VALUATION OF LOTTERY PRIZE PAYMENTS FOR ESTATE TAX PURPOSES

A Great Debate has developed in the valuation of inalienable lottery prize payments for estate tax purposes. With the Sixth Circuit's recent decision in Negron, the circuits are now evenly split two-to-two over the valuation of lottery payments with marketability restrictions. That is, the Fift...

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Bibliographic Details
Published inPractical Tax Strategies Vol. 85; no. 2; p. 65
Main Authors Englebrecht, Ted D, Coleman, Fred L
Format Trade Publication Article
LanguageEnglish
Published Boston Thomson Reuters (Tax & Accounting) Inc 01.08.2010
Subjects
Annuities
Estate planning
Estate taxes
Fair market value
Federal court decisions
Installment payments
Interest rates
Lotteries
Present value
Regulation
State court decisions
Tax court decisions
Technical advice memoranda
Valuation
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Summary:A Great Debate has developed in the valuation of inalienable lottery prize payments for estate tax purposes. With the Sixth Circuit's recent decision in Negron, the circuits are now evenly split two-to-two over the valuation of lottery payments with marketability restrictions. That is, the Fifth and Sixth Circuits are in concert, but the Ninth and Second Circuits are diametrically opposed. Moreover, the Treasury issued Reg. 20.7520-3(b) (effective on 12/14/95) to address the valuation issue. This regulation defines an ordinary annuity interest as the right to receive a fixed dollar amount at the end of each year or for some other defined period. Additionally, it provides that a restricted beneficial interest is an annuity, income, remainder, or reversionary interest that is subject to any contingency, power, or other restriction. A restricted beneficial interest is not required to be valued considering the IRS annuity tables. A question that arises is whether the nontransferable structured payments constitute a restricted beneficial interest, and hence, a departure from the annuity tables is warranted. The split among the circuits centers on whether the annuity tables produce an unrealistic and unreasonable value when future lottery or structured settlement payments are subject to limitations on transferability.
ISSN:1523-6250