2002 Tax Ct. Memo LEXIS 281 | Tax Ct. | 2002
2002 Tax Ct. Memo LEXIS 281">*281 Petitioner could not exclude lottery winnings he received in 1996 from his income. Petitioner did not have $ 4,237 net operating loss that he could carry over to 1996. Petitioner was liable for accuracy-related penalty. Judgment entered for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Respondent determined a deficiency in petitioner's 1996 Federal income tax of $ 503,105 and an accuracy- related penalty under
Petitioner worked for the Consulate General of Nigeria in New York City in 1989. In that year, he won about $ 26 million in the New York State Lottery (NYSL). The winnings were payable in 20 equal annual installments beginning in 1989. In 1996, petitioner received $ 1,238,100 as lottery winnings, and he no longer worked for the Nigerian Consulate General. He disclosed his lottery winnings on his 1996 income tax return and claimed that the winnings were not taxable in 1996 because, inter alia, he was employed by the Consulate General of Nigeria when he won the lottery. Following a concession by petitioner, the issues for decision are:
1. Whether petitioner bears the burden of proof. We hold that he does.
2. Whether petitioner constructively received all of his lottery winnings in 1989. We hold that he did not.
3. Whether petitioner may2002 Tax Ct. Memo LEXIS 281">*282 exclude the lottery winnings he received in 1996 because he was employed by the Consulate General of Nigeria in 1989 when he won the lottery. We hold that he may not.
4. Whether petitioner had a $ 4,237 net operating loss carried over to 1996. We hold that he did not.
5. Whether petitioner is liable for the accuracy-related penalty under
Unless otherwise provided, section references are to the Internal Revenue Code in effect for the applicable years, and Rule references are to the Tax Court Rules of Practice and Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. Petitioner resided in the United Kingdom when he filed his petition. He has a master's degree in business administration.
Petitioner began working as a clerk for the Consulate General of Nigeria in New York City in 1987. In 1989, petitioner bought 12 NYSL tickets for $ 1 each. On January 4, 1989, petitioner won about $ 26 million from the NYSL, payable in 20 equal annual installments beginning in 1989. The NYSL did not offer petitioner the option of receiving a lump-sum2002 Tax Ct. Memo LEXIS 281">*283 payment in 1989. Petitioner was employed by the Consulate General of Nigeria when he won the lottery. He used the cash method of accounting in 1989.
Petitioner received two or three offers to buy the rights to his future lottery winnings for about 50 cents on the dollar. He did not sell his rights.
Petitioner acquired permanent U.S. resident status on November 24, 1989, and he maintained that status in 1996. The NYSL paid petitioner $ 1,238,100 in 1996.
On a Form 8275, Disclosure Statement, attached to his 1996 return, petitioner reported that he received $ 1,238,100 from the NYSL, and said:
Augustin B. Jombo had diplomatic status when he won the New York
Lottery in 1989. His winnings are being paid out over a twenty-
year period. Prior audits have denied Mr. Jombo gambling losses
against his lottery winnings under Reg. 1.165-10. The Internal
Revenue Service Agent in charge of the audit ruled that Mr.
Jombo was considered to have won the lottery in 1989, which is
the only year he is considered to have "gambling
winnings." Therefore, since all his gambling winnings were
considered to have taken place in 1989, 2002 Tax Ct. Memo LEXIS 281">*284 his diplomatic status
would exempt his lottery winnings from income taxation. Mr.
Jombo should not have to pick up gambling winnings from the
twenty-year payout as taxable income, because he won the
lottery in 1989 when he had diplomatic status.
Petitioner claimed a $ 4,237 net operating loss (NOL) on his 1996 return. In a separate statement attached to his 1996 return, petitioner identified the NOL as a "net operating loss carryover", but he did not state from which year or years he was carrying the loss. Respondent sent petitioner a letter dated May 7, 1998, informing him that his 1996 Federal income tax return had been selected for examination.
OPINION
Petitioner contends that: (1) Respondent bears the burden of proof for all issues; (2) he is not liable for tax on his 1996 lottery payment because he constructively received all of his lottery winnings in 1989 when he was a tax-exempt employee of the Nigerian Consulate General; (3) his 1996 lottery winnings are a nontaxable annuity; (4) he is entitled to a net operating loss carryover deduction of $ 4,237 in 1996; and2002 Tax Ct. Memo LEXIS 281">*285 (5) he is not liable for the accuracy-related penalty under
Petitioner contends that respondent bears the burden of proving that the NYSL winnings petitioner received in 1996 are taxable income. We disagree.
