Ismat M. Abeid - Page 1

                                   122 T.C. No. 24                                    

                               UNITED STATES TAX COURT                                

                            ISMAT M. ABEID, Petitioner v.                             
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 10441-02.              Filed June 29, 2004.                 

                    P, a nonresident alien residing in Israel during                  
               1997, 1998, and 1999 (years in issue), became entitled                 
               to 20 annual payments of $722,000 each by virtue of a                  
               1992 purchase of a $1 ticket that won a lottery                        
               sponsored by the State of California.  P received a                    
               payment of $722,000 from the California State Lottery                  
               in each of the years in issue.  P filed U.S. Federal                   
               income tax returns for those years in which he took the                
               position that the payments were not subject to U.S.                    
                    R determined that the payments were subject to                    
               U.S. tax under sec. 871(a)(1)(A), I.R.C., resulting in                 
               a deficiency for each year in issue.  P contends that                  
               the payments constitute “annuities” within the meaning                 
               of par. (5) of art. 20 of the Income Tax Convention,                   
               Nov. 20, 1975, U.S.-Isr., Hein’s No. KAV 971, at xxii                  
               (treaty) and are therefore exempt from U.S. tax                        
               pursuant to paragraph (2) of Article 20 of the treaty,                 
               which provides that “annuities” shall be taxable only                  
               in the jurisdiction in which the recipient resides.                    

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