# United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 3, 2004 Decided February 18, 2005

Reissued April 12, 2005

No. 03-1355

A UGUSTIN B. J OMBO

, A PPELLANT

v.

C OMMISSIONER OF I NTERNAL R EVENUE S ERVICE

, A PPELLEE

Appeal from the United States Tax Court

(No. IRS-99-16627)

Augustin B. Jombo

, pro se, argued the c ause and filed the

briefs for appellant.

Karen D. Utiger

, Attorney, U .S. Department of Justice,

argued the cause for appellee. With her on the brief were E ileen

J. O’Connor

, Assistant Attorney General, and Richard Farber

, Attorney, U.S. Department of Jus tice. G ilbert S. Rothenberg

, Attorney, U.S. Department of Justice, entered an appearance.

Before: H

ENDERSON

, T

ATEL

, and R

OBERTS

, Circuit Judges

.

Opinion for the Court filed by Circuit Judge T ATEL

.

T ATEL

, Circuit Judge : Does a taxpayer who wins a lottery2

in one year but receive s installment payments over the next

twenty years construc tively receive his entire winnings in the

first year, exempting the m from federal taxation in later years?

The Tax Court answered no, and we agree.

I.

In 198 9, appellant Augustin Bolsover Jombo was employed

as a clerk at Nigeria’s N ew York Consulate. After purchasing

twelve one-dollar

lottery tickets, he hit the jackpot, winning a

grand total of $26 million. Under then-existing New York State

Lottery (“NYSL”) rul

es, Jombo did not get his entire winnings

in 1989. Instead, he received the right to approximately $1.2

million per year for twenty years. Although Jombo had several

offers to purchase the rights to his future l ottery payments, he

declined to sell. See Jombo v. CIR

, 84 T.C.M. (CCH) 496, 497

(2002).

Nineteen eighty-nine was a significant year for Jombo in

another respect. After winning the lottery, he acquired U.S.

permanent resident status, whi c h he maintained at least through

1996.

A cash-accountin g-method taxpayer in 1989, Jombo

included the annual lott

ery payments as gross income in his

1989 and 1990 federal income tax returns. Nothing in the record

indicates how Jombo handled his annual payments for the next

few years, but in 1996—the year at issue here—he refused to

i nclude the annual payment in his tax return, explaining in an

enclosed statement,

Prior audits have denied Mr. Jombo gamblin g losses against

his lottery winnings under Reg. 1.165-10. The Internal

Revenue Service Agent in charge o f 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 were3

considered to have taken place in 1989, his diplomatic

status would exe mpt his lottery winnings from income

taxation. Mr. Jombo should not have to pick up gambling

winnings from the twenty-y ear payout as taxable income,

because he won the lottery in 1989 when he had diplomatic

status.

Id. Unpersuaded, the Commissioner notified Jombo of an

income tax deficiency in the amoun t of $503,105 and assessed

an inaccuracy penalty of $100,621.

Jombo timely challenged the deficiency n otice, and the Tax

Court, follo wing a trial, found that the Commissioner had

correctly calculated the deficiency. See id. a t 501; see also

Jombo v. CIR , No. 16627-99 (U.S. Tax Ct. July 2, 2003). The

court held t

hat because Jombo had no right to receive the full

$26 million in 1989, he had not constructively received the

entire amount in that year. See Jombo , 84 T.C.M. (CCH) at 498-

99. Jombo therefore owed taxes on the $1.2 million 1996

payment. S e e id. at 498. Rejecting Jombo’s corollary argument

that his 1989 diplomatic status removed his winnings f rom the

Commissioner’s reach, the court foun d that neither international

treaties nor the U.S. tax code provided such an exemption for

g ross income derived from lottery payments. S ee id. at 499.

The court also rejected Jombo’s argument that the 1996 payment

qualified as an annuity and was therefore properly e xcluded

from his gross income. See id. at 499-500 . Finally, the Tax

Court held that Jombo owed taxes due to an unsu bstantiated net

operating loss he had attempted to carry forward. See id. at 500.

Finding that Jombo had reasonably believed that the 1996

lottery payment was nontaxable, the court reduced the

in accuracy penalty to correspond solely to the claimed net

operating loss. See id.

Jombo appealed to the Fourth Ci rcuit, which transferred the

case here. Venue is proper in this Circuit because Jombo’s legal

residence i

s now outside the United States—the United4

Kingdom, according to t

he record. S ee 26 U.S.C. § 7482(b).

Appearing pro se, Jom

bo raises only one issue: whether he had

to pay taxes on the installment payment received in 1996.

II.

We review questions of law decided by the Tax Court de

novo. A ndantech, LLC v. CIR

, 331 F.3d 972, 976 (D.C. Cir.

