## Facts

- In 1991, Mildred Lopatkovich and Mary Susteric (with a third person) won an Ohio lottery jackpot payable only in installments; each winner was entitled to 26 annual payments of $256,410.26.
- The remaining installment rights were not assignable and could not be used as collateral.
- Susteric and Lopatkovich died in 2001, each with 15 annual payments remaining.
- Carol J. Negron, as executrix of both estates, elected under Ohio law to receive a lump-sum settlement of the remaining payments from the Ohio Lottery Commission.
- Each estate filed federal estate-tax returns reporting the lump-sum amounts actually received as the value of the remaining payment rights, based on Ohio’s lump-sum methodology (tied to interest rates at the time the prize was won).
- The IRS revalued each decedent’s right to the remaining payments using actuarial tables under I.R.C. § 7520 and Treasury regulations, which apply date-of-death interest rates, and assessed additional estate tax.
- Negron paid the assessment, sought refunds administratively, was denied, and filed a tax-refund action.
- The district court granted partial summary judgment for Negron, concluding the IRS tables overstated value for non-assignable lottery payments and permitting departure from the tables.
- The United States appealed.

## Issues

1. Whether federal estate-tax valuation of a decedent’s non-assignable right to future state-lottery installments must be determined using the actuarial tables mandated by I.R.C. § 7520 and Treasury regulations.
2. Whether non-assignability or lack of marketability, standing alone, permits a court to depart from the § 7520 tables in valuing the right to receive future payments.

## Decision

- The Sixth Circuit reversed the district court’s partial summary judgment and remanded.
- The court held that § 7520 and implementing regulations require use of the IRS actuarial tables to value the decedents’ rights to the remaining lottery payments for estate-tax purposes.
- The court rejected a departure based on alleged overvaluation from non-transferability and rejected reliance on Ohio’s lump-sum payout formula to set federal fair market value.
- Because no regulatory exception applied (such as terminal illness), the IRS’s table-based valuation controlled as a matter of law.

## Legal Principles

- Under I.R.C. §§ 2031 and 2033, a decedent’s gross estate includes the date-of-death value of property interests, measured by fair market value.
- I.R.C. § 7520 provides that the present value of covered annuity interests “shall” be determined using actuarial tables prescribed by the Secretary, incorporating the applicable federal rate; the directive is mandatory absent specified exceptions.
- Treasury regulations require use of the tables and recognize limited circumstances where the tables are inapplicable (e.g., terminal illness as defined by regulation).
- Non-assignability or lack of a secondary market does not, by itself, create an exception permitting a marketability discount or individualized valuation outside the § 7520 tables.
- State-law payout or discount formulas for converting installments to a lump sum do not displace federally prescribed valuation methods for estate-tax purposes, which focus on date-of-death valuation.

## Conclusion

The Sixth Circuit held that non-assignable lottery installment rights must be valued for federal estate-tax purposes using the mandatory § 7520 actuarial tables unless a specified regulatory exception applies, and it reversed a district court ruling that allowed deviation based on non-transferability and a state-law lump-sum measure.


Negron v. United States, 553 F.3d 1013 (6th Cir. 2009)