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On January 25, 1995, respondent issued individual notices of
proposed deficiency (1995 30-day letters) to Charles and
Gladythe. Respondent alleged that the couple, as a “marital
community”, were the true owners of the winning lottery ticket
and that capitalizing the limited partnership with the right to
collect the prize constituted a taxable gift to the Rathbun
children.
On March 24, 1995, Mr. Braley filed a written protest to
respondent’s 1995 30-day letters. Mr. Braley challenged
respondent’s assertion that the ticket was owned by the marital
community and maintained that Charles purchased the ticket on
behalf of an informal family partnership. Mr. Braley claimed no
taxable gifts were made because petitioners had a “common
understanding” that the prize would be shared by the entire
family in the event one of them held a winning ticket. According
to Mr. Braley, petitioners created the limited partnership to
merely formalize the relationship between the family members and
to satisfy various requirements of the Washington State Lottery
Commission.
The Rathbuns’ protest was assigned to IRS Appeals Officer
Fred Rawley (AO Rawley). AO Rawley disagreed with Mr. Braley’s
arguments and was prepared to issue notices of deficiency to
Charles and Gladythe for the alleged 1993 gift tax liability. In
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