2003). We review for clear error the Tax Court’s findings of

fact and its disposition of mixed questions of law and fact. I d.

Before turning

to the merits of Jombo’s appeal, we must

consider his claim that the Commissioner improper ly imposed

the burden of proof

on him. In support, he cites Internal

Revenue Code section 7491, which shifts the burden of pr oof to

the government after a taxpayer pr e sents “credible evidence”

with respect to any factual is sue pertaining to the taxpayer’s

liability. That provision, however, applies only in “court

proceedings arising in connection with examinations

commencing after [July 22, 1998].” Internal Revenue Service

Restructuring and R

eform Act of 1998 § 3001(c), Pub. L. No.

105-206, 11 2 Stat. 685, 727 (1998). The Tax Court found that

“[a]bsent any contrary evidence,” the Commissioner’s May 7,

1998 letter informing Jombo t hat his 1996 return was under

examination provided “the date respondent’s exam ination of

p etitioner’s 1996 tax year began,” and that because that le tter

was sent over two months before section 7491’s July 22

effective date, the burden of proof remained on the taxpayer.

Jombo , 84 T.C.M. (CCH) at 498.

Reviewing for clear error, we find none. Although Jombo

insists that the May 7 letter did not commence the examination,

he sug gested no alternative date to the Tax Court, nor does he

offer one here. Absent evidence of an alternative start date, we

have no basis for questioning the Tax Court’s conclusion that

section 7491 is inapplicable to this case and that the burden of

proof therefore remains on Jombo.5

In support of hi

s claim that the $1.2 million he received in

1996 did not represent gross income, Jombo argues that he

“constructively re c eived” the entire jackpot in 1989, the year he

won the lottery. In his view, the entire $26 million constituted

income in 1989 when, according to Jombo, his diplomatic status

insulated him from taxation, at least at the U.S. re sident rate. If

Jombo is right, moreover, the Commissioner can no longer

pursue a deficiency from 1989 because the statute of limitations

has run, see 26 U.S.C. § 6 5 01(a). Rejecting Jombo’s argument,

the Tax Court found constructive receipt inapplicable because

Jombo lacked an “unqualified, vested right to receive immediate

payment” in 1989. J

omb o , 84 T.C.M. (CCH) at 498 (citing

Childs v. Commissioner

, 103 T.C. 634, 654 (1994), aff’d without

published opinion , 89 F.3d 856 (11th Cir. 1996)).

This ca se provides the first opportunity for us to examine

the tax doctrine of constructive receipt. As Jombo notes, it is

“near impossible to find appropriate decided cases” addres sing

constructive receipt in the co ntext of lottery winnings.

Appellant’s Br. at 9. Fortunately, the applicable regulations are

directly on point. For cash-accounting-method taxpayers, like

Jombo, “all items which constitute gross income . . . are to be

included for the taxable year in which actually or c onstructively

received.” 26 C.F.R. § 1.446-1(c)(1)(I). “Gross income”

includes lotter

y winnings, s ee United States v. Maginnis

, 356

F.3d 1179, 1183 (9th Cir. 2004) (“Lottery prizes are treated by

the tax code as gambling winnings, whi ch are taxed as ordinary

income.”)—do ubtless an application of the canon n ulli est

homini perpetuom bonum

, or “no man has pe rpetual good

fortune,” see Tit

us Maccius Plautus, C urculio act 1, sc. 3.

According to the constructive receipt regulation:

[i]ncome although not actually redu ced to a taxpayer’s

possession is constructively received by him in the taxable

year during which i

t is credited to his account, set apart for

him, or otherwise made available so that he may draw upon6

it at any time, or so that he could ha ve drawn upon it during

the taxable year if notice of intention to withdraw had been

given. However, income is not constructively received if

the taxpayer’s co ntrol of its receipt is subject to substantial

limitations or restrictions.

26 C.F.R. § 1.451-2(a). The regulation provides an example: “if

a corporation credits its employees with bonus stock, but the

stock is not available to such employees until some future date,

the mere crediting on the books of the corporation does not

constitute receipt.” Id.

W e find no error, much less clear error, in the T ax Court’s

rejection of Jombo’s constructive receipt argument. See

Andantech

, 331 F.3d at 976; see also Baxter v. CIR

, 816 F.2d

493, 494 (9th Cir. 1987) (applying clear error review to the Tax

Court’s application of the constructive receipt doctrine); B yrne

v. CIR

, 449 F.2d 759, 760 (8th Cir. 1971) (same). Despite

Jombo’s assertions that NYSL winners receive the legal r i ght to

the total sum once lottery officials acknowledge and validate

their winnings and the winners sign the certificate of termpayment, no thing in the record even suggests that Jombo could

have obtained the entire $26 million other than through annual

p ayments. Indeed, Jombo conceded as much before the Tax

Court. Tr. of 10/22/01 Hr’g at 12 (“Today you have an option

to get a lump sum . . . . In that year, 1989, of course there was no

plan like that.”). Because Jombo could not “draw upon [the

entir e jackpot] at any time,” 26 C.F.R. § 1.451-2(a), his control

of the lottery winnings was “subject to substantial limitations

and restrictions,” id. As in the regulation’s example, the NYSL

credited J ombo with the entire $26 million, but because the full

amount was “not available . . . until some future date,” the “mere

crediting on the books [did] not constitute receipt.” Id.

Jombo claims that the NYSL would have permitted the sale

of his rights to future payments and that thi s demonstrates his

unfettered acce ss to the full $26 million. Even assuming that the7

NYSL would have allowed such a sale—a proposition for which

Jombo provides no support—the mere availability of the

transaction would have left unchanged the “substantial

l imitations and restrictions” on Jombo’s ability to “draw upon

[the jackpot] at any time.” 26 C.F.R. § 1.451-2(a). We therefore

agree wi th the Tax Court that Jombo’s alleged ability to sell his

rights in 1989 does not mean Jombo constructively r eceived his

entire winnings in that y ear. As the Commissioner has

explained in a private let ter ruling on this issue, a “lottery

winner’s power to assign his or her rights to a lottery prize does

not accelerate the time in which the Lottery is required to make

prize payments. Accordingly, a lottery winner is not taxable on

the value of an a nnuitized prize in the year it is won under the

doctr ine of constructive receipt.” Priv. Ltr. Rul. 200031031

(Aug. 4, 2000). Though letter rulings are not binding, I nv. Annuity, Inc. v. Blumenthal

, 609 F.2d 1, 7 (D.C. Cir. 1979), we

think the Commissioner’s position makes eminent sense.

Given our conclusion that the annual payment was taxable

in 1996, we have no nee d to address the parties’ arguments

about Jombo’s 1989 tax status as a consular employee. We also

agree with the C ommissioner that Jombo’s physical absence

from the United States in 1996 is irrelevant to the determination

of his gross income, for, as he stipulated in the Tax Court,

Jombo maintained his status as a U.S. permanent re sident during

that year. “[A]ll resident alien individuals are liable to the

income taxes imposed by the Code whether t h e income is

received from sources within or without th e United States,” 26

C.F.R. § 1.1-1(b), and individuals qualify as resident aliens if

their permanent residency status has not be e n revoked,

rega rdless of their absence from or presence in the United States

during a given year. 26 U.S.C. § 7701(b)(1)(A)(I), (b)(6).

Hedging his bets, Jombo makes an alternative argument.

Assumin g the 1996 payment represented income in that year, he

contends, the Tax Court erroneously held that his inve stment in8

the annui tized lottery payments was “at most $1.” See Jombo

, 84 T.C.M. (CCH) at 500. In support of this argument, Jombo

tells us— again without citation—that the NYSL invested $12

mill ion in 1989 to yield twenty $1.2 million annual payments.

According to Jombo, the Code’s exclusion from gross income

of investments in annuities, s ee 26 U.S.C. § 72(b)(1), t hus

entitles him to exclude a “much greater” portion of the annual

payment, Appellant’s Br. at 18.

Like the Tax Court, we will assum e without deciding that

the NYSL’s 1996 disbursement to Jombo constituted an annuity

governed by I. R.C. section 72. That section defines an

“investment in [an annuity] contract” for purposes of

determining the e xcludable amount of an annuity as “(A) the

aggregate amount of premi ums or other c onsideration paid for

the contra ct, minus (B) the aggregate amount received under the

contract before such date, to the extent that such amount was

excludable from gross income under t his subtitle or prior income

tax laws.” 26 U.S.C. § 72(c)(1) (emphasis added). Yet neither

the Code nor the applicable regulation, with the exception of the

provisions governing certain employer-funded pension plans,

specifie s who pays the consideration. S ee generally 26 C.F.R.

§ 1.72. The Third Circuit has interpreted “consideration paid”

as the amo unt paid by the t axpayer

, not the total amount

i n vested in the annuity. K ute v. United States, 191 F.3d 371,

375 (3d Cir. 1999) (stating that “in general gross income

includes any amount received as an ann uity, but I.R.C. § 72(b)

excludes amoun

ts attributable to the t axpayer's investment in the

contract” (emphasis added)). A greeing with the Third Circui t’s

sensible approac h, we uphold the Tax Court’s determination that

Jombo’s excludable investment was $ 1—the amount he paid for

the winning ticket.9

For all of these reasons, we a gree with the Tax Court that

the United Sta tes may continue sharing in the fruits of Jombo’s

good fortune. The Tax Court’s finding of a $503,105 deficiency

for the 1996 tax year is affirmed.

So ordered.