Bernardo Paz - Page 6

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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)--                                 

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