New York Advisory Opinion TSB-A-86 (1)I: If a New York resident wins the state lottery and later becomes a nonresident before receiving all of the annual prize installments, is the remaining prize money subject to New York personal income tax?

Plain-English summary

Venero Pagano won a New York State Lotto jackpot in 1984 worth $7,895,380 in prize-fund cash, paid out over 20 years for a total of $20,000,000 with interest. He was a New York resident and a cash-basis taxpayer who received one installment per year each June. He asked what would happen to his New York tax treatment if he moved his residence and domicile to another state before he'd received all 20 installments.

The Department explained that under Tax Law § 654(c)(1), a taxpayer who changes from resident to nonresident status must "accrue" - meaning include right away, regardless of their normal cash or accrual accounting method - any item of income that had already accrued for New York purposes before the change, if it isn't otherwise going to be captured in New York income. The key test for whether income has "accrued" (drawing on federal accrual regulations and case law like Flamingo Resort v. United States and Helvering v. Enright) is whether the right to receive it is fixed and unconditional, even if actual payment is deferred to later dates.

Applying that test, the Department found Pagano's right to the full $20,000,000 was absolute and free of contingencies - lottery regulations even guarantee the remaining payments continue to his estate if he dies before the 20 years are up. Because the right to the entire remaining balance is fixed and its amount is exactly determinable, the whole unpaid portion must be accrued and included in his New York adjusted gross income for the resident portion of the year he changes his status, plus any amount actually received that year.

However, the Department pointed to an escape valve: Tax Law § 654(c)(4) lets a taxpayer avoid this lump-sum accrual by filing a bond or other security acceptable to the Tax Commission. If Pagano does that, he instead includes each future Lotto installment in his New York adjusted gross income only for the year he actually receives it, just as he would have if he'd stayed a resident.

What this means for you

New York residents who win a multi-year lottery prize and are considering moving out of state

Don't assume moving away shields future lottery installments from New York tax. Because a lottery prize with no contingencies is a "fixed right to receive income," the entire remaining unpaid balance is generally accrued and taxed in New York in the year you change your residency status - all at once, not spread across the years you'd actually receive it.

Lottery winners who want to avoid the lump-sum accrual

Ask about filing a bond or other security acceptable to the Tax Commission under Tax Law § 654(c)(4) before you change your residency. Doing so lets you keep including each future prize installment in New York income only in the year you actually receive it, rather than accruing the whole remaining balance immediately.

Accountants advising clients with structured settlements or multi-year prize payouts who are relocating

Check whether the client's right to future payments is truly fixed and unconditional (as a lottery prize typically is) - if so, § 654(c)(1)'s special accrual rule applies on a change of residency status regardless of the client's normal accounting method, unless a § 654(c)(4) bond is filed in advance.

Common questions

Q: I'm a New York resident who won a multi-year lottery prize. If I move to another state, do I still owe New York tax on the future payments?
A: Generally yes, and generally all at once: because your right to the remaining prize money is fixed and unconditional, New York requires you to accrue and include the entire unpaid balance in your New York income for the resident portion of the year you change status.

Q: Is there any way to keep paying New York tax on my lottery winnings year-by-year instead of all at once when I move?
A: Yes. Tax Law § 654(c)(4) lets you file a bond or other security acceptable to the Tax Commission; if you do, you include each future installment in New York income only in the year you actually receive it.

Q: Why does it matter whether my right to the money is "fixed"?
A: The special accrual rule for a change of residency status only pulls in income that has already accrued under accrual-accounting principles - meaning all the events fixing the right to it, and its amount, have already occurred. A guaranteed lottery prize with no contingencies meets that test even though it's paid out over many future years.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a86_1i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (1) I
Income Tax
April 17, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I850708A

