- 8 -
(2) the substitute for ordinary income doctrine (doctrine) has
been misinterpreted by the courts with respect to its origins and
application to the sale of a lottery right; (3) to the extent
that the substitute for ordinary income doctrine continues to
have vitality, the Supreme Court’s holding in Ark. Best Corp. v.
Commissioner, 485 U.S. 212 (1988) (Arkansas Best), by
establishing a definitive analysis or test has limited the effect
of the doctrine so that lottery rights would not come within the
reach of the doctrine; and (4) a lottery right falls within the
definitions of a “debt instrument” and a “bond” under sections
1275 and 1286, respectively. Consequently, the sale of a lottery
right would result in capital gain.
Respondent points out that the premise underlying
petitioners’ contentions is that the right to receive future
lottery payments is “considered ‘property’ under certain
provisions of Federal and state law * * * [and that therefore]
the right must be considered ‘property’ for purposes of * * *
[section 1221)(a)]”; i.e., a capital asset. Respondent contends
that petitioners’ premise “has been squarely rejected by every
Federal court which has considered the issue.”
Petitioners recognize that they are swimming against a
rising tide of precedent. However, they remain undaunted and
have strongly urged us to reconsider our holdings and those of
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011