                         T.C. Memo. 2002-273



                      UNITED STATES TAX COURT



                AUGUSTIN B. JOMBO, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16627-99.              Filed October 29, 2002.



     Augustin B. Jombo, pro se.

     C. Ted Li, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:   Respondent determined a deficiency in

petitioner’s 1996 Federal income tax of $503,105 and an accuracy-

related penalty under section 6662 of $100,621.

     Petitioner worked for the Consulate General of Nigeria in

New York City in 1989.   In that year, he won about $26 million in

the New York State Lottery (NYSL).   The winnings were payable in
                                 - 2 -

20 equal annual installments beginning in 1989.      In 1996,

petitioner received $1,238,100 as lottery winnings, and he no

longer worked for the Nigerian Consulate General.      He disclosed

his lottery winnings on his 1996 income tax return and claimed

that the winnings were not taxable in 1996 because, inter alia,

he was employed by the Consulate General of Nigeria when he won

the lottery.     Following a concession by petitioner, the issues

for decision are:

       1.   Whether petitioner bears the burden of proof.   We hold

that he does.

       2.   Whether petitioner constructively received all of his

lottery winnings in 1989.     We hold that he did not.

       3.   Whether petitioner may exclude the lottery winnings he

received in 1996 because he was employed by the Consulate General

of Nigeria in 1989 when he won the lottery.     We hold that he may

not.

       4.   Whether petitioner had a $4,237 net operating loss

carried over to 1996.     We hold that he did not.

       5.   Whether petitioner is liable for the accuracy-related

penalty under section 6662 for 1996.     We hold that he is not to

the extent described below.

       Unless otherwise provided, section references are to the

Internal Revenue Code in effect for the applicable years, and
                                - 3 -

Rule references are to the Tax Court Rules of Practice and

Procedure.

                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

     Petitioner resided in the United Kingdom when he filed his

petition.    He has a master’s degree in business administration.

     Petitioner began working as a clerk for the Consulate

General of Nigeria in New York City in 1987.     In 1989, petitioner

bought 12 NYSL tickets for $1 each.     On January 4, 1989,

petitioner won about $26 million from the NYSL, payable in 20

equal annual installments beginning in 1989.     The NYSL did not

offer petitioner the option of receiving a lump-sum payment in

1989.   Petitioner was employed by the Consulate General of

Nigeria when he won the lottery.    He used the cash method of

accounting in 1989.

     Petitioner received two or three offers to buy the rights to

his future lottery winnings for about 50 cents on the dollar.       He

did not sell his rights.

     Petitioner acquired permanent U.S. resident status on

November 24, 1989, and he maintained that status in 1996.     The

NYSL paid petitioner $1,238,100 in 1996.

     On a Form 8275, Disclosure Statement, attached to his 1996

return, petitioner reported that he received $1,238,100 from the

NYSL, and said:
                                 - 4 -

     Augustin B. Jombo had diplomatic status when he won the
     New York Lottery in 1989. His winnings are being paid
     out over a twenty-year period. Prior audits have
     denied Mr. Jombo gambling losses against his lottery
     winnings under Reg. 1.165-10. The Internal Revenue
     Service Agent in charge of the audit ruled that Mr.
     Jombo was considered to have won the lottery in 1989,
     which is the only year he is considered to have
     “gambling winnings.” Therefore, since all his gambling
     winnings were considered to have taken place in 1989,
     his diplomatic status would exempt his lottery winnings
     from income taxation. Mr. Jombo should not have to
     pick up gambling winnings from the twenty-year payout
     as taxable income, because he won the lottery in 1989
     when he had diplomatic status.

     Petitioner claimed a $4,237 net operating loss (NOL) on his

1996 return.   In a separate statement attached to his 1996

return, petitioner identified the NOL as a “net operating loss

carryover”, but he did not state from which year or years he was

carrying the loss.   Respondent sent petitioner a letter dated May

7, 1998, informing him that his 1996 Federal income tax return

had been selected for examination.