Under
C. Whether Petitioner Constructively Received All of His
2002 Tax Ct. Memo LEXIS 281">*286 Lottery Winnings in 1989
Petitioner contends that the NYSL amounts that he received in 1996 are not taxable in 1996 because he constructively received all of his lottery winnings in 1989. Petitioner points out that he had the opportunity to sell his future winnings, but he decided not to do so. He contends that he constructively received payment of all of his lottery winnings in 1989 because he had an unqualified vested right to sell his future lottery payments in 1989. We disagree for reasons stated next.
1. Whether Petitioner Constructively Received All of His
Lottery Winnings in 1989
A cash method taxpayer generally recognizes an item of gross income when it is actually or constructively received.
The NYSL did not offer to pay petitioner all of his lottery winnings in 1989. Thus, petitioner did not constructively receive all of his NYSL lottery winnings from the NYSL in 1989.
2. Whether Petitioner Constructively Received Winnings
Because He Could Have Sold the Right To Receive Future
Lottery Payments in 1989
Petitioner contends that he constructively received all of his lottery winnings in 1989 because he could have sold the right to receive his future lottery payments at a 50-percent discount in 1989. We disagree. A taxpayer constructively receives income when he has an unqualified, vested right to receive immediate payment.
Petitioner contends in his opening brief that2002 Tax Ct. Memo LEXIS 281">*288
2002 Tax Ct. Memo LEXIS 281">*289 The taxpayer in
We conclude that petitioner did not constructively receive his 1996 payment from the NYSL in 1989 and that the 1996 NYSL payment is taxable in 1996.
D. Whether Petitioner May Exclude His NYSL Winnings Because
He Was an Employee of the Nigerian Consulate General
1. The Vienna Convention on Diplomatic Relations of
1961 and the Vienna Convention on Consular
Relations of 1963
Petitioner contends2002 Tax Ct. Memo LEXIS 281">*290 that he may exclude $ 1,238,100 that he received from the NYSL in 1996 under either the Vienna Convention on Diplomatic Relations, April 18, 1961, 23 U.S.T. 3227, 2 or the Vienna Convention on Consular Relations, April 24, 1963, 21 U.S.T. 77. 3 We disagree. Article 34 of the Vienna Convention on Diplomatic Relations (article 34), supra, provides that diplomatic agents are exempt from all dues and taxes, except:
(d) dues and taxes on private income having its source in the
receiving State and capital taxes on investments2002 Tax Ct. Memo LEXIS 281">*291 made in
commercial undertakings in the receiving State;
Similarly, article 49(d) of the Vienna Convention on Consular Relations (article 49), 21 U.S.T. at 108, provides that consular officers and employees are exempt from all dues and taxes, except:
(d) dues and taxes on private income, including capital gains,
having its source in the receiving State and capital taxes
relating to investments made in commercial or financial
undertakings in the receiving State;
Petitioner's lottery payment in 1996 was private income having its source in the United States. Thus, that payment is not exempt from tax under either article 34 or article 49.
Petitioner contends that the 1996 NYSL payment is tax exempt under article 32 of the Vienna Convention on Consular Relations (article 32), 21 U.S.T. at 98. Article 32 states:
Exemption From Taxation of Consular Premises
1. Consular premises and the residence of the career head of
consular post of which the sending State or any person acting on
its behalf is the owner or lessee shall be exempt from all
national, regional or municipal2002 Tax Ct. Memo LEXIS 281">*292 dues and taxes whatsoever, other
than such as represent payment for specific services rendered.
2. The exemption from taxation referred to in paragraph 1 of
this Article shall not apply to such dues and taxes if, under
the law of the receiving State, they are payable by the person
who contracted with the sending State or with the person acting
on its behalf.
We disagree. Article 32 applies only to taxes imposed on consular premises and on the residence of the career head of the consular post. Thus, the $ 1,238,100 that petitioner received from the NYSL in 1996 is not excluded from income by the Vienna Conventions.
2.
