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1099-B showed proceeds from the sale of “Stocks, bonds, etc.” of
$4,485,000.
On April 15, 1999, petitioners jointly filed Form 1040, U.S.
Individual Income Tax Return, for 1998. On Schedule D, Capital
Gains and Losses, petitioners reported the assignment of the 10
future annual lottery payments of $647,000 to Singer as a sale of
a capital asset held more than 1 year. Petitioners reported a
sales price of $4,485,000, a cost or other basis of $0, and a
long-term capital gain of $4,485,000.
On January 7, 2002, respondent issued a notice of deficiency
to petitioners for the year 1998. In the notice, respondent
determined:
It has been determined that the sale of rights to
future annual lottery payments reported as a long term
capital gain on Schedule D in tax year 1998 do not meet
the definition of a capital asset. Accordingly, the
net income reported of $4,485,000.00 has been
reclassified as ordinary income.
Petitioners timely filed a petition to this Court seeking a
redetermination.
Discussion
The parties dispute whether the $4,485,000 received in
exchange for the assignment of future lottery payments is
ordinary income or capital gain.4 Resolution of this issue
depends on whether the right to receive future annual lottery
4Our resolution of the issue presented does not depend on
who has the burden of proof in this case.
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