Roland and Marie Womack - Page 1

                                 T.C. Memo. 2006-240                                  

                               UNITED STATES TAX COURT                                

                       ROLAND AND MARIE WOMACK, Petitioners v.                        
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      
                   ANASTASIOS AND MARIA SPIRIDAKOS, Petitioners v.                    
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket Nos. 13434-03, 19829-03.    Filed November 7, 2006.             

               We consider two test cases that involve the purely                     
               legal question of whether gain from the sale of the                    
               right to receive future annual lottery payments is                     
               taxable as ordinary income or capital gains.  This                     
               Court and three Courts of Appeals have consistently                    
               held that gain from such a sale is taxable as ordinary                 
               income.  R relies on established precedent, and Ps                     
               contend, as a matter of law, that prior opinions on                    
               this question are in error.  Ps advance four categories                
               of legal arguments, as follows:  (1) Lottery rights are                
               capital assets because they are denominated “accounts                  
               receivable” under the Florida Uniform Commercial Code                  
               and, as such, are not in the category “business                        
               accounts receivable” so as to be excluded from the                     
               statutory definition of capital asset under sec.                       
               1221(a)(4), I.R.C.; (2) the substitute for ordinary                    
               income doctrine (doctrine) has been misinterpreted by                  

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