Clyde and Susie love to gamble. They travel to Las Vegas from their home in Jacksonville Florida, at least four times a year and rarely leave the casinos once they arrive. When not in Las Vegas, Clyde and Susie regularly play the Florida ACC 430 Tax Research Cases Spring 2016 Page 3 of 6 Lottery. In fact, in 2011, they hit the jackpot, winning $5 million payable in twenty annual installments of $250,000. Clyde and Susie collected the first annual installment in 2011 and received three more installments in 2012, 2013 and 2014, totaling $1 million before taxes. In 2015, Clyde read about a company that purchases rights to future income streams, including lottery payouts, for a discounted amount payable currently. In 2015, Clyde and Susie decided to assign their right to the remaining 16 lottery installments ($4 million) for a discounted lump-sum payment of $2,250,000.

Sorry for the delay in replying. There a couple things here we can work with but some of this goes well beyond the case facts as given and has little to do with taxes. First, let's focus on the federal (US - IRC) taxation of the stream of lottery payments they were receiving. Before you can try to answer Q1, you need to know what their tax position was at the beginning. Once you understand where they were, then you can consider if or how that changed once they sold the rights to the income stream for a lump-sum (note they sold the rights, they did not purchase the rights - big difference). So I would make the basic stuff your actual Q1 and a modified version of your Q1 as your actual Q2. That new Q2 will be the biggest part of your memo. Regarding Florida taxation, you are correct that it has no personal income tax. All you would need to do is provide a citation supporting that lack of an income tax and you will be fine. Do not get into speculation about how the law might change or if they might move, etc. Presumably all the other investment-related stuff was considered before they decided to sell the rights to the income stream so as those are not tax issues, you should not be looking at those now.

I need to do a case according to the information. Anyone can give me some advice?