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Individual Income Tax Return, for their taxable year 1997 (peti-
tioners’ 1997 joint return). In petitioners’ 1997 joint return,
they reported petitioners’ assignment as a sale of a capital
asset held for more than 1 year, a sale price of $1,040,000, a
cost basis of $7,009, and long-term capital gain of $1,032,991.
In that return, petitioners also reported as ordinary income the
$514,000 payment that they received in 1997 from CSL.
In the notice that respondent issued to petitioners with
respect to their taxable year 1997, respondent determined, inter
alia, the following:
b) It is determined that you [petitioners] received the
amount of $1,040,000.00 from Singer Asset Finance
Company, for the tax year ended December 31, 1997, in
payment of assignment of rights to future lottery
payments from the State of California. This amount is
determined to be ordinary income because rights to
future annual lottery payments do not meet the defini-
tion of a capital asset according to the provisions of
the Internal Revenue Code. Therefore, income is in-
creased $1,040,000.00 for the year 1997.
Discussion
The parties agree that an amount received as a lottery prize
constitutes ordinary income. The parties’ dispute is over
whether the $1,040,000 that petitioners received in exchange for
petitioners’ assignment is ordinary income or capital gain.4
4Our resolution of the issue presented does not depend on
who has the burden of proof in this case.
On brief, respondent represents that an issue similar to the
one presented here is pending in certain other courts. See
(continued...)
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