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Davis v. Commissioner
''Davis v. Commissioner'', 119 T.C. 1 (2002), was a United States Tax Court decision which closed the door on a potential loophole with regard to annuities and capital gains tax.〔(M:OpinHoldingDa5vis.TC.WPD )〕 The case affirmed that annual lottery annuities cannot be assigned and sold as capital assets.〔(Tax Watch: Couple takes their lumps after winning lottery - InvestmentNews )〕
==Facts==
In 1991, James F. Davis won $13,580,000 in the California State Lottery's Super Lotto Plus game. As a result, Davis became entitled to receive $679,000 as yearly annuity, in 20 payments. (The game did not yet offer a lump sum option.)
Normally, income derived from annuities are taxed as ordinary income. In 1997, in an apparent attempt to circumvent this tax treatment, Davis entered into an agreement with Singer Asset Finance Company, LLC (Singer). The agreement called for Davis to assign a portion of his right to these annual payments to Singer, in exchange for a single payment of $1,040,000.
In his 1997 income tax return, Davis reported the assignment as a sale of capital asset held for more than one year with a cost basis of $7,009 (representing the cost of attorney's fees). Thus, Davis claimed a long term capital gain of $1,032,991. By claiming this sum as a capital gain and not ordinary income, this figure was entitled to preferential tax treatment. 〔(Lottery proceeds: ordinary or capital gains? | Banking & Finance > Financial Markets & Investing from AllBusiness.com )〕 The Commissioner of the IRS determined this amount to be ordinary income because rights to lottery annuity payments are not capital assets under the provisions of the Internal Revenue Code.
抄文引用元・出典: フリー百科事典『 ウィキペディア（Wikipedia）』
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