Mary Robertson was employed as a waitress at an IHOP in Mobile, Alabama. While working the morning shift on February 16, 2009, one of Mary's customers left her a Virginia lottery ticket as a tip. When Mary discovered that the ticket had won part of the Virginia Lotto jackpot, the following steps were taken.

Upon advice of her father and legal counsel, the Robertson Corporation was formed and immediately made an S election.

Mary received 49% of the stock in Robertson, and the 51% balance was distributed to family members.

Mary had the Virginia gaming authorities designate the Robertson Corporation as the recipient of the prizemoneyapproximately$10 million payable over 30 years.

Mary's coworkers at IHOP filed suit against Mary based on an agreement they had to share any lottery winnings equally. The Alabama courts eventually decided that such an agreement did exist but that it was not enforceable. (Alabama law does not permit enforcement of contracts involving illegalactivitiesgamblingis illegal in Alabama.)

In 2017, the IRS determined that Mary had made taxable gifts in 2009 when she shifted some of the lottery winnings to family members. She made the gifts by having 51% of the Robertson Corporation stock issued to them. (As Robertson is an S corporation, the lottery income passes through to the shareholders.)

Mary disputed the gift tax assessment by contending that her actions were required by the Robertson family agreement. Under this agreement, it was understood that each member would take care of the others in the event he or she came into a "substantial amount" of money. Because Mary was bound by the Robertson family agreement, she was compelled to relinquish any right to 51% of the Robertson stock. Thus, the satisfaction of an obligation is not a gift. As no gift occurred, the imposition of the gift tax is not appropriate.