IRS explains exactly where your tax dollars go;
agency wins in lottery tax payment gamble
By Kay Bell • Bankrate.com

June 26, 2000 -- Everyone grumbles about how their taxes are spent. Now you can be grumble-specific. The IRS has a new service that will show you exactly where that tax donation of yours went to be spent.

With the agency's Interactive Income Tax Receipt option, a taxpayer simply enters the amount of taxes paid, clicks, and voila! The IRS computes how many of your dollars went to various government programs.

For 1999 tax payments, here's how the IRS calculations break out:

• Social Security got the biggest portion, with 23 percent of each tax bill going to that agency.
• National defense programs took 16 percent of a tax payment.
• Unemployment, disability and other government assistance such as food stamps, child nutrition and environmental, agriculture and transportation programs took 14 percent.
• Interest payments on past budget deficits required 13 percent of a taxpayer's bill.
• Medicare programs for the elderly required 11 percent.
• Medicaid health services for the poor took 6 percent.

The remaining chunk of tax payments -- 17 percent -- went to "other" expenses, like federal employee retirement benefits and farm subsidy payments.

Congress initiated the program and the Treasury Department's Financial Management Services and White House Office of Management and Budget supplied the figures that the IRS used to create the calculator.

IRS is big winner in court's lottery ruling
An Ohio couple that won $8.9 million in the Ohio Super Lotto wasn't as lucky when they gambled in court with the IRS.

Roy Thomas was named the jackpot winner on Dec. 14, 1992, and on Jan. 28, 1993, cashed in his lump-sum award. Thomas and his wife Eloise filed joint income tax returns in both 1992 and 1993, and they reported the gross winnings from the lottery ticket on the 1993 return.

But in December 1994, they filed an administrative claim with the IRS seeking a refund.

They contended that they'd made a mistake and should have reported the lottery income in their 1992 return, not the 1993 return. If they had done that, they would have paid a tax rate of 20 percent. The tax rate had jumped in January 1993 to 28 percent. If the IRS had agreed, the Thomases would have netted a $778,496 refund.

The IRS, however, denied the Thomas' claim and in April 1996 the couple filed suit in federal court seeking a refund. Their argument: the money was theirs in 1992 because of the "economic benefit doctrine," a guideline developed to deal with the complexities of deferred compensation plans for employees.

Now, after years of wrangling, the judicial dice have fallen the IRS' way.

The U.S. Sixth Circuit Court in Cincinnati has finally ruled that the Thomases did not meet the economic benefit doctrine condition that payout of the money was conditioned only upon passage of time. Rather, the federal panel said, lottery winnings must be verified by the state lottery commission before the money is available to a game winner, even though that winner is known.

"Because the plaintiff taxpayers were not considered to be the owners of the winning lottery ticket until the state completed its verification process they did not have an absolute right to the award in 1992," wrote Judge Cornelia G. Kennedy. "The plaintiffs received no present financial benefit from the lottery award until 1993; therefore, they are not entitled to a refund based on the economic benefit doctrine."

The court dismissed the complaint, and the IRS remains almost $800,000 richer.

-- Posted June 26, 2000