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the purchaser acquired nothing more than a right to receive a
portion of the royalties for a limited time. The Supreme Court
noted that the amount received for the transfer was virtually
equivalent to the amount of royalty income that otherwise would
have been received. The Supreme Court concluded that the only
right the taxpayer sold was the right to receive ordinary income
and held that the royalty right did not constitute a capital
asset. The Supreme Court noted as follows:
The substance of what was assigned was the right to
receive future income. The substance of what was
received was the present value of income which the
recipient would otherwise obtain in the future. In
short, consideration was paid for the right to receive
future income, not for an increase in the value of the
income-producing property. [Id. at 266.]
Subsequent decisions have attempted to clarify the holding
of the Supreme Court in P.G. Lake, Inc. With respect to the
broad proposition that amounts received for the transfer of a
right to receive future income will not qualify for capital gain
treatment, the Court of Appeals for the Fifth Circuit in United
States v. Dresser Indus., Inc., 324 F.2d 56 (5th Cir. 1963),
explained--
As a legal or economic position, this cannot be so.
The only commercial value of any property is the
present worth of future earnings or usefulness. If the
expectation of earnings of stock rises, the market
value of the stock may rise; at least a part of this
increase in price is attributable to the expectation of
increased income. The value of a vending machine, as
metal and plastic, is almost nil; its value arises from
the fact that it will produce income. [Id. at 59.]
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