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On or about June 29, 1998, Mr. Wolman entered into a sale
agreement with Capital First Financing (Capital First), which
stated:
Lottery Winner hereby sells and assigns to Purchaser and its
assigns all Lottery Winner’s right, title, and interest in
and to the Assigned Payments, including without limitation,
the right to receive the Assigned Payments from the State
Lottery, and all related benefits and rights. * * *
This sale agreement was effective as of the lottery installment
payment due on April 4, 1999. The total face amount of Mr.
Wolman’s interest in the remaining lottery installment payments
was $1,298,107. The contract sales price for the 20 remaining
lottery installment payments was $20,000 in advance and $550,000
upon closing on or about January 8, 1999.
On September 23, 1998, the District Court for the City and
County of Denver, Colorado, issued an order approving Mr.
Wolman’s assignment of his interest in the remaining lottery
installment payments to Capital First.
On petitioners’ 1998 and 1999 Federal income tax returns,
they reported the sale of Mr. Wolman’s interest in the remaining
lottery installment payments as the sale of a capital asset for
$20,000 and $550,000, respectively. On the Schedules D, Capital
Gains and Losses, attached to the tax returns, petitioners
reported a cost basis of zero for the payments for 1998 and did
not report a cost basis for the payments for 1999.
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Last modified: May 25, 2011