LANSING, July 27, 1999 – The Michigan Lottery today announced it will make available a "buyout" to certain persons currently collecting equal annual installments.  This follows implementation of the federal Tax and Trade Release Extension Act of 1998, which was signed into law October 28, 1998.

This Act created new section 451(h) of the Internal Revenue Code Act of 1986, which has two main features:

1. For qualified prizes won after October 21, 1998, eligible persons may be granted 60 days after the person first becomes entitled to the prize to elect whether to take payment in a single lump sum or in a series of annuitized payments.
2. Under the Transition Rule for qualified prizes won on or before October 21, 1998, an 18-month window period beginning July 1, 1999 and ending December 31, 2000, is established during which time eligible persons may be given the option to accept a lump-sum buyout of the balance of their qualified prize.

This act does not require that lotteries make this opportunity available to annuity recipients; the decision is left up to each individual lottery.  Michigan Lottery officials have decided to give these options to annuity recipients, letting them make the choice that best suits their financial goals.

"After careful review of the Tax and Trade Release Extension Act, we have decided to offer a buyout to our jackpot annuity recipients," said Michigan Lottery Commissioner Don Gilmer.  "This is clearly a choice that each individual will have to make after thoughtful discussion with trusted financial and tax professionals."

The Michigan Lottery this week sent letters out to approximately 800 people currently receiving payments on an installment prize.  This introductory letter is simply an effort by the Lottery to gauge interest in this buyout program and in no way commits a prize recipient to a final decision.

Questions and Answers About the Cash Buyout Option

17. Why is the Michigan Lottery doing this?

1. Once the Tax and Trade Release Extension Act of 1998 was signed into law, all U.S. lotteries were granted the option to offer buyouts to eligible annuity recipients.  Michigan Lottery officials, after careful consideration, agreed that a cash buyout is an alternative we want to extend to those eligible for it.  It is completely a matter of choice for the recipient, after each determines what makes the best financial sense.  The Michigan Lottery does not financially benefit in any way by exercising its option to make this offer to recipients.

17. Who is eligible to receive a cash buyout?

1. The law states that a person is eligible if he or she is an individual taxpayer on the cash basis of reporting income and expenses for tax purposes.  As a general rule, if a person reports an annual installment prize payment as income on a federal tax form 1040 each year, that person is probably eligible.  The law also makes provisions for clubs that pass through winnings directly to otherwise qualified persons.

17. To which annuity recipients is the Michigan Lottery making this offer available?

1. The buyout option will be made available to all annuity recipients except those collecting on a "win for life" or other "lifetime" prize.

17. Will buyouts be offered all at once?

1. No.  Eligible persons will be given the opportunity to elect a cash buyout in the month before his or her regularly scheduled monthly payment.  For example, if a person usually receives an annual payment in December, he or she will be contacted by the Lottery in November.

17. How does someone estimate how much he or she will receive in a cash buyout?

1. To assess the interest in this buyout program, each eligible recipient was sent a letter explaining the process and a worksheet that can be used to assess the approximate payout amount, based on his or her remaining annuity balance and an estimated discount factor.

Once a recipient indicates interest in the buyout option, Lottery will then formally make the option available at the scheduled time.  The recipient will receive a buyout contract which details the exact amount of the prize value and the discount factor used, and will have roughly 21 days to decide.

17. Why would a person have only 21 days to decide?

1. It is necessary to set a time limit on making the election because the Lottery has to keep track of how much of the cash pool – created when investments are sold – is left to make buyouts available to the next group of eligible persons, and whether or not we need to sell additional investments.

17. How much will taxes be on a cash buyout?

1. Lottery is required (as with all prizes over $5,000) to withhold estimated federal taxes of
   28 percent and estimated state taxes of 4.4 percent (or the then-current state tax rate).  However, the amounts withheld are for estimated taxes only, and do not represent the actual amount of taxes that may be owed as a result of the lump-sum buyout taken together with a winner’s other income and deductible expenses.

17. If a person decides now not to elect the cash option, can he or she do so at a later date?

1. The election for a cash option is currently a one-time-only election.  Due to the limited window of opportunity for persons to make a cash election and the need to ensure every eligible person has an opportunity to make an election, the Lottery cannot commit to making the option available at a later date.

17. Doesn’t the Michigan Lottery already offer a cash option for jackpot winners?

1. Yes.  Players of both The Big Game and Michigan Lotto can choose to collect their jackpot winnings in one lump sum for the cash value of an annuity prize.  This limited-time cash buyout program affects only those jackpot winners who never had the choice to select between annuity or cash option and those who selected annuity payment prior to the October 21, 1998 effective date.

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