Womack v. Commissioner

Roland Womack (plaintiff) won the Florida State Lottery. Womack’s lottery winnings were payable in 20 annual installments of $150,000. For three years, Womack received the annual installments, reporting the income as ordinary income on his federal income tax returns. Womack then sold his right to receive the remaining payments to Singer Asset Finance Company (Singer) in exchange for an immediate lump-sum payment of $1,328,000. On his tax return, Womack reported the lump-sum payment as a capital gain from the sale of a long-term asset. Capital gains were taxed at a more favorable rate than ordinary income. Maria Spiridakos (plaintiff) also won the Florida State Lottery. Like Womack, she received annual installments for a few years, then sold the right to the remaining installments to Singer in exchange for a lump-sum payment. She, too, reported the lump-sum payment as a capital gain on her tax return. The commissioner of the Internal Revenue Service (commissioner) (defendant) issued deficiency notices to Womack and Spiridakos, arguing that each party’s lump-sum payment was ordinary income taxable at the higher rate. Womack and Spiridakos separately petitioned the United States Tax Court for redeterminations. The tax court consolidated the petitions and entered judgment in the commissioner’s favor, holding that the lump-sum payments were taxable as ordinary income. Womack and Spiridakos appealed.