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gain. We hold under the substitute for ordinary income doctrine
that the lump-sum amount is ordinary income.
Background
The parties submitted this case fully stipulated under Rule
122.1 The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioners, Mr. Clopton
and Mrs. Clopton, resided in Pearland, Texas, at the time they
filed their petition.
Mr. Clopton and two coworkers participated in a lottery pool
to purchase 60 tickets costing $1 each for the June 4, 1997,
Texas Lottery drawing. One of the purchased tickets was the
winning ticket for the lottery drawing. The prize for the
lottery drawing was valued at $9 million and was payable in 25
annual installments of $360,000.
In June 1997, Mr. Clopton, R.L. Littleton, III, Freddie
Lofton, Joseph Hill, and Sally Hill, as trustors, established the
“June 4, 1997 Lottery Trust” (the trust). Under the terms of an
amended trust agreement (trust agreement), Mr. Clopton and the
other trustors granted, assigned, and delivered all their rights,
title, and interests in the lottery ticket to the trust. Mr.
Clopton held a one-third beneficial interest in the trust and
1Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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