James F. and Dorothy A. Davis - Page 4




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               tions, all payments are subject to appropriate Federal                 
               tax withholdings.  Deductions authorized by California                 
               statutes, if such are appropriate, will also be made.                  
               Your rights under this agreement cannot be assigned,                   
               but all remaining rights do become a part of your                      
               estate.  This document is not negotiable.                              
               On June 16, 1997, at a time when petitioners3 were entitled            
          to receive 14 future annual lottery payments of $679,000 (less              
          certain tax withholding) during the years 1997 through 2010,                
          petitioners and Singer Asset Finance Company, LLC (Singer),                 
          entered into an agreement pursuant to which, in exchange for a              
          lump-sum payment to petitioners by Singer of $1,040,000, peti-              
          tioners assigned to Singer their right to receive a portion                 
          (i.e., $165,000 less certain tax withholding) of each of 11 of              
          the future annual lottery payments that they were entitled to               
          receive during the years 1997 through 2007.  (We shall refer to             
          the foregoing assignment as petitioners’ assignment.)  Petition-            
          ers thus assigned to Singer the portions of those future annual             
          lottery payments at a discount of $775,000 (i.e., $1,815,000                
          (total of 11 future annual payments of $165,000) less $1,040,000            
          (total of the amount that Singer paid to petitioners)).  After              
          petitioners’ assignment, petitioners were entitled to receive               
          from CSL for each of the years 1997 through 2007 only $514,000              


               3For convenience, and consistent with the parties’ stipula-            
          tions, we shall hereinafter refer to “petitioners”, and not to              
          “petitioners as cotrustees of Davis Family Trust”.  See discus-             
          sion supra note 2.                                                          





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