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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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Last modified: May 25, 2011