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As regards leasehold, patent, and royalty payments, each of
these assets, unlike an annuity, derives from the use of an
underlying item of tangible or intangible property that exists
separate and apart from the agreement to make a series of
remittances. Consequently, the anticipated payment stream can be
affected by a wide variety of external market forces that operate
on and impact the worth of the underlying asset. This injects
into the valuation of these payment streams risks and
considerations beyond simply the time value of money.
Hence, our review of a sample of nonannuity assets leads us
to conclude that the common definition of an annuity is sound. A
promise to make a series of fixed payments, without more, may
generally be classified as an annuity. Conversely, if the
agreement is tied to something further, such as an independent
underlying asset or an interest rate, a different
characterization may well be more appropriate. With this
framework in mind, we next focus specifically on decedent’s
lottery prize.
3. Examination of Lottery Payments
Based on the principles formulated above, we conclude that
decedent’s LOTTO winnings are properly characterized for tax
purposes as an annuity. As the estate acknowledges, the asset at
issue here derives solely from the State’s promise to make a
series of fixed payments. The right to installments is not
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