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Petitioners contend that capital gains treatment is appropriate
because a beneficial interest in the trust was assigned and the
future annual lottery payments were payable to the trust and not
to Singer. Petitioners claim that because an interest in a trust
not used in a taxpayer’s trade or business is not excluded from
capital asset status, the sale of an interest in a trust results
in capital gain.
This Court and the Court of Appeals for the Ninth Circuit
have previously addressed the issue of whether a lump-sum amount
received in exchange for the assignment of the right to receive
future annual lottery payments is ordinary income or capital
gain. Respondent contends that these cases are controlling for
purposes of deciding the present issue.3
In Davis v. Commissioner, 119 T.C. 1 (2002), the taxpayer
won a California State lottery prize and assigned his right to
receive annual lottery payments to a trust. Id. at 2 n.2. He
and his wife took all subsequent actions with respect to the
lottery payments and took the position that all income of the
trust was includable in their income. Id. A portion of each of
11 of the future annual lottery payments was subsequently
assigned to Singer in exchange for a lump-sum payment. Id. at 3.
3On brief, respondent also raises the issue of whether the
lump-sum payment constitutes ordinary income because of the
grantor trust rules under secs. 671-679. This issue was not
raised in the notice of deficiency, and it is unnecessary for us
to address it.
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