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Watkins v. Commissioner

United States Court of Appeals for the Tenth Circuit
447 F.3d 1269 (2006)


On May 1, 1993, Roger L. Watkins (plaintiff) won the Colorado State Lottery. Watkins was to receive his winnings in 25 annual installments. He reported his first six installments as ordinary income on his tax returns. In 1998, Watkins assigned his remaining interest in the winnings to Stone Street Capital (Stone Street) in exchange for a lump sum of $2,614,744. Of this sum, $200,000 represented fees for consulting services related to the sale of Watkins’ winnings to Stone Street. Watkins characterized the transaction as the sale of a capital asset and reported the lump sum as capital gain. The Commissioner (defendant) ruled that the lump sum received from Stone Street was ordinary income, but that Watkins was entitled to deduct the $200,000 consulting fee as a miscellaneous itemized deduction. The Tax Court affirmed the Commissioner’s ruling.

Rule of Law


Holding and Reasoning (Seymour, J.)

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