Watkins v. Commissioner
United States Court of Appeals for the Tenth Circuit
447 F.3d 1269 (2006)
Relevant factsFree
After winning a lottery payable in 25 annual installments and reporting his first several installments as ordinary income, Watkins (plaintiff) assigned his remaining installment rights to Stone Street Capital for a lump sum, characterizing the transaction as a capital-asset sale eligible for capital-gains treatment; the Commissioner (defendant) treated the lump sum as ordinary income (while allowing a deduction for related consulting fees), and the Tax Court agreed, prompting Watkins's appeal.
IssueFree
Whether a lump-sum payment that functions as a substitute for ordinary income is taxable as ordinary income rather than as capital gain.