Question

Below are info on one of the firm's client. Your Senior Manager has asked you to draft an internal memo discussing the implications of the client. Make sure to discuss Issue, Conclusion, Analysis. The manager has also provided you with some sources to start your research for the client. Wilma, a famous lacrosse player, is considering the possibility of transferring the sole right to use her name to promote lacrosse shoes produced and sold by the LAX Corporation. LAX will pay $2 million to obtain the right to use Wilma’s name for the next 40 years. LAX may use the name on the shoes and as a part of any of the company’s advertisements for lacrosse shows. If Wilma signs the contract and receives the $2 million payment, will she have to recognize capital gain or ordinary income?

A partial list of sources is:

• § 1221

• Rev, Rul. 65-261, 1965-2 C.B. 281

Answer 1

:Internal Memo:

Issue:

The issue under consideration is whether amount received as a consideration of sale of name is recognised as capital gain or ordinary income?

Analysis :

The facts of the case are similar to the facts in Reid v. Commissioner wherein it was held that the sale of mere right to use and exploit one's name is not a sale of property which is a capital asset. This provision is also in accordance with § 1221 and Rev, Rul. 65-261, 1965-2 C.B. 281. Therefore, amount received as a consideration for using the name of a perticular person is not treated as sale of capital asset.

Conclusion:

Considering the above provision, Wilma will have to recognize the amount of $ 2 million as ordinary income.