                                OPINION

A.   Petitioner’s Contentions

     Petitioner contends that:    (1) Respondent bears the burden

of proof for all issues; (2) he is not liable for tax on his 1996

lottery payment because he constructively received all of his

lottery winnings in 1989 when he was a tax-exempt employee of the

Nigerian Consulate General; (3) his 1996 lottery winnings are a

nontaxable annuity; (4) he is entitled to a net operating loss

carryover deduction of $4,237 in 1996; and (5) he is not liable
                                 - 5 -

for the accuracy-related penalty under section 6662 because he

disclosed his lottery winnings on his 1996 return.

B.   Burden of Proof

     Petitioner contends that respondent bears the burden of

proving that the NYSL winnings petitioner received in 1996 are

taxable income.   We disagree.

     Under section 7491, the burden of proof is placed on the

Secretary under certain circumstances.    Section 7491 applies to

court proceedings arising in connection with examinations

beginning after July 22, 1998.    Internal Revenue Service

Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.

3001(a), 112 Stat. 726.   Respondent sent a letter to petitioner

dated May 7, 1998, informing him that his 1996 Federal income tax

return had been selected for examination.    Absent any contrary

evidence, we treat that date as the date respondent’s examination

of petitioner’s 1996 tax year began.     Thus, section 7491(a) does

not apply, and respondent’s determination is presumed to be

correct and petitioner bears the burden of proof on all issues in

this case.   Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115

(1933).

C.   Whether Petitioner Constructively Received All of His
     Lottery Winnings in 1989

     Petitioner contends that the NYSL amounts that he received

in 1996 are not taxable in 1996 because he constructively

received all of his lottery winnings in 1989.    Petitioner points
                               - 6 -

out that he had the opportunity to sell his future winnings, but

he decided not to do so.   He contends that he constructively

received payment of all of his lottery winnings in 1989 because

he had an unqualified vested right to sell his future lottery

payments in 1989.   We disagree for reasons stated next.

     1.   Whether Petitioner Constructively Received All of His
          Lottery Winnings in 1989

     A cash method taxpayer generally recognizes an item of gross

income when it is actually or constructively received.     Secs.

1.446-1(c)(1)(i), 1.451-2(a), Income Tax Regs.    A cash method

taxpayer constructively receives funds if the taxpayer has an

unqualified, vested right to receive immediate payment.     Childs

v. Commissioner, 103 T.C. 634, 654 (1994), affd. without

published opinion 89 F.3d 856 (11th Cir. 1996); Martin v.

Commissioner, 96 T.C. 814, 823 (1991); Jerome Castree Interiors,

Inc. v. Commissioner, 64 T.C. 564, 568 (1975), affd. without

published opinion 539 F.2d 714 (7th Cir. 1976).

     The NYSL did not offer to pay petitioner all of his lottery

winnings in 1989.   Thus, petitioner did not constructively

receive all of his NYSL lottery winnings from the NYSL in 1989.

     2.   Whether Petitioner Constructively Received Winnings
          Because He Could Have Sold the Right To Receive Future
          Lottery Payments in 1989

     Petitioner contends that he constructively received all of

his lottery winnings in 1989 because he could have sold the right

to receive his future lottery payments at a 50-percent discount
                                - 7 -

in 1989.   We disagree.   A taxpayer constructively receives income

when he has an unqualified, vested right to receive immediate

payment.   Childs v. Commissioner, supra; Martin v. Commissioner,

supra.   Petitioner did not accept an offer to buy the right to

receive his future lottery winnings.     An unaccepted offer to buy

a future income stream gives a taxpayer no right to the proceeds

from a sale of that income stream.      Accordingly, petitioner did

not constructively receive all of his lottery winnings in 1989.

     Petitioner contends in his opening brief that Cowden v.

Commissioner, T.C. Memo. 1961-229, and Sainte Claire Corp. v.

