- 8 - 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.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011