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decedent and his wife were divorced. In conjunction with the
ensuing settlement and division of the property rights of the
couple, each spouse was to receive one-half of the remaining
lottery installment payments. Accordingly, $395,182.67, less
applicable Federal and State withholding taxes, was remitted to
each on December 3, 1993. Thereafter, on June 4, 1994, decedent
died unexpectedly while still entitled to 18 further annual
payments of $395,182.67 each. Since obtaining an appropriate
court order as required by the Connecticut LOTTO regulations,
these installments have been remitted yearly to the estate.
The Estate Tax Return
A United States Estate (and Generation-Skipping Transfer)
Tax Return, Form 706, was timely filed with respect to decedent’s
estate on September 11, 1995. Therein, the estate elected to
report the value of assets as of the December 3, 1994, alternate
valuation date. Decedent’s interest in the lottery installments
was characterized on the return as an “Unsecured debt obligation
due from the State of Connecticut arising from winning the
Connecticut Lottery” and was included in the gross estate at the
alleged present value of $2,603,661.02. Respondent subsequently
determined that the present value of the payments should have
been reported as $3,528,058.22 in accordance with the annuity
tables prescribed under section 7520, resulting in the $403,167
deficiency in estate tax that is the subject of this proceeding.
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