James F. and Dorothy A. Davis - Page 5




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          (less certain tax withholding) of each of the $679,000 future               
          annual lottery payments (less certain tax withholding) to which             
          they had been entitled prior to that assignment.  After that                
          assignment, CSL was to pay the balance of each of those future              
          annual lottery payments (i.e., $165,000 (less certain tax with-             
          holding)) to Singer.                                                        
               At all relevant times, the laws of the State of California             
          precluded a lottery winner from assigning such person’s right to            
          receive future annual lottery payments without obtaining Califor-           
          nia Superior Court approval.  On or about July 22, 1997, peti-              
          tioners and Singer filed with the California Superior Court for             
          the County of Sacramento (Sacramento County Superior Court) a               
          joint petition “FOR AN ORDER APPROVING VOLUNTARY ASSIGNMENT OF              
          LOTTERY WINNINGS”.  On August 1, 1997, Sacramento County Superior           
          Court issued an order approving petitioners’ assignment.                    
               Singer issued to petitioners Form 1099-B, Proceeds From                
          Broker and Barter Exchange Transactions (Form 1099-B), for 1997.            
          That Form 1099-B showed gross proceeds from the sale of “Stocks,            
          bonds, etc.” in the amount of $1,040,000.                                   
               CSL issued to petitioners Form W-2G, Certain Gambling                  
          Winnings (Form W-2G), for 1997.  That Form W-2G showed “Gross               
          winnings” from “STATE LOTTERY” of $514,000 and tax withheld of              
          $143,920.                                                                   
               On March 13, 1998, petitioners signed Form 1040, U.S.                  






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