. Partial list of research aids: Estate of Emerson Winkler, 36 TCM 1657, T.C.Memo. 1997–4. Tonda Lynn Dickerson, 103 TCM 1280, T.C.Memo. 2012–60. Do the discussion and response each posted down below Posted 1 Angela Richards contention that she is bound by the Richards family agreement to issue 51% stock in the S corporation to family members is not acceptable. As per Alabama state law, any enforceable contract should have an agreement, consideration, legal object and two or more parties with capacity to contract. The Richards family agreement is vague and did not define what is substantial amount of money and how the family members should be taken care of. Taking care need not be allotting 51% stock to family members. It can be accomplished even by taking care of their medical, educational or day to day needs. In a similar case (Dickerson v. C.I.R, 2012), the court held that similar agreement was not valid. Also, court held that there is no partnership possible among the family members. In that case, the gift tax was imposed on the present value of the 51% stock gifted to various family members. In the present case, Angela Richards failed to prove that the IRS’s determinations are incorrect. So, she will be subject to gift tax on the present value of the stock gifted minus $15,000 per family member. Posted 2 Hello Everyone, The IRS is correct in this case. As found in Dickerson v. Commissioner of Internal Revenue, there was no legal binding contract made within the Richards family. The state of Alabama states that the elements of a binding contract are: an agreementconsiderationtwo or more contracting partiesa legal object, and capacity It is not enough that the family had discussions over the years and made a “Richards family agreement”. This agreement is too vague, it does not specify the percentage that each member would receive nor does it state what a “substantial amount” constitutes as. For this reason, Angela is considered the donor of gifts to her family members that she issued stock to and they are each considered donees of the gift. She does qualify for the annual exclusion of $15,000 per family member to which she gifted the stock (Raabe et al., 2022).