Petitioner contends that the $ 1,238,100 that he received from NYSL in 1996 is exempt from tax under
2002 Tax Ct. Memo LEXIS 281">*293 Salaries and wages received by an employee as compensation for official services to a foreign government or international organization are exempt from tax.
E. Whether Petitioner's 1996 NYSL Payment Is Excluded
From Gross Income as an Annuity Under Section
72(b)(1)
Petitioner contends that he may exclude the 1996 NYSL payment from income as an annuity under
2002 Tax Ct. Memo LEXIS 281">*294 Gross income generally includes any amount received as an annuity.
F. Whether Petitioner Had a $ 4,237 Net Operating Loss
Carryoverfor 1996
Petitioner contends that he may carryover to 1996 a $ 4,237 net operating loss which resulted from investment losses from his rental property in previous years. We disagree.
Petitioner reported in a statement attached to his 1996 return that he had a $ 4,237 net operating loss carryover.6 He did not identify on the return the year or years from which he was carrying the loss to 1996. On brief, petitioner contends that he carried forward rental property losses from 1991 and 1992. To carry forward or carry back net operating losses, the taxpayer must prove the amount of the net operating loss carryforward or carryback and that his or her gross income in other years did not offset that loss.
Petitioner testified that his net operating loss claim related to a $ 2 million stock options loss in 2001. He did not explain how he knew in 1998, when he filed his 1997 return, that he would have a $ 2 million stock options loss in 2001. We conclude that petitioner may not carryover any losses to 1996.
G. Whether Petitioner Is Liable for the Accuracy-Related
Penalty Under
1. Adequate Disclosure2002 Tax Ct. Memo LEXIS 281">*296 and Reasonable Basis
Petitioner contends that he is not liable for the accuracy-related penalty under
Taxpayers are liable for a penalty under
We consider the facts and circumstances in deciding whether the taxpayer acted with reasonable cause and in good faith.
The taxpayer must disclose an item or a position on a return on a Form 8275, Disclosure Statement, or a Form 8275-R, Regulation Disclosure Statement, attached to the return (or a qualified amended return).
2. Reliance on Professionals
A taxpayer may be relieved of liability for the accuracy- related penalty if he or she shows that there was reasonable cause for the understatement and that the taxpayer acted in good faith with respect to the understatement.
To reflect the foregoing,
Decision will be entered for respondent.
Footnotes
1. Petitioner conceded in his reply brief that
Cowden v. Comm'r, T.C. Memo. 1961-229↩ , and the cash equivalency and economic benefit doctrines do not support his contention that he received all of the lottery winnings in 1989.2. This was ratified by the U.S. Senate, Sept. 14, 1965; ratification deposited, Nov. 13, 1972; entered into force for the United States, Dec. 13, 1972, adopted by the Diplomatic Relations Act of 1978, Pub. L. 95-393, 92 Stat. 808, currently codified at
22 U.S.C. sec. 254a (2000)↩ .3. This was ratified by the U.S. Senate, Oct. 22, 1969; ratification deposited, Nov. 24, 1969; entered into force for the United States, Dec. 24, 1969.↩
4.
Sec. 893(a) provides in part:SEC. 893 . COMPENSATION OF EMPLOYEES OF FOREIGN GOVERNMENTS OR INTERNATIONAL ORGANIZATIONS. --(a) Rule for Exclusion. -- Wages, fees, or salary of any employee of a foreign government or of an international organization (including a consular or other officer, or a nondiplomatic representative), received as compensation for official services to such government or international organization shall not be included in gross income and shall be exempt from taxation under this subtitle if -- * * *↩
5.
Sec. 72(b) provides in part:(1) In general. -- Gross income does not include that part of any amount received as an annuity under an annuity, endowment, or life insurance contract which bears the same ratio to such amount as the investment in the contract (as of the annuity starting date) bears to the expected return under the contract (as of such date).↩
6. A tax return is not evidence of the truth of the facts stated in it.
Lawinger v. Comm'r, 103 T.C. 428">103 T.C. 428 , 103 T.C. 428">438 (1994);Wilkinson v. Comm'r, 71 T.C. 633">71 T.C. 633 , 71 T.C. 633">639 (1979);Roberts v. Comm'r, 62 T.C. 834">62 T.C. 834 , 837↩ (1974).