On July 8, 1985, a Petition for Advisory Opinion was received from Venero Pagano, c/o
Joseph Pagano, 3516 Laconia Avenue, Bronx, New York 10469.
The issue raised is whether New York State Lottery winnings of a resident individual will
be subject to the personal income tax imposed under Article 22 of the Tax Law if such individual
becomes a nonresident.
In 1984, Petitioner, a resident of New York State, was a Jackpot Winner in the New York
State Lotto Game. Petitioner was advised by a letter from John D. Quinn, Director of the New York
State Lottery, dated August 9, 1984, "You won a prize of $7,895,380 payable over 20 years in
accordance with lottery rules. With interest, you will receive a total of $20,000,000 over the twenty
year period."
Petitioner is assured of receiving $20,000,000 in Lotto prize winnings. There are no
contingencies to be met to receive the money. Even in the event of the death of Petitioner before the
expiration of the twenty year period, the remaining payments will be made to Petitioner's estate
(Division of the Lottery Regulations, 21NYCRR 2803.9).
Petitioner is a cash basis taxpayer and receives his prize once a year in June. Petitioner is
contemplating changing his residence and domicile to another state and questions the effect of such
a change on the taxability of his winnings.
Initially, it must be noted that pursuant to regulations of the Division of the Lottery
(21NYCRR 2817.4), a portion of the money wagered by players in the Lotto game is used by the
Division of the Lottery to purchase United States government securities. The interest earned on these
securities is used to pay Lotto prizes. The securities are owned by the Division of the Lottery. Interest
on the securities is owned by and paid to the Division of the Lottery. No amount of this interest is
paid as interest to the Petitioner. In the case of Petitioner, $7,895,380 represents the amount of cash
available in the prize fund. The $20,000,000 represents the total prize money to be paid to Petitioner.
Section 654(c)(1) of the Tax Law provides, in part:
(c) Special accruals. (I) If an individual changes his status from resident to
nonresident, he shall, regardless of his method of accounting, accrue for the portion
of the taxable year prior to such change of status any items of income, gain, loss or
deduction accruing prior to the change of status, if not otherwise properly includible
(whether or not because of an election to report on an installment basis) or allowable
for New York income tax purposes for such portion of the taxable year or for a prior
taxable year ....
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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TSB-A-86 (1) I
Income Tax
April 17, 1986

Pursuant to this provision, a taxpayer who changes status from resident to nonresident is
required to include in the resident portion of his or her year any income which has accrued before
the date of the taxpayer's change of residence. This is done whether the taxpayer is a cash basis or
accrual basis taxpayer.
Federal income tax regulations are instructive in determining whether income has accrued
within the meaning of section 654(c)(1) of the Tax Law. They provide:
Generally, under an accrual method, income is to be included for the taxable year
when all the events have occurred which fix the right to receive such income and the
amount thereof can be determined with reasonable accuracy. (26 CFR 1.446­
1(c)(1)(ii)).
In interpreting this provision, the court in Flamingo Resort, Inc. v. United States, 485 F.
Supp. 926 (1980), stated:
.... the key concept for accrual of income is that the right to receive income must be
fixed or unconditional. This comports with the plain meaning of the language used
in the regulations. The reference to the occurrence of "all events" seems to denote the
absence of a contingency on the right to receive the income.
Furthermore, it is well established that an absolute right to receive income gives rise to the
accrual of such income notwithstanding that payment of the income is not to be made until some
future date. Helvering v. Enright, 41-1 USTC 260, para. 9356, 312 U.S. 636, 6I S.Ct. 777; H.H.
Brown Co. v. Commissioner 8 BTA 112, Dec. 2803; Missisquoi Corp. v. Commissioner, 2 TCM
957, Dec. 13,568.
Accordingly, since Petitioner received an absolute, unconditional right without contingency
to receive the entire $20,000,000 and since the amount to be received can be determined with
absolute accuracy, the entire unpaid portion of the $20,000,000 prize must be accrued by Petitioner
and included by him in his New York adjusted gross income in the resident portion of his taxable
year in which he changes his status from resident to nonresident. Any amount received by Petitioner
during the taxable year of his change of resident status must also be included by Petitioner in his
New York adjusted gross income.
However, section 654(c)(4) of the Tax Law provides:
(4) The accruals under this subsection shall not be required if the individual files with
the tax commission a bond or other security acceptable to the tax commission,
conditioned upon the inclusion of amounts accruable under this subsection in New
York adjusted gross income for one or more subsequent taxable years as if the
individual had not changed his resident status.

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TSB-A-86 (1) I
Income Tax
April 17, 1986

Pursuant to this provision, Petitioner may avoid the requirement to accrue his lottery
winnings by filing a suitable bond or other security with the Tax Commission. Petitioner must then
include such winnings in his New York adjusted gross income for the year in which such winnings
are actually received by Petitioner.

DATED: December 30, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.