Watkins v. Commissioner

447 F.3d. 1269 (10th Cir. 2006)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

Watkins (D) won $12,358,688 from the Colorado State Lottery with a ticket he purchased for one dollar. D was married to Tammy. The prize winnings were to be distributed to him in twenty-five annual installments through an annuity purchased by the Colorado State Lottery. D reported the receipt of his first six prize payments as ordinary income. In 1997, D and his wife were divorced. The court awarded each party a one-half interest in the future payments. D entered into a contract with Stone Street to assign his one-half interest in the remaining lottery payments. In consideration for the assignment, D received $2,614,744, which represented the discounted present value of his remaining share of the lottery winnings. D gave $200,000 to a third party who provided consulting services in connection with the sale to Stone Street. D reported that the lump sum from Stone Street was the result of a sale of a capital asset worth $2,414,744 with a cost basis of zero. The I.R.S. issued a notice of deficiency claiming the money received from Stone Street was ordinary income. The tax court agreed with the IRS.