How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Mark Your Own Question

Mark, Attorney
Category: Bankruptcy Law
Satisfied Customers: 406
Experience:  14 years, real estate, tax, bankruptcy, debt resolution, and criminal law
Type Your Bankruptcy Law Question Here...
Mark is online now
A new question is answered every 9 seconds

Below is the actual case I am working on. I am preparing

Customer Question

Below is the actual case I am working on.

I am preparing a memorandum for a graduate taxation course. I have a lot of notes on it but I am unsure if I am correct.

Using the following problem, I have to identify and discuss the main issues, identify and discuss other issues, calculate the basis, identify and discuss the ethical issues and resolve the problem. Any guidance you can provide will be greatly appreciated.

Actual Case

John and XXXXX XXXXX are U.S. taxpayers. The Smiths have resided in New State since 1995. In 2002 XXXXX XXXXX was declared the winner of a $ 6.24 million prize in the New State Lottery. $1.00 was paid for the winning Lottery ticket which entitled its holder to participate in the bi-weekly drawings. Under the Lottery Rules, Mary became entitled to receive 20 annual payments of$ 312,000 each, less mandatory Federal Income Tax Withholding. The first payment was made on May 1, 2002 and 19 subsequent installments of$ 312,000 (reduced by Federal Income Tax withholding) were scheduled to be paid on May 1 of each successive year.

The New State Lottery rules did not offer Mary the option of receiving a lump-sum payment at the time she claimed the Lottery prize. Under the New State Lottery Rules, Mary could not transfer her right to receive all or any portion of the future installment payments without first obtaining the approval of the Superior Court. This provision was included in the law to insure against fraud.

On or about July 2, 2011, after obtaining the approval of the Superior Court, Mary entered into an agreement with Lottery Payment Finance Company, LLC ("Finance"). Under the Agreement, Mary sold all of her rights to receive the remaining 10 installment payments (10 x $ 312,000 = $ 3.2 million) in exchange for a lump-sum payment by Finance in the amount of$ 2.125 million. On the joint Form 1040 Return she filed with her husband John, Mary reported a long-term capital gain of$ 2, 124,599 from the transfer. The Internal Revenue Service has asserted a deficiency assessment, including penalties and interest. The Internal Revenue Service takes the position that the $ 2.125 million lump-sum payment is taxable at ordinary income rates.

John and Mary have requested your advice regarding the Internal Revenue
Service's position; they wonder whether they should they fight it? During your conference with them Mary tells you that the ticket was actually purchased by her sister, Rose. When Rose won she asked Mary to claim the prize money since Rose was about to declare personal bankruptcy (her assets were then valued at $ 250,000 and her liabilities were $ 1,800,000). Mary agreed and accepted the prize. Mary has kept track of the money received from the New State Lottery and accounted to Rose for any monies Mary used.

Rose has completed her bankruptcy action and receives money from Mary from time to time. Rose (and Mary) treat these transfers as "gifts" for Federal Income Tax purposes.
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  Mark replied 2 years ago.

I would say that she will probably loose on appeal because the courts have held that it is ordinary income:

I would be more concerned that the trustee in bankruptcy would claim it was property of Rose's bankruptcy estate and should be included to pay creditors. I hope this answers your question. If not, then please reply. Thank you.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
< Last | Next >
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
  • My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer. Eric Redwood City, CA
  • I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight. Michael Wichita, KS
  • PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent. Three H. Houston, TX
  • Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!! Elaine Atlanta, GA
  • It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem. Tony Apopka, FL
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK

Meet The Experts:

  • FiveStarLaw


    Satisfied Customers:

    Bankruptcy Lawyer. Experienced.
< Last | Next >
  • FiveStarLaw's Avatar



    Satisfied Customers:

    Bankruptcy Lawyer. Experienced.
  • Terry L.'s Avatar

    Terry L.


    Satisfied Customers:

    Better Business Bur 15yrs bankruptcy experience. Chicago Bar
  • cortrightlaw's Avatar



    Satisfied Customers:

    Attorney practicing Bankruptcy Law including Chapter 7, Chapter 11, Chapter 12, and Chapter 13.
  • dylatess's Avatar



    Satisfied Customers:

    37 plus years of experience specializing in bankruptcy law
  • JoeLawyer's Avatar



    Satisfied Customers:

    Attorney in the practice of Bankruptcy Law since 1996
  • Brent Blanchard's Avatar

    Brent Blanchard

    Bankruptcy Attorney

    Satisfied Customers:

    Twelve years experience in all aspects of debtor & creditor BK.
  • A.J.'s Avatar



    Satisfied Customers:

    Experienced consumer bankruptcy attorney.
Chat Now With A Bankruptcy Lawyer
6 Satisfied Customers
14 years, real estate, tax, bankruptcy, debt resolution, and criminal law