Commissioner, T.C. Memo. 1997-171, affd. without published

opinion sub nom. Boccardo v. Commissioner, 164 F.3d 629 (9th Cir.

1998), support his contention that he constructively received all

of the lottery winnings in 1989 when he received offers to buy

the future lottery payments.   We disagree.    In Cowden, the Court

held that the contract right to deferred bonus payments under an

oil and gas lease was the equivalent of cash and thus taxable as

if cash had been received by the taxpayer because the obligation

of the payor was an unconditional and assignable promise to pay

by a solvent obligor, was of a kind that was frequently

transferred to lenders or investors at a discount not

substantially greater than the generally prevailing premium for

the use of money, and was readily convertible to cash.      Cowden is

distinguishable because petitioner did not have the option to
                               - 8 -

receive a lump-sum payment from the NYSL or an enforceable

promise to pay a lump sum.1

     The taxpayer in Sainte Claire Corp. v. Commissioner, supra,

owned a promissory note that was due on November 1, 1988.    On

November 1, 1988, the taxpayer corporation and the borrower

negotiated an extension of the note to April 1, 1990.   We held

that the taxpayer corporation constructively received the

principal owed on the promissory note when it became due on

November 1, 1988, because, on that date, the taxpayer had an

unrestricted right to receive the income, the taxpayer was able

to collect it, and the failure to receive it was due to the

taxpayer’s own choice.   Sainte Claire Corp. is distinguishable

from this case because petitioner never had the right to receive

the 1996 lottery installment in 1989.

     We conclude that petitioner did not constructively receive

his 1996 payment from the NYSL in 1989 and that the 1996 NYSL

payment is taxable in 1996.




     1
        Petitioner conceded in his reply brief that Cowden v.
Commissioner, T.C. Memo. 1961-229, and the cash equivalency and
economic benefit doctrines do not support his contention that he
received all of the lottery winnings in 1989.
                                - 9 -

D.   Whether Petitioner May Exclude His NYSL Winnings Because He
     Was an Employee of the Nigerian Consulate General

     1.   The Vienna Convention on Diplomatic Relations of 1961
          and the Vienna Convention on Consular Relations of 1963

     Petitioner contends that he may exclude $1,238,100 that he

received from the NYSL in 1996 under either the Vienna Convention

on Diplomatic Relations, April 18, 1961, 23 U.S.T. 3227,2 or the

Vienna Convention on Consular Relations, April 24, 1963, 21

U.S.T. 77.3   We disagree.   Article 34 of the Vienna Convention on

Diplomatic Relations (article 34), supra, provides that

diplomatic agents are exempt from all dues and taxes, except:

          (d) dues and taxes on private income having its
     source in the receiving State and capital taxes on
     investments made in commercial undertakings in the
     receiving State;

Similarly, article 49(d) of the Vienna Convention on Consular

Relations (article 49), 21 U.S.T. at 108, provides that consular

officers and employees are exempt from all dues and taxes,

except:




     2
        This was ratified by the U.S. Senate, Sept. 14, 1965;
ratification deposited, Nov. 13, 1972; entered into force for the
United States, Dec. 13, 1972, adopted by the Diplomatic Relations
Act of 1978, Pub. L. 95-393, 92 Stat. 808, currently codified at
22 U.S.C. sec. 254a (2000).
     3
        This was ratified by the U.S. Senate, Oct. 22, 1969;
ratification deposited, Nov. 24, 1969; entered into force for the
United States, Dec. 24, 1969.
                              - 10 -

          (d) dues and taxes on private income, including
     capital gains, having its source in the receiving State
     and capital taxes relating to investments made in
     commercial or financial undertakings in the receiving
     State;

Petitioner’s lottery payment in 1996 was private income having

its source in the United States.   Thus, that payment is not

exempt from tax under either article 34 or article 49.

