Facts .Sam Sullivan won the Arkansas lottery which is payable in 20 annual installments of $100000 each.

Facts.Sam Sullivan won the Arkansas lottery which is payable in 20 annual installments of $100000 each. Four years later Sam's various businesses ventures provided to be unsuccessful and he was faced with a prospect of losing dis personal residence to foreclosure. While surfing the Internet he found a company that purchases lottery annuities for 60% of their face value. Sam contacted the firm and ready to "sign up" to receive a cash payment of $960000 ($100000*16*60%). However, he is unsure of the tax treatment of receiving a lump sum payment in exchange for his annuity. His Uncle Louie has recommended that Sam take the lump sum payment since by "selling" his annuity he would be entitled to long term capital gain treatment resulting in the proceeds been taxed at 15 percent. 

Required. I need to make a memo to Sam outlining the proper tax treatment of the sale of the future lottery sale.