- 20 -
periodic receipts of income,” and where they included “equitable
interests” similar to those of an owner of property, they were to
be treated as capital assets.
The basic proposition of Commissioner v. P.G. Lake, Inc.,
supra at 265, is still viable. Where a taxpayer merely
“[substitutes] the right to receive ordinary income from one
source for the right to receive ordinary income from another
[source],” the rights transferred will not be considered a
capital asset. United States v. Dresser Indus., Inc., supra
at 59; see also Arkansas Best Corp. v. Commissioner, supra at 217
n.5.
To summarize, in determining whether a taxpayer's contract
rights that are transferred constitute capital assets, courts
generally consider all aspects of the taxpayer’s bundle of rights
and responsibilities that are transferred, specifically including
the following six factors:
(1) How the contract rights originated;
(2) How the contract rights were acquired;
(3) Whether the contract rights represented an equitable
interest in property which itself constituted a capital
asset;
(4) Whether the transfer of contract rights merely
substituted the source from which the taxpayer otherwise
would have received ordinary income;
(5) Whether significant investment risks were associated
with the contract rights and, if so, whether they were
included in the transfer; and
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011