How to Form a Lottery Club

by Contributor; Updated September 26, 2017
Joining forces in a lottery club increases your chances of winning, but dilutes your winnings at the same time.

A lottery club is a collective of lottery players who pool their money to buy lottery tickets. By purchasing many tickets for a single drawing, the overall chance of winning a prize increases. Indeed, if you look at past lottery winners, you will find that clubs often win the top prizes, including the lottery jackpot. To form a successful lottery club, you must first take care of some legal issues. This means filing paperwork with the IRS and the state lottery commission, as well as drafting bylaws for your club.

Come up with a name for your lottery club and set up a limited liability corporation. An LLC is necessary to obtain an Employer Identification Number (EIN) from the IRS, which you will need in order to claim prizes for several people. Visit the IRS website and fill out form SS-4 to obtain the EIN.

An alternative to the LLC requirement is to obtain an EIN for a sole proprietorship. In this case, you will need to designate one person as the lottery club representative, and that person will run the lottery club.

After you have registered your lottery club with the IRS, decide how to split the money should your club happen to pick a winning lottery ticket. If all players contribute equally, then the prize money should be split equally.

However, suppose A, B, and C contribute $15, and D contributes $35 toward the purchase of tickets. If they won, the fairest distribution is for A, B, and C to receive 15/80 = 18.75 percent of the prize money apiece, and for D to receive 35/50 = 43.75 percent.

Each person's share of the lottery prize should be proportional to their contribution.

Decide how you'll pick lottery numbers. The best way to avoid squabbles is to use easy picks; that is, letting a computer generate lottery numbers randomly. When you buy the tickets for your club, simply fill in the box that says easy pick.

If club members want to pick the numbers, make it clear that no one's share of the winnings will increase if they happen to choose winning lottery numbers for the group.

Have the members sign a contract of agreement to the club's terms. This is not a legal necessity, but it makes operations much smoother.

If your club holds a winning ticket, fill out Form 5754 to claim your lottery prize. You can find this form on the website of your state's lottery commission. (The form number is the same no matter which state you live in, but each state has a slightly different form.) On the form, fill out the names of your club members, their Social Security Numbers, and their portion of the winnings.

Each member can decide individually whether to take their lottery winnings as an annuity or a lump sum.

Keep in mind that their is no way to pick lottery numbers so that you always win more money than you spend. Even if your lottery club purchases several hundred tickets, you may still lose several hundred dollars. Play responsibly.

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