     Petitioner contends that the 1996 NYSL payment is tax exempt

under article 32 of the Vienna Convention on Consular Relations

(article 32), 21 U.S.T. at 98.   Article 32 states:

     Exemption From Taxation of Consular Premises

     1. Consular premises and the residence of the career
     head of consular post of which the sending State or any
     person acting on its behalf is the owner or lessee
     shall be exempt from all national, regional or
     municipal dues and taxes whatsoever, other than such as
     represent payment for specific services rendered.

     2. The exemption from taxation referred to in
     paragraph 1 of this Article shall not apply to such
     dues and taxes if, under the law of the receiving
     State, they are payable by the person who contracted
     with the sending State or with the person acting on its
     behalf.

We disagree.   Article 32 applies only to taxes imposed on

consular premises and on the residence of the career head of the

consular post.   Thus, the $1,238,100 that petitioner received

from the NYSL in 1996 is not excluded from income by the Vienna

Conventions.
                                - 11 -

     2.      Section 893

     Petitioner contends that the $1,238,100 that he received

from NYSL in 1996 is exempt from tax under section 893(a)4

because he was an employee of a foreign government.     We disagree.

     Salaries and wages received by an employee as compensation

for official services to a foreign government or international

organization are exempt from tax.    Sec. 893(a).   However, income

received by employees of a foreign government or international

organization from sources other than their salary, fees, or wages

is subject to Federal income tax.    Sec. 1.893-1(a)(3), Income Tax

Regs.     Thus, petitioner’s lottery winnings are not exempt from

tax under section 893(a).




     4
          Sec. 893(a) provides in part:

SEC. 893. COMPENSATION OF EMPLOYEES OF FOREIGN GOVERNMENTS OR
          INTERNATIONAL ORGANIZATIONS.--

     (a) Rule for Exclusion.--Wages, fees, or salary of any
employee of a foreign government or of an international
organization (including a consular or other officer, or a
nondiplomatic representative), received as compensation for
official services to such government or international
organization shall not be included in gross income and shall be
exempt from taxation under this subtitle if-- * * *
                                - 12 -

E.   Whether Petitioner’s 1996 NYSL Payment Is Excluded From
     Gross Income as an Annuity Under Section 72(b)(1)

     Petitioner contends that he may exclude the 1996 NYSL

payment from income as an annuity under section 72(b)(1).5

We disagree.

     Gross income generally includes any amount received as an

annuity.    Sec. 72(a).   However, amounts attributable to the

taxpayer’s investment in the annuity contract are excludable.

Sec. 72(b)(1).    Petitioner paid $1 for the winning lottery

ticket.    Thus, petitioner may exclude at most $1.     Id.   We

conclude that petitioner may not exclude the 1996 NYSL payment

from income under section 72(b)(1).

F.   Whether Petitioner Had a $4,237 Net Operating Loss Carryover
     for 1996

     Petitioner contends that he may carry over to 1996 a $4,237

net operating loss which resulted from investment losses from his

rental property in previous years.       We disagree.

     Petitioner reported in a statement attached to his 1996

return that he had a $4,237 net operating loss carryover.6         He


     5
          Sec. 72(b) provides in part:

     (1) In general.--Gross income does not include that part of
any amount received as an annuity under an annuity, endowment, or
life insurance contract which bears the same ratio to such amount
as the investment in the contract (as of the annuity starting
date) bears to the expected return under the contract (as of such
date).
     6
          A tax return is not evidence of the truth of the facts
                                                     (continued...)
                               - 13 -

did not identify on the return the year or years from which he

was carrying the loss to 1996.   On brief, petitioner contends

that he carried forward rental property losses from 1991 and

1992.    To carry forward or carry back net operating losses, the

taxpayer must prove the amount of the net operating loss

carryforward or carryback and that his or her gross income in

other years did not offset that loss.    Sec. 172(c); Jones v.

