Shackleford v. United States

Thomas Shackleford (plaintiff) won $10 million in the California lottery in 1987. Before his death, Shackleford collected only three of the 20 annual $508,000 annuity payments that constituted his winnings. California law indicated that the payments would go to Shackleford’s estate but also that they could not be assigned. Accordingly, while Shackleford’s estate would receive $508,000 per year, the present-value annuity tables indicated a present value for those payments of $4,023,903, so the estate owed $1,543,397 in taxes. The estate paid that total and then filed amended returns and claims for refund, arguing that the value of the future payments was incorrect or that the annuity tables resulted in a value that was unrealistic and unreasonable because they did not reflect the fair market value of the nonassignable right to future lottery payments. When the IRS rejected that claim, the estate filed a claim for refund in district court. The government (defendant) moved for summary judgment, arguing that the annuity table was proper for such calculations. The district court denied the motion and held that a departure from the annuity tables was warranted if Shackleford’s estate could prove that the true value of the lottery interest was substantially below the value indicated by the tables. After a bench trial, the district court found for the estate, valuing the payments at $2,012,500, with a judgment for the estate of over $1.1 million in tax and just over $500,000 in interest. The government appealed.