Amy is a tenured university professor at the University of Pennsylvania. She has

Question

Amy is a tenured university professor at the University of Pennsylvania. She has been dissatisfied with her job for many years and lately has been complaining and causing trouble for the other faculty. The university has recently offered to pay $300,000 to Amy if she will relinquish her tenure position and resign. Amy is of the opinion that the tenure is an intangible capital asset and the $300,000 received for release of the tenure should be a long-term capital asset and the $ 300,000 received for release of the tenure should be a long-term capital again. Identify the issues of this transaction, explain why you agree or disagree with Amy’s opinion regarding the tenure of her income , and provide support from relevant code sections, regulation and court cases.

Explanation / Answer

I disagree with Amy's opinion as she is of the opinion that having tenure is an intangible assets.So she treats the amount offered as long term assets.

According to Harry M Flower and Estelle Goldman. According to principle of law which says 'the consideration which is received for the transfer of contract right to receive income from personal services is taxable as ordinary income not long term capital gain. Amy delivers personal services in form of teaching which is a condition of her employment at the university, so the payments which are received from university is ordinary income. So $300000 received by Amy to relinquish her tenure should also be treated as ordinary Income.

So I disagree with Amy of treating $300000 as long term capital gain.As Amy tenure at the university is not an intangilble asset as it is based on her right to receive income from his personal services.As salary is ordinary income received from rendering personal services of teaching so the payment received to relinquish is also treated as ordinary income.

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