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winnings but did not report these amounts as income on his
Federal income tax returns (filed as a nonresident alien). For
purposes of computing his Israeli income tax liability for the
years in issue, petitioner took the position that the payments
were lottery winnings, exempt from Israeli income tax.
Petitioner did not pay any Israeli income tax on account of the
payments.
In a notice of deficiency, respondent determined that the
lottery payments were includible in petitioner’s taxable income
pursuant to section 871(a)(1)(A), resulting in a deficiency of
$216,600 for each year in issue. In his petition, petitioner
alleges that the payments are exempt from U.S. taxation pursuant
to the U.S.-Israel Income Tax Treaty because they constitute
“annuities” within the meaning of paragraphs (2) and (5) of
Article 20 of the treaty.
In general, “interest * * *, dividends, rents, salaries,
wages, premiums, annuities, compensations, remunerations,
emoluments, and other fixed or determinable annual or periodical
gains, profits, and income” received by a nonresident alien from
sources within the United States and that are not effectively
connected with a U.S. trade or business, are subject to a 30-
percent tax. Sec. 871(a)(1)(A). Gambling winnings paid to a
nonresident alien fall within this provision, Barba v. United
States, 2 Cl. Ct. 674 (1983), with limited exceptions, see sec.
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Last modified: May 25, 2011