Gladys and Myrtle had an agreement. They would split the cost of lottery tickets along with any winnings they might receive. When they won $17 million payable in 20 annual installments, they decided to form a limited partnership. In assigning the winning ticket to the partnership, they each received a 2% general partnership interest and a 48% limited partnership interest.

According to state law (Texas), neither Gladys nor Myrtle could transfer their winnings without a court order, and the installments could not be converted to a lump sum at any time. There was no market at the time for lottery payment installments

Gladys died suddenly in 1995, and her estate tax return reported her partnership interest with a value of $1,529,749 (based on a value of $4,575,000 for the total remaining lottery payments). But the IRS, using the annuity tables under §7520, determined that the remaining lottery payments had a date-of-death value of $8,557,850, and that the decedent’s interest was worth $3,222,919, after allowing discounts for lack of marketability and control.

The Tax Court agreed with the IRS that the annuity tables should be used to value the partnership’s right to receive a fixed stream of lottery payments. Judge Joel Gerber noted that the only difference between this case and Estate of Gribauskas v. Commissioner, 116 T.C. 142 (2001) is that the partnership, not an individual, owned the right to receive the payments.

Still, the use of a partnership did reduce the taxable value of the remaining lottery installments.