52
Tax law is concerned with the substance, here the voluntary
passing of “property” rights allegedly constituting “capital
assets,” not with whether they are passed to a stranger or to
a person already having a larger “estate.” So we turn to an
analysis of what rights Ferrer conveyed. [Id. at 131.]
Judge Friendly then engaged in an examination of the nature of
the various rights in issue in that case. He believed that the
principal distinction between a termination of contract rights
that gives rise to capital gain and a termination that does not
is the existence of an “equitable interest” in the holder of the
rights being terminated, which interest is evidenced by the
availability of equitable relief in the enforcement of the
contract rights. Id. at 131-134.2 It is, thus, insufficient for
the majority to consider all of the partnership's straddle
investments, each straddle transaction, or even each forward
contract and to pronounce baldly that the partnership “received
exactly what it contracted for.” Majority op. p. 25. Nor is it
sufficient to rely on the parties' stipulation that the forward
contracts in issue constitute capital assets. What is required
is a careful consideration of the partnership’s property
interests in the subject matter of the contracts in question, in
light of Congress’ admittedly indistinct purpose in providing for
2 That understanding of Judge Friendly’s analysis has been
stated by two commentators: Marvin A. Chirelstein, Capital Gain
and the Sale of a Business Opportunity: The Income Tax Treatment
of Contract Termination Payments, 49 Minn. L. Rev. 1, 20-23
(1964); James S. Eustice, Contract Rights, Capital Gain, and
Assignment of Income--the Ferrer Case, 20 Tax L. Rev. 1, 7-9
(1964).
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