Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SATURDAY, March 21, 1992                   TAG: 9203210324
SECTION: VIRGINIA                    PAGE: A3   EDITION: NEW RIVER VALLEY 
SOURCE: THOMAS HUANG LANDMARK NEWS SERVICE
DATELINE: NORFOLK                                LENGTH: Medium

AUSTRALIANS COULD GET THEIR LOTTERY WINNINGS TAX-FREE

That is if the group and its lawyers can convince Uncle Sam that a 1982 tax treaty between the United States and Australia prohibits federal and state taxes on prize payments to Australians.

But will the Australian company be treated differently from an American winner?

That's the $9.2 Million Question.

At this point, Virginia lottery officials are waiting to hear from the Internal Revenue Service and the state Department of Taxation. Until advised otherwise, lottery officials plan to withhold the taxes from the Australians.

If the winnings aren't taxed, the International Lotto Fund, the Melbourne-based syndicate set up by lotteries guru Stefan Mandel, stands to receive $27,036,142 over 20 years.

With 30 percent federal corporate taxes and 4 percent state corporate taxes withheld, the Australians would receive one-third less cash - $17,843,850.

Lottery winnings are not taxable in Australia, officials there say.

Virginia lottery officials on Friday said they were ready to give the Australians the first check - $1.3 million before taxes, $889,773 after taxes. They said all questions about the identity of the syndicate were satisfied by the Australian Securities Commission.

Both the IRS and the state Department of Taxation have said that taxes must be withheld from the prize. Officials at both agencies were studying the tax treaty, and how it applies to the Virginia lottery, Friday afternoon.

"If there's something there that challenges [the tax], we're looking at it," said Ann Myers, a state tax department spokeswoman in Richmond. The IRS in Richmond is consulting with the agency's international division in Washington.

"The tax authorities will make a decision," said Paula Otto, lottery spokeswoman. "We're following their guidance. We'll withhold or not withhold according to what they say."

The Virginia lottery department this week received, via the syndicate's lawyers in Richmond, a letter from the Australian Taxation Office in Melbourne.

Lottery officials were alerted to a treaty called "The Convention between Australia and the United States of America for the Avoidance of Double Taxation."

Under the circumstances of the win, "the United States is prohibited under the treaty from imposing any tax on the business profits" of the trustee of the International Lotto Fund, wrote K.H. Collins, the deputy commissioner of taxation in Melbourne.

Memo: shorter version ran in the Metro edition.