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Discussion
I. The Capital Gain Issue
The issue in dispute is whether the $400,000 that Mary
received in exchange for her assignment of the 12 future lottery
payments to Woodbridge is ordinary income or long-term capital
gain. Resolution of that issue depends upon whether Mary’s right
to receive the 12 future lottery payments constitutes a capital
asset within the meaning of section 1221.
The question of whether the right to receive future lottery
payments, which represent a portion of the total anticipated
payout, constitutes a capital asset does not present an issue of
first impression. In Davis v. Commissioner, 119 T.C. 1 (2002),
we held that the right to receive such payments does not
constitute a capital asset within the meaning of section 1221.4
In that case, we provided a thorough analysis of the caselaw
which led us to that result. No purpose would be served by
repeating the legal analysis in Davis, and we refer to that
analysis in support of our holding herein that (1) petitioners’
4 In Davis v. Commissioner, 119 T.C. 1 (2002), the
taxpayers assigned a portion of each of 11 future annual lottery
payments out of a total of 14 such payments that they were
entitled to receive. Id. at p.3. In this case, Mary assigned
all of the 12 future lottery payments, which also represented a
portion of the total future payments that she was entitled to
receive. We do not view that distinction as material, and we
view the lottery payment right assigned in Davis as, in
substance, identical to the lottery payment right assigned in
this case for purposes of deciding whether such right constitutes
a capital asset.
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