McAllister v. Commissioner

Ms. McAllister (plaintiff) inherited a life-estate interest in a trust entitling her to lifetime payments, and later accepted $55,000 from the trust remainderman in exchange for releasing that interest and consenting to court-ordered termination of the trust. McAllister claimed a capital loss reflecting the gap between the $55,000 and the computed value of her life estate, but the Commissioner of Internal Revenue (defendant) treated the $55,000 as an advance payment of future trust income taxable as ordinary income, and also disputed her valuation of the life estate. The tax court ruled for the Commissioner, and McAllister appealed.