Subject Business Tax Returns/IRS Issues

Question

Name Research Problem.
Instructions Bruce Wilson won $3 million in the state lottery. The lottery pays out the prize money in 20 annual installments of $150,000 each. After receiving three $150,000 installments, Bruce sold the remaining $2.550 million of payments for $1.5 million, reported the $1.5 million as long-term capital gain on his tax return, and paid tax on that amount at the 20% tax rate (long-term capital gain rate). Bruce’s tax return has been selected for audit by the IRS. Is he likely to prevail on his treatment of the $1.5 million sale of his future lottery payments as a long-term capital gain?

Required: Each student should submit a research memo to address the issue. The memo should include the facts, issue, conclusion and discussion on your answer. You must have three primary sources, with correct citations, in your memo.

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Tax Research Memorandum

Facts
Bruce Wilson won $3 million in the state lottery. The lottery pays out the prize money in 20 annual installments of $150,000 each. After receiving three $150,000 installments, Bruce sold the remaining $2.550 million of payments for $1.5 million, reported the $1.5 million as long-term capital gain on his tax...

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