Taxation – Federal Income Tax – Proceeds from Cancellation of Contract Treated as Ordinary Income

Taxpayer had the exclusive right for a period of ten years to purchase all the coal mined by the operator of certain mines. In 1949 the operator paid taxpayer $500,000 as consideration for the complete acquisition of taxpayer’s right and interest in the purchase agreement. Taxpayer reported this sum as a long-term capital gain. The Commissioner claimed that the amount received was ordinary income. The Tax Court upheld taxpayer’s contention, indicating that the transaction had resulted in the sale or exchange of a capital asset. On appeal by the Commissioner, held, reversed, one justice dissenting. This transaction was more in the nature of an extinguishment of taxpayer’s right than of its sale or transfer. The amount received was thus ordinary income and not capital gain. Commissioner v. Pittston Co., (2d Cir. 1958) 252 -F. (2d) 344.