## Facts

- Thomas J. Shackleford won a $10 million California Lotto prize in 1987, payable as 20 annual installments of $508,000.
- Shackleford died after receiving three installments, leaving 17 remaining payments.
- At the time, California law prohibited assignment of lottery payments and required remaining installments to be paid to the decedent’s estate under the annuity terms.
- For federal estate tax purposes, the IRS valued the remaining installments using Treasury annuity tables, calculating a present value of $4,023,903 and an estate tax liability of $1,543,397.
- The estate paid the assessed tax, later filed amended returns seeking a refund, and ultimately asserted the remaining payment stream had been overstated (arguing, in its final administrative claim, that it should be valued at zero due to restrictions).
- After the IRS denied the refund claim, the estate filed a refund suit in the Eastern District of California.

## Issues

1. Whether a state-law anti-assignment restriction on lottery payments can justify departing from Treasury present-value annuity tables when valuing the payments for federal estate tax purposes.
2. Whether the district court permissibly found that strict table valuation was substantially at variance with fair market value on these facts.
3. Whether the district court clearly erred in valuing the estate’s interest in the remaining lottery payments at $2,012,500.

## Decision

- The Ninth Circuit affirmed the judgment for the estate.
- The court held that, on these facts, California’s anti-assignment restriction justified departing from the Treasury annuity tables because the table result was substantially at variance with fair market value.
- The court upheld the district court’s valuation of $2,012,500, finding no clear error in the factfinding supporting the reduced value and corresponding refund.

## Legal Principles

- For federal estate tax, property is generally valued at fair market value as of the date of death: the price a willing buyer and willing seller would agree to with reasonable knowledge and no compulsion.
- Treasury valuation tables under I.R.C. § 7520 and implementing regulations are presumptively correct but may be disregarded when their use would produce a value substantially at variance with fair market value.
- A legal prohibition on transferability may materially depress fair market value by preventing any lawful arm’s-length market transaction assumed by standardized table valuation.
- A trial court’s valuation of property for tax purposes is a factual determination reviewed for clear error on appeal.

## Conclusion

Because the estate’s right to receive future lottery installments could not be assigned under state law, the standardized annuity-table valuation assumed a market transaction that could not occur and overstated fair market value; the Ninth Circuit therefore affirmed the district court’s departure from the tables and its lower valuation supporting a tax refund.


Shackleford v. United States, 262 F.3d 1028 (9th Cir. 2001)