Commissioner v. Ferrer

Ferrer (plaintiff) held stage-production rights, exclusion rights, and a share of movie proceeds under a contract with the novel's author, then sold all three rights to a movie producer in exchange for an acting salary plus a share of movie proceeds; he reported the salary as ordinary income and the participation payments as capital gain. The Commissioner (defendant) argued the participation payments were entirely ordinary income, the Tax Court ruled for Ferrer, and the Commissioner appealed.