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references are to the Internal Revenue Code in effect for the
year in issue, and all Rule references are to the Tax Court Rules
of Practice and Procedure.
Background
This case was submitted fully stipulated under Rule 122.
The stipulated facts are incorporated as our findings by this
reference. Petitioner resided in Rochester, New York, at the
time that she filed her petition.
On May 31, 1997, petitioner won $17.5 million in the New
York State Lottery. Petitioner was entitled to receive 26 annual
payments totaling $17.5 million that began in June 1997 and will
end in May 2022. Petitioner received annual lottery payments for
1997 through 1999. She reported those payments as ordinary
income on her income tax returns for each of those years.
On January 14, 2000, petitioner sold all of her then
remaining lottery rights to Settlement Funding LLC (Settlement
Funding) of Norcross, Georgia, for a lump-sum payment of
$7.1 million. This sale was pursuant to an agreement between the
parties dated November 4, 1999, and a New York Supreme Court
Order dated November 29, 1999. Settlement Funding issued to
petitioner a Form 1099-B, Proceeds From Broker and Barter
Exchange Transactions, for 2000. The Form 1099-B listed proceeds
from the sale of “Stocks, bonds, etc.” of $7.1 million.
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