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timely filed a petition with the Court to dispute respondent’s
determinations.
Discussion
The parties dispute whether petitioner’s receipt of
$2,614,744 in exchange for the assignment of his right to receive
future lottery installment payments constitutes ordinary income
or capital gain during the year in issue. Resolution of this
issue depends on whether petitioner’s right to receive the
remaining lottery installment payments was a capital asset within
the meaning of section 1221.
Petitioner’s argument that the assignment was a sale of a
capital asset relies on reasoning found in United States v.
Maginnis, 356 F.3d 1179 (9th Cir. 2004). We note from the outset
that we are not bound by the opinion of the Court of Appeals for
the Ninth Circuit because appeal of this decision would lie in
the Court of Appeals for the Tenth Circuit, which has not ruled
on this issue. Sec. 7482(b)(1)(A).
Additionally, in Maginnis, the Court of Appeals affirmed the
District Court holding that under the substitute for ordinary
income doctrine the sale of a right to future lottery payments
should be taxed as ordinary income.2 Id. at 1187. Petitioner
2 Under the “substitute for ordinary income doctrine”, a
court narrowly construes the term “capital asset” when taxpayers
make attempts to transform ordinary income into capital gain.
See Commissioner v. P.G. Lake, Inc., 356 U.S. 260, 265 (1958).
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Last modified: May 25, 2011