Davis v. Commissioner

119 T.C. 1 (2002)

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Davis v. Commissioner

United States Tax Court
119 T.C. 1 (2002)

Rich Walter headshot
  • Written by Rich Walter, JD

Facts

In 1991, James Davis (plaintiff) won $13,580,000 in the California lottery. Davis’s winnings were payable in 20 annual installments of $679,000 each. In 1997, Davis sold his rights to a portion of the remaining installments in return for a substantially discounted lump sum of $1,040,000. On Davis’s 1997 federal tax return, Davis reported the sale of his rights as the sale of capital assets. The commissioner of internal revenue (commissioner) (defendant) determined that this was not a sale of capital assets, and added $1,040,000 to Davis’s ordinary income for 1997. Davis petitioned the tax court for a redetermination.

Rule of Law

Issue

Holding and Reasoning (Chiechi, J.)

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Casebooks

Federal Income Tax

Key Terms

  • Capital AssetAny piece of property held for investment purposes.
  • Ordinary IncomeIncome that cannot be defined as a capital gain and results from a taxpayer’s employment, investments, trade, or business.
  • Ordinary assetA non-capital asset, the sale of which produces ordinary income.

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