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case. In Smith, the taxpayer won the New York State lottery in
1985, payable to him in 21 annual installments of $30,989. The
taxpayer and his spouse were divorced in 1988. Incident to the
divorce, the State court ordered the taxpayer and his spouse to
divide the lottery winnings equally. The taxpayer filed a claim
for refund of the taxes that he had paid on his wife’s share of
the lottery income. The District Court in Smith held that a
taxpayer who wins a lottery and then assigns part of the winnings
to his or her spouse under a divorce decree is liable for tax on
the entire amount.
Petitioner makes no attempt to distinguish Smith. Instead,
petitioner contends that Smith does not provide a reasonable
basis in law for respondent’s position because the District Court
in Smith incorrectly applied section 1041.2 We disagree.
2 Sec. 1041 provides in part:
SEC. 1041. TRANSFERS OF PROPERTY BETWEEN SPOUSES OR
INCIDENT TO DIVORCE.
(a) General Rule.--No gain or loss shall be
recognized on a transfer of property from an individual
to (or in trust for the benefit of)--
(1) a spouse, or
(2) a former spouse, but only if the transfer
is incident to the divorce.
(b) Transfer Treated as Gift; Transferee Has
Transferor’s Basis.--In the case of any transfer of
property described in subsection (a)--
(continued...)
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