United States v. J. Michael Maginnis Janet Y. Maginnis

In 1991, taxpayer J. Michael Maginnis won $9 million from the Oregon state lottery, payable in 20 annual installments of $450,000. After receiving five such payments, he assigned his right to the remaining lottery installments to a third party in 1996 for a lump sum payment discounted to $3,950,000. Initially, he reported this lump sum payment as ordinary income on his joint tax return. In 1998, however, he filed a refund claim, arguing that the payment was a capital gain subject to a lower tax rate. The Internal Revenue Service initially granted the refund, but later determined that the lump sum payment was ordinary income, and brought this suit to recover an erroneous refund of income tax. Because we hold that Maginnis received ordinary income, not a capital gain, from the assignment of his lottery right, we affirm the district court’s summary judgment in favor of the government.

FACTUAL AND PROCEDURAL BACKGROUND

Maginnis, his wife and three sons won a total prize of $23 million in the Oregon state lottery in July 1991. They divided the prize among themselves, with Magin-nis and his wife each receiving $9 million and their sons dividing the remainder. Maginnis’ $9 million…