Alden L. Clopton and Yolanda Y. Clopton - Page 13

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          despite the fact that they did not make an underlying investment            
          in exchange for their right to future lottery payments or for the           
          beneficial interest in the trust, capital gains treatment is                
          appropriate.                                                                
               There is no question that the lottery payments in the first            
          instance were ordinary income.  See United States v. Maginnis,              
          supra at 1183.  The trust was simply a conduit to facilitate the            
          distribution of the lottery proceeds.  The character of the                 
          lottery payments as ordinary income did not change as a result of           
          the payments being distributed through the trust.  Sec. 652(b);             
          see also Van Buren v. Commissioner, 89 T.C. 1101, 1106 (1987);              
          Picchione v. Commissioner, 54 T.C. 1490, 1492 n.1 (1970), affd.             
          440 F.2d 170 (lst Cir. 1971).  Thus, the sale of the future                 
          lottery payments to Singer lacked the requisite realization of              
          appreciation in value accrued over a substantial period of time             
          that is typically necessary for capital gains treatment,                    
          regardless of whether Singer bought rights to the trust                     
          distributions or direct lottery payments.  United States v.                 
          Maginnis, supra at 1184 (citing Commissioner v. Gillette Motor              
          Transp., Inc., supra at 134).                                               
               At the time the agreement between Mr. Clopton and Singer was           
          made, Texas law prohibited the assignment of rights to a lottery            
          prize.  Tex. Govt. Code Ann. sec. 466.406 (Vernon 1998).                    
          However, Texas law changed effective September 1, 1999, prior to            






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