BUS 585 Taxation Chapter 3

BUS585 Taxation Deadline: 6:00pm on 02/27/2011 Sunday Joyce Hew
Chap 3: Joanne wins a $15 million lottery payable over 30 years. From year 1 through year 4, she receives $500,000 annual payment. At the beginning of year 5, she sells her right to receive the remaining 26 payments for a lump sum of $8,900,000. How much does she include in income each year? Especially, does she report capital gain or loss for the sales of the remaining right? Why?
The following is Joanne’s income from lottery:
Year 1 2 3 4 5
Income from lottery $500,000.00 $500,000.00 $500,000.00 $500,000.00 $8,9000,000.00

She reports a capital loss for the sales of the remaining right. The remaining should be $13,000,000 but sold for $8,900,000; there is a loss of $4,100,000.
From year 1 to 4, she receives $500,000 each year, total is $500,000 x 4 = $2,000,000
(a) Joanne wins $15,000,000.00
(b) Total for 4 years $2,000,000.00
(c) Remaining should be (a) - (b) $13,000,000.00
(d) But Sold for $8,900,000.00
(e) Loss ( c) - (d) $4,100,000.00
==============================================================

http://www.youtube.com/watch?v=l5U-FSZEpfw