James F. and Dorothy A. Davis - Page 7




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          Resolution of that dispute depends on whether petitioners’ right            
          to receive future annual lottery payments constitutes a capital             
          asset within the meaning of section 1221.5                                  
               Section 1221 defines the term “capital asset” as follows:              
               SEC. 1221.  CAPITAL ASSET DEFINED.                                     
                    For purposes of this subtitle, the term “capital                  
               asset” means property held by the taxpayer (whether or                 
               not connected with his trade or business), but does not                
               include--                                                              
                         (1) stock in trade of the taxpayer or other                  
                    property of a kind which would properly be in-                    
                    cluded in the inventory of the taxpayer if on hand                
                    at the close of the taxable year, or property held                
                    by the taxpayer primarily for sale to customers in                
                    the ordinary course of his trade or business;                     
                         (2) property, used in his trade or business,                 
                    of a character which is subject to the allowance                  
                    for depreciation provided in section 167, or real                 
                    property used in his trade or business;                           
                         (3) a copyright, a literary, musical, or                     
                    artistic composition, a letter or memorandum, or                  
                    similar property, held by--                                       
                              (A) a taxpayer whose personal efforts                   
                         created such property,                                       
                              (B) in the case of a letter, memorandum,                
                         or similar property, a taxpayer for whom such                
                         property was prepared or produced, or                        

               4(...continued)                                                        
          United States v. Maginnis, No. 01-368-KI (D. Or. May 28, 2002)              
          (holding that the amount that the taxpayer received in exchange             
          for the taxpayer’s assignment to a third party of his right to              
          receive certain future annual lottery payments is ordinary                  
          income).                                                                    
               5All section references are to the Internal Revenue Code in            
          effect for the year at issue.                                               





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