Commissioner, 25 T.C. 1100, 1104 (1956), revd. and remanded on

other grounds 259 F.2d 300 (5th Cir. 1958).   There is no evidence

in the record that petitioner had rental property losses or that

any losses exceeded his large amount of gross income from 1991

through 1996.

     Petitioner testified that his net operating loss claim

related to a $2 million stock options loss in 2001.   He did not

explain how he knew in 1998, when he filed his 1997 return, that

he would have a $2 million stock options loss in 2001.   We

conclude that petitioner may not carry over any losses to 1996.




     6
      (...continued)
stated in it. Lawinger v. Commissioner, 103 T.C. 428, 438
(1994); Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979);
Roberts v. Commissioner, 62 T.C. 834, 837 (1974).
                               - 14 -

G.   Whether Petitioner Is Liable for the Accuracy-Related
     Penalty Under Section 6662

     1.   Adequate Disclosure and Reasonable Basis

     Petitioner contends that he is not liable for the accuracy-

related penalty under section 6662 for negligence and substantial

understatement of income tax because he adequately disclosed his

positions relating to the lottery winnings and net operating loss

on a statement attached to his return and had a reasonable basis

for those positions.    Sec. 6662(d)(2)(B)(ii); sec. 1.6662-3(c),

Income Tax Regs.    We agree to the extent described below.

     Taxpayers are liable for a penalty under section 6662 equal

to 20 percent of the part of the underpayment attributable to

negligence or disregard of rules or regulations or to any

substantial understatement of income tax.    Sec. 6662(a) and

(b)(1) and (2).    However, a taxpayer is not liable for the

accuracy-related penalty under section 6662(a) and (b)(1) if

(1) the taxpayer adequately discloses the relevant facts

affecting the item on his or her return or in a statement

attached to the taxpayer’s return and has a reasonable basis for

that treatment, or (2) there was reasonable cause for the

underpayment and the taxpayer acted in good faith.    Secs.

6662(d)(2)(B)(ii), 6664(c)(1); secs. 1.6662-3(c), 1.6664-4(a),

Income Tax Regs.
                              - 15 -

     We consider the facts and circumstances in deciding whether

the taxpayer acted with reasonable cause and in good faith.   Sec.

6664(c)(1); sec. 1.6664-4(b)(1), Income Tax Regs.   We

conclude that petitioner acted in good faith and was not

negligent in claiming that the 1996 lottery winnings were

nontaxable because, when he filed his 1996 return, petitioner

reasonably believed that the lottery winnings he received in 1996

were nontaxable.

     The taxpayer must disclose an item or a position on a return

on a Form 8275, Disclosure Statement, or a Form 8275-R,

Regulation Disclosure Statement, attached to the return (or a

qualified amended return).   Sec. 1.6662-3(c), Income Tax Regs.

Petitioner adequately disclosed on Form 8275 attached to his 1986

return the facts relevant to the lottery winnings, and he had a

reasonable basis for his position relating to those winnings.     In

contrast, petitioner did not disclose facts relating to, or have

a reasonable basis for, his treatment of the net operating loss

carryover.   We conclude that petitioner is not liable for the

accuracy-related penalty with respect to his lottery winnings but

is liable for that penalty with respect to his net operating loss

carryover.
                                - 16 -

     2.   Reliance on Professionals

     A taxpayer may be relieved of liability for the accuracy-

related penalty if he or she shows that there was reasonable

cause for the understatement and that the taxpayer acted in good

faith with respect to the understatement.    Sec. 6664(c); sec.

1.6664-4(a), Income Tax Regs.    Petitioner contends that he is not

liable for the accuracy-related penalty under section 6662

because he reasonably relied on the advice of tax professionals.

We disagree.   Petitioner did not name any professionals or say

what information he provided to them.    We conclude that

petitioner did not rely on the advice of tax professionals, and

that he is liable for the accuracy-related penalty under section

6662(a) for 1996.

     To reflect the foregoing,

                                               Decision will be

                                          entered for respondent.
