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.
tax.
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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