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George Lattera Angeline Lattera v. Commissioner of Internal Revenue
Court of Appeals for the Third Circuit (2006) | 437 F.3d 399; 97 A.F.T.R.2d (RIA) 1048; 2006 U.S. App. LEXIS 3449; 2006 WL 330327
TL;DR: The Latteras sold their remaining lottery payments for a lump sum and reported capital gains. The Commissioner classified the proceeds as ordinary income. The court affirmed the Tax Court because the sale substituted immediate payment for income already earned.
Legal Significance: The court confirmed that the substitute-for-ordinary-income doctrine survived Arkansas Best and adopted a family-resemblance framework distinguishing rights to earned income from rights to earn income. It agreed with Maginnis’s treatment of lottery-payment sales but declined to adopt its reasoning.