George and Angeline Lattera - Page 3

                                        - 3 -                                         
               Under Pennsylvania State law, petitioners were required to             
          obtain court approval before they could transfer their rights to            
          receive future lottery payments.  On August 27, 1999, petitioners           
          obtained the requisite approval from the Court of Common Pleas of           
          Dauphin County.                                                             
               Singer issued petitioners a Form 1099-B, Proceeds From                 
          Broker and Barter Exchange Transactions, for 1999.  The Form                
          1099-B listed proceeds from the sale of “Stocks, bonds, etc.” of            
          $3,372,342.                                                                 
               Petitioners jointly filed a Form 1040, U.S. Individual                 
          Income Tax Return, for 1999.  On Schedule D, Capital Gains and              
          Losses, petitioners reported the assignment of the 17 future                
          annual lottery payments of $369,051 to Singer as a sale of a                
          capital asset held for more than 1 year.  Petitioners reported a            
          sale price of $3,372,342, a cost or other basis of zero,3 and a             
          long-term capital gain of $3,372,342.                                       
               Respondent issued a notice of deficiency to petitioners for            
          1999.  In the notice of deficiency, respondent determined that              
          the $3,372,342 received from Singer was ordinary income.                    
          Discussion                                                                  
               The issue is whether the $3,372,342 petitioners received               
          from Singer for the assignment of future lottery payments is                
          ordinary income or capital gain.  Resolution of the issue depends           

               3  On brief, petitioners assert a cost basis of $1.                    





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