Lottery winners cannot claim a "capital gain" when they sell off the rights to future annual payments, but instead must treat that lump sum as "ordinary income," the 3rd Circuit has ruled, becoming the second federal appellate court to agree with the IRS' application of the "substitute-for-ordinary-income doctrine" in such cases. However, the panel said it agreed with the result, but not the reasoning, of the 9th Circuit's decision, and instead fashioned its own test for deciding the issue.
Lottery Winners Lose Tax Appeal Before 3rd Circuit
The Legal Intelligencer
February 22, 2006