Peter U. and Mary M. Boehme - Page 3




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          all Rule references are to the Tax Court Rules of Practice and              
          Procedure.                                                                  
                                     Background                                       
               This case was submitted fully stipulated under Rule 122.               
          The facts stipulated by the parties are so found.  The                      
          stipulation of facts (including facts stipulated at the hearing),           
          with accompanying exhibits, are incorporated herein by this                 
          reference.                                                                  
               Hereinafter, petitioners (husband and wife) will be referred           
          to individually as Peter and Mary.  At the time the petition was            
          filed, petitioners resided in Mooresville, Indiana.                         
               The following is a summary of the facts necessary for our              
          discussion.                                                                 
               In 1991, while petitioners were residing in Colorado, Mary             
          won $1.5 million from the Colorado State Lottery, which was to be           
          paid over a 25-year period in annual payments commencing October            
          10, 1991, and ending October 10, 2015.  In order to make the 25             
          lottery payments, the Colorado State Lottery purchased an annuity           
          and named Mary as the beneficiary.                                          
               On July 19, 1995, September 30, 1995, November 3, 1995, and            
          March 7, 1996, Mary received four separate loans (the loans) from           
          Metwest Services of Spokane, Washington (Metwest).  As collateral           
          for the loans, Mary pledged 12 future lottery payments (the 12              
          future lottery payments), which were due to be paid to her on               






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