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871(j). Annual payments of State lottery winnings are treated as
gambling winnings. Rusnak v. Commissioner, T.C. Memo. 1987-249;
see also sec. 3402(q)(3)(B)(treating certain proceeds from wagers
in State-conducted lotteries as gambling winnings).3
The provisions of the Internal Revenue Code are applied to a
taxpayer, however, “with due regard to any treaty obligation of
the United States which applies to such taxpayer.” Sec.
894(a)(1). The U.S.-Israel Income Tax Treaty, Hein’s No. KAV
971, at xxii, provides:
Article 20-–Private Pensions and Annuities
* * * * * * *
(2) Alimony and annuities paid to an individual
who is a resident of one of the Contracting States
shall be taxable only in that Contracting State.
* * * * * * *
(5) The term “annuities”, as used in this Article,
means a stated sum paid periodically at stated times
during life, or during a specified number of years,
under an obligation to make the payments in return for
adequate and full consideration (other than services
rendered).
Petitioner’s position is that the payments he received
3 We note that whether annual payments of State lottery
winnings are categorized under sec. 871(a)(1) as “annuities” (as
the term is used in that section) or as “fixed or determinable
annual or periodical gains, profits, and income” is immaterial in
the instant case, as the tax imposed by sec. 871(a)(1) applies to
either category. As discussed hereinafter, the result in this
case turns upon the meaning of “annuities” as used in the U.S.-
Israel Income Tax Treaty.
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