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the line of cases establishing the substitute for ordinary income
doctrine. Accordingly, petitioners’ reliance on Arkansas Best
for a limited approach to the doctrine must fail.
There can be no doubt that petitioners’ lottery installment
payments were ordinary income. As those payments were received,
petitioners treated them as ordinary income on their returns
before selling the remaining right to future payments. Under the
principle of the doctrine, the sale of the remaining right to the
ordinary income payments did not cause their conversion to a
capital asset.
Petitioners also argue that Congress intentionally limited
the exceptions to the definition of “capital asset” in section
1221 for policy reasons. Petitioners believe that the definition
was intended to create a dichotomy between business transactions
and transactions in property. We cannot accept the incongruous
result of petitioners’ premise; i.e., that Congress intended to
allow the conversion of gambling winnings to capital gain by the
simple expedient of a sale of the right to future installments by
the lottery winner.
Petitioners also argue that lottery rights have been labeled
or treated as property in Federal caselaw. Petitioners cite
cases where lottery rights were treated as property for purposes
of bankruptcy, domestic relations, estate tax, gift, etc. That,
however, does not convert ordinary income to capital gain. The
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