Opinion ID: 77887
Heading Depth: 3
Heading Rank: 2

Heading: Debt Instruments

Text: Finally, we are unpersuaded by Taxpayers' argument that Lottery Rights are debt instruments under 26 U.S.C. § 1275. That section defines debt instrument as a bond, debenture, note, or certificate or other evidence of indebtedness. 26 U.S.C. § 1275(a)(1)(A). Taxpayers argue that Lottery Rights are property, and therefore capital assets, because they are evidence of indebtedness. [10] In confronting the same argument, the Maginnis court cited Deputy v. du Pont, 308 U.S. 488, 498, 60 S.Ct. 363, 368, 84 L.Ed. 416 (1940), in which the Supreme Court stated that `interest on indebtedness' means compensation for the use or forbearance of money. Maginnis, 356 F.3d at 1187. For example, an individual borrowing money from a bank pays interest to the bank in exchange for having access to the bank's money up front. The Maginnis court stated that a lottery winner receive[s] his right to payments from the state . . . as a prize, not as any compensation for the use or forbearance of money, and therefore the lottery right d[oes] not constitute evidence of an indebtedness from [the state] to [the lottery winner]. Id. We agree. That Lottery Rights are traded in the financial marketplace is irrelevant to an asset's characterization under Section 1275. In determining whether Lottery Rights are evidence of indebtedness, we look to the party allegedly indebted, here the state of Florida. Florida incurred no debt when it undertook the obligation to make prize payments to lottery winners. The lottery winners won a game of chance, for which they were awarded a certain amount of money to be paid annually. They lent no money to Florida, and made no promise to Florida to use money, or to refrain from using money. Lottery Rights are thus not evidence of Florida's indebtedness to Taxpayers, nor debt instruments